Strategic Management Final Presentation

Strategic Management Paper on

Submitted to: PROF. ELISEO AURELLADO MMSTRAMA M08

Submitted by: FRANCIS ROY C. PONIO MBA Candidate 24 June 2015

1

Executive Summary

4

I.

Introduction

6

II.

Research Design and Methodology

8

1. Research Design 2. Scope and Limitation III.

Vision and Mission Statement Analysis

9

IV.

External Analysis

12

1. Economic Performance and Forecast 2. Political and Government Aspects 3. Social Factors 4. Ecological/Technological Factors V.

Industry and Competitor Analysis

23

1. Industry and Market Profile 2. Porter’s Five Forces of Competitive Analysis 3. Competitive Profile Analysis 4. Competitive Business Analysis 5. External Factor Evaluation 6. Strategic Issues based on External Factors VI.

Internal Analysis

40

1. Management Review 2. McKinsey 7S Framework 3. Internal Factor Evaluation 4. Strategic Issues based on Internal Factors VII.

Strategy Formulation

57

1. SWOT Matrix 2. SPACE Matrix 3. Internal-External Matrix 4. GRAND Strategy Matrix 5. BCG Matrix 6. Summary of Strategies 7. Quantitative Strategic Planning Matrix

2

VIII.

Strategic Objectives and Recommended Strategies

74

1. Strategic Objectives 2. Recommended Business Strategies 3. Other Recommended Intuitive Strategies 4. Financial Projections IX.

Departmental Actions and Functional Strategies

92

1. Strategy Map 2. Departmental Actions and Functional Strategies X.

Strategy Evaluation and Performance Metrics

97

1. Balanced Scorecard 2. Contingency Planning XI.

References

102

XII.

Appendix

104

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EXECUTIVE SUMMARY

BSP and Company Inc. was incorporated and registered with the Securities and Exchange Commission in April 1993. With more than more than twenty (20) years in the construction industry, the Company has completed numerous general engineering and general building projects to the satisfaction of the Project Owners. The owner envisions:

The construction industry in the Philippines has been booming and helping boost the Philippine economy – one of Asia’s fastest growing in the past two years. The Philippine construction industry increased in value at a compound annual growth rate (CAGR) of 12.01% during the review period (2009−2013)1. This growth was supported by public investments in the infrastructure and residential markets, which are expected to be the main growth drivers over the forecast period (2014−2018)2. The overall responsiveness of BSPCI to its external environment is modest at a 2.45 EFE rating. This is due to lack of financial solvency and capitalization of the organization to take advantage of the emerging Public-Private-Partnership (PPP) trend for government projects and lack of experience and expertise in Vertical Construction Works to take advantage of the growing BPO sector and housing demand. Currently, BSPCI is ranked 46th among the locally-based contractors3, thus an opportunity exists for BSPCI to further improve its ranking given the relatively even market share among its primary competitors.

Internally, the organization’s strengths are providing the same quality of services that their clients require at a lower price owing to its more than adequate operational execution, experienced personnel, and strong management core. However, its IFE rating is only 2.40 due to low equipment utilization, which leads to higher variable costs, low solvency and high employee turnover rate. BSPCI can further improve its ranking by being able to establish more costreduction controls through an effective supply chain management system. The organization can _____________________ 1-2 3

http://www.researchmoz.us

EMIS Company Database

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also further improving its organizational depth through a better benefit package and an employee motivation/empowerment program that will reduce its high turnover rates. Market Penetration and Product (service) development strategies will be most appropriate strategy for the company to achieve its strategic objective to be a strong market follower. Market penetration strategies will be geared to take advantage of a robust construction market that hasn’t matured by (1) launching an integrated marketing communications plan (2) identifying key growth areas taking advantage of the company’s wide base of coverage and (3) strengthening key client relationships that would enhance the company’s reputation within the industry.

Service and Organizational Development includes (1) Expanding the company’s core competence to take advantage of the growing demands for non-horizontal works construction (2) Improve the company’s utilization of its more significant assets: its heavy equipment and (3) enhance internal organizational development through promoting employee motivation and empowerment.

Other Intuitive Strategies includes Horizontal Integration and Financing through investment activities to resolve solvency issues. Through these strategies, BSPCI’s vision to be one of the leaders in the construction industry in terms of market share will be realized with revenues reaching over Php 4B by 2020.

The recommended strategies, with proper coordination with the operations, technical and corporate affairs will not only maintain the existing high efficiency and quality of service but will also expand its competencies and coverage, taking advantage of the economic and industry growth. Increase in revenues, better cost control and financing cost will allow BSPCI’s net income to grow further to 190M this year to about 410M by 2020.

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I.

INTRODUCTION

BSP & COMPANY INC. was incorporated and registered with the Securities and Exchange Commission in April 1993. Initially, the Company ventured into equipment leasing and subsequently went into civil work contracts either as the main contractor or on some occasions, subcontractor to principal contractors. As a company that primarily engages in the construction industry, it is committed to deliver reliable and quality work while maintaining the principles of transparency and openness, conducting business with integrity and fairness, and aspiring to the highest standards of safety and health for its workers.

More than twenty-two (22) years later, the Company holds an “AAA” Contractor’s License, the highest category given to a local general contractor by the Philippine Contractors Accreditation Board. The Company is now also certified by international standards, holding an ISO 9001:2008 registration certificate. The company has completed a number of general engineering and general engineering projects that has garnered satisfaction from its clients and the project owners. BSPCI has achieved steady increased growth since 2004 and revenue peaked at 1.4B in 20134. The company has completed significant government projects with DPWH, DepED and NHA as well as establishing key business relationships with reputable clients such as Megaworld Inc., Empire East Holdings, SMDC, Energy Development Corporation and Greenfield Development among others. The success of the company can be attributed to its roster of professional engineers, skilled dedicated staff and management, complemented with a complete line of equipment owned solely by the company.

BSPCI’s construction services include, but not limited to, the following: •

Land Development & Site Development

•

Roads, Highway Pavements, Railways, Airports, Horizontal Structures & Bridges

•

Commercial, Residential Buildings & Industrial Plants

•

Irrigation & Flood Control

_____________________ 42013

Audited Financial Statements (see Appendix)

6

•

Dams, Reservoirs & Tunnelling

•

Ports, Harbors & Offshore Engineering

•

Sewage Treatment/Disposal Plants, Water Treatment Plants & Systems

•

Trucking, Hauling & Equipment Rental

•

Ready Mix Concrete

The company’s head office and Central Equipment Yard is located in Tunasan, Muntinlupa, with satellite offices established in Cebu, Iloilo and Cagayan de Oro and a secondary equipment yard in Tanauan. Ben-Azel S. Ponio is currently the president of BSPCI. The overall project operations is headed by the SVP-Operations, Orlando L. Dimatatac and the day to day head office operations is being overseen by its VP of Corporate Affairs, Ben-Azel C. Ponio, Jr. As of the end of March 2015, the company has around 120 probationary and permanent employees and over 1,000 project-based contractual employees.

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II.

RESEARCH DESIGN AND METHODOLOGY

2.1 Research Design Macro-economic data used in the external analysis was gathered from the websites of various government offices such as the Department of Public Works and Highways (DPWH) and the Public Private Partnership Office (PPP). These government offices also have projections on relative growth on infrastructure spending that was collaborated by projections from independent official dependent assistance agencies such as the Japan International Cooperation Agency (JICA). Industry data was gathered from the research done by reputable investment consultants such as EMIS-Intelligence and BMI Research. This was supplemented from industry news from the websites of respected media outlets such as Philippine Daily Inquirer, Bloomberg and Business World. To be able to assess BSPCI’s performance relative to its competitors, audited financial statements were obtained from both BSPCI as well as its key competitors from the Securities and Exchange Commission. To provide a complete internal assessment of the company, interviews were conducted with the key Management and Department Heads of the organization, including the President, SVPOperations, VP-Corporate Affairs, AVP-Technical Services, AVP-Equipment Management Group, HR Head and the Project Directors for each satellite office. Their first-hand knowledge of and opinion provided insight to the company’s internal environment. 2.2 Scope and Limitation This paper will be limited to BSPCI’s construction ventures within the Philippines. The paper will focus on how the company can compete in the Philippine construction industry and will no longer delve into the feasibility of construction projects outside the country. The paper will also concentrate primarily on primary construction services and will not include related industries such as construction design, real-estate development and operations and maintenance (O&M) programs.

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BSPCI’s performance relative to its key competitors is only limited to cost/expense structure and tax management, which can be derived from the aforementioned Audited Financial Statements. Due to the sensitivity of information that can result in unethical business practices, the results of Critical Success Factors from BSPCI’s key competitors could not be obtained. Due to the timing of the submission of this paper, the Audited Financial Statements obtained were from the period of 2011-2013. The submitted financial statements for 2014 were obtained directly from the company but the certification from an independent auditor have not been released as of this writing. The 2015 financial projections are projected assuming the firm is status quo on its strategy. The strategies recommended in this paper will affected the company’s projected financials starting 2016.

III.

MISSION AND VISION STATEMENTS OF THE COMPANY

Vision Statement and Evaluation BSPCI Vision Statement is “To be one of the leading construction firms in 2020 or simply put: “Top 20 in 2020.” Vision Statement Evaluation

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Mission Statement Analysis and Evaluation The mission statement of BSPCI is: “We Build and Serve Par Excellence.” Mission Statement Evaluation

Recommendations Recommended Vision “BSP & Company is not just a construction company. We are a dedicated team striving to not only be the leaders on our industry but to bring growth to our community by taking up any challenge in the infrastructure industry, bringing value in order to assist our clients in making their own visions become a reality and being a role model for other upcoming companies in the similar sector.” The new vision now clearly indicates the role and nature of business of the company; it also indicates the market it currently competes in and a clear, concise objective, in line with the company’s internal quality policy and objectives. 10

The new vision is attainable and should not be time-bound, as the objective is to bring the asset of value and raising it for the industry as a whole, with a purpose to continually influence growth within the industry and serve as an inspiration to its peers. Recommended Mission “BSP & Company, Inc. is a leader in providing value-added construction services to our customers by creating a successful partnership with them throughout the construction process. Our pledge is to establish lasting relationships with our customers by exceeding their expectations by gaining their trust through exceptional performance and to serve with character and purpose that brings honor to God.” The mission clearly emphasizes on its predecessor by bringing value-added services as the means of gaining excellence and to establish lasting relationships with its customers as the means of providing service. The mission also has a clearer definition of its nature of business and who the target market is; it also brings a philosophy of service excellence not only to its customers/stakeholders but also as a means to bring honor to God. The last statement personifies the lasting legacy the President wants for the company, given his Christian background, which is to eventually a God-serving company and organization.

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IV.

EXTERNAL FACTORS THAT HAVE RELEVANCE AND MAJOR IMPACT ON CONSTRUCTION INDUSTRY AND BSP AND COMPANY:

4.1 Economic Performance and Forecast 1. Projected 6% 2015-2016 GDP. Consistent 5% increase in GDP for the next 5 years (OPPORTUNITY)

A projected acceleration of growth in the Philippines in 2015 reflects accelerated reconstruction efforts according to the World Bank, adding that domestic consumption in the Philippines would remain robust, supported by remittances, which grew 7.4 percent from a year ago. By 2016, economic growth is projected to grow by 6.3 percent.5 The Philippine construction industry in particular increased in value at a compound annual growth rate (CAGR) of 12.01% during from 2009-2013. This growth was supported by public investments in the infrastructure and residential markets, which are expected to be the main growth drivers over the period of 2014−2018 and is projected to record a forecastperiod CAGR of 9.90%6. The comparatively young and educated workforce, increased domestic demand, comparatively young workforce, rich natural resources, good business environment and high foreign exchange reserve is likely to drive the economy to sustained growth during the same forecast period. Relevance: The robust economic projections, coupled with their main drivers whose emphasis is on expansion of infrastructure, provide a very optimistic outlook for the construction industry. In addition, Business process outsourcing, public-private partnership (PPP) initiatives will also drive industry expansion, leading to the construction of more residential properties, roads, bridges, offices and power plants. _____________________ 5 6

http://www.adb.org http://www.researchmoz.us/construction-in-the-philippines-key-trends-and-opportunities-to-2018-report.html

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2. Increased Government Budget for infrastructure projects (OPPORTUNITY). The Department of Public Works and Highways (DPWH) has recently released its budget for the year 2015 amounting to a total of Php 273.9B, roughly 43% increase from the year 20157 (see table below):

Table: 2011-2015 DPWH Infrastructure Program Capital Outlays Source: www.dpwh.gov.ph

In a recently conducted planning session of DPWH management, Secretary of Public Works and Highways Rogelio L. Singson said that priorities shall include paving all remaining gravel and earth roads of the national road network in the country. Relevance: With this statement to complete pavement of all national roads and assuming the same budget increase from this year to 2016, it is very likely that the budget would increase to up to Php 400B. This, coupled with the much-improved state of the department in fighting corruption, presents an upward trend for the construction industry as a whole. 3. Steady Increase in Private Infrastructure Projects (OPPORTUNITY): Data from the Philippine Contractor’s Association (PCA) showed that at current prices, the gross value of private sector construction projects grew by 16.3 percent to $25.613 billion (or _____________________ 7

http://www.dpwh.gov.ph

13

P1.137 trillion) last year, bringing the total, including public sector activities, to $31.889 billion, or about P1.42 trillion. At constant prices, the gross value in construction for both the public and private sectors grew by 10 percent to $14.455 billion, which was equivalent to P641.8 billion.8 “It is expected that in the coming quarters or years, there will be a sustained increase in residential construction projects in a bid to revive the country’s housing market and meet demand from the growing population,” the report stated.

Relevance: Given the concern within the construction industry on the direction and emphasis of the Philippine government on infrastructure development beyond 2016, the growth and increased demand within the private sector can be a steadying factor in assuring the continuous growth within the industry. BSPCI should therefore maintain and expand business relationships with reputable clients within the real estate development, commercial and power sectors to retain and increase its current market share.

4. Emergence of Public-Private-Partnership Program (OPPORTUNITY): A public–private partnership (PPP) is a government service or private business venture which is funded and operated through a partnership of government and one or more private sector companies. PPP involves a contract between a public sector authority and a private party, in which the private party provides a public service or project and assumes substantial financial, technical and operational risk in the project. In projects that are aimed at creating public goods like in the infrastructure sector, the government may provide a capital subsidy in the form of a one-time grant, so as to make it more attractive to the private investors. In some other cases, the government may support the project by providing revenue subsidies, including tax breaks or by removing guaranteed annual revenues for a fixed time period.

The Philippine Public-Private Partnership Program was forged as a flagship program for development under the Aquino Administration by amending certain sections of Executive Order No. 8, which reorganized and renamed the Build-Operate and Transfer Center to the _____________________ 8

http://www.inquirer.net

14

Public-Private Partnership Center of the Philippines and transferred its attachment from the Department of Trade and Industry (DTI) to the National Economic and Development Authority (NEDA), and for other purposes. Currently there are 15 PPP projects approved by NEDA that have not been awarded to a total amount of Php 580.79B with another 25 projects in the pipeline9 Relevance: Given the PPP framework, only a select few construction companies have the financial and organizational capacity to undertake projects selected under this program. However, construction companies may synergize to establish a joint venture/consortium that will pool their resources and get qualified to participate and undertake such projects. In fact, BSPCI has already achieved this by forming a joint venture with VT Lao Construction in successfully winning and undertaking the PPP (PSIP-II), Contract Package E in Region X and CARAGA worth Php 1.6B10 5. Continuous Growth in the BPO Sector (OPPORTUNITY)

The Philippines is the world’s largest center for Business Process Outsourcing or BPO sector, also dubbed as the “sunshine industry” of the country. Over one million Filipinos are employed by the BPO and related IT sectors, with projections that it can generate up to about $55 billion by 2020 or roughly 11 percent of the country’s GDP11. The underlying and important effect is the estimated 1.5 million new jobs that potentially can be created courtesy of the industry. As a matter of fact, the positive growth from the BPO sector was one of the reasons why credit ratings agencies have maintained the stable outlook for the Philippines regardless of the political outlook after 2016. Relevance: The emergence and continued growth of BPO has positive transmission effects for the construction industry in particular, where rapid growth in demand for commercial floor space _____________________ 9

http://www.ppp.gov.ph http://www.deped.gov.ph 11 http://www.bloomberg.com 10

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further fuels the need for rapid infrastructure growth. The development new office parks has expanded beyond the usual urban centers in Metro Manila and CALABARZON area to Metro Cebu, Metro Davao, Iloilo and Cagayan De Oro. BSPCI has benefitted from this development by being successfully awarded the Iloilo BPO-2, which is the construction of two 6-storey BPO buildings worth around Php265M.12 4.2 Political and Government Aspects 6. Effect of ASEAN Integration (OPPORTUNITY) Set to happen in 2015, 11 member-states of the Association of the South East Asian Nations (ASEAN) will gather to form The ASEAN Economic Community (AEC). The AEC is an ASEAN initiative that will create a single market where goods, capital and skilled labor will be allowed to move freely across borders within the participating 11 ASEAN countries, including the Philippines13. Following AEC’s vision to build a single market that will give way to a freer flow of capital across borders and faster movement of goods, services, and skilled labor. The integration will also mean elimination of tariffs on goods and services, which would lead to a higher disposable income thereby equipping customers with more money to spend. Furthermore, the single market will allow businesses based abroad to set up headquarters in the Philippines for expansion, thus the need for more office, industrial, and residential space to accommodate these businesses.

Relevance: To accommodate future demands in operations facilities, new growth areas in Metro Manila and Cebu would be maximized, as well as the need to speed up developments of potential growth areas that include Iloilo, Cagayan de Oro, General Santos City, and Angeles City and San Fernando that are both located in Pampanga. The apparent need for more business spaces will bolster the construction industry. Companies with a relatively good market position such as BSPCI could use this increased demand to its advantage. _____________________ 12 13

BSPCI Company Profile http://www.asean.org

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7. Effect of incoming DPWH Secretary Generally, it is accepted that one of the weak factors in ensuring the effectiveness of DPWH infrastructure developmental projects is corruption, which has been a reputation of the department in the past. Under the guidance of DPWH Secretary Rogelio L. Singson, the department laid down his “DPWH Transformation Framework,” with the following objectives: “(1) transform the organization and its employees; (2) simplify/innovate to reduce corruption and improve efficiency; and, (3) optimize resources”14. The resulting positive effect has restored confidence within the department and may indirectly be the reason for the steep increase in budget allocated for infrastructure development. This also has increased the growing sentiment within the construction industry that Secretary Singson would retain his position beyond the 2016 presidency and if not, that the reforms he had paved way for the department would be sustained by the incoming Secretary.

Relevance: BSPCI did not participate as a general contractor in any DPWH projects before the Singson regime; as of 2014, roughly half of the company’s revenue are from DPWH projects. The good working relationship also stems from the shared policies of “right quality, right costs and right people”. The level of participation by the company with DPWH-implemented projects could be affected by the continuity of the renewed direction of the department by the succeeding secretary. 4.3 Social Factors 1. Social re-development of Metro Manila (OPPORTUNITY) In January 2015, The NEDA Board has approved the "Roadmap for Transport Infrastructure Development for Metro Manila and Its Surrounding Areas." The study, done by Japan International Cooperation Agency (JICA) in close coordination with DPWH, DOTC, Metro Manila Development Authority (MMDA), and other relevant agencies, cited strategies to reduce traffic congestion significantly before it impacts the lower-income group who will be hardest hit when congestion worsens by 203015. _____________________ 14

http://www.dpwh.gov.ph 15 http://www.jica.co.jp

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The roadmap emphasizes the need to establish better north-south connectivity and mass transits. This forms the "Dream Plan" to have a modern, affordable, and a well-coordinated and integrated transport system for Metro Manila by 2030. The roadmap also recommends planned and guided urban expansion to adjoining provinces through an integrated public transport, affordable housing for low income groups, retrofitting of existing urban areas in integration with public transport, expanding multi-modal public transport network, and strengthening traffic management systems. The Philippine National Economic Development Authority-Investment Coordination Committee (NEDA-ICC) approved five public-private partnership (PPP) projects and two other projects. These projects are the PHP374.5B Makati-Pasay-Taguig Mass Transit System Loop, PHP177.22B North-South Railway Project, PHP19.33B Motor Vehicle Inspections System Project, PHP1.16B Civil Registry System-Information Technology Project Phase II and the Expansion of Tarlac-Pangasinan-La Union Expressway (cost undetermined). The other two projects are the Bureau of Fire Protection Capability Building Programme Phase II project of the Department of Interior and Local Government and the PHP13.89B LRT Line 2 West Extension of the Department of Transportation and Communications16

2. Housing Demand (OPPORTUNITY): Despite strong economic growth in the past three quarters, the national housing backlog is still estimated at 3.9 million units this year and is expected to further swell to seven million by 2030.17 “To support this goal, the Housing and Land Use Regulatory Board (HLURB) has set a target to construct 1 million housing units by 2016, and also announced the construction of over 300 condominium projects in Metro Manila, most of which will be allocated to the mid-market segment. Meanwhile, residential sales will become stronger among the high-end market and foreigners, as they are more prone to leasing and renting property,” the PCA added. The government will need to tap shelter agencies like the Housing and Urban Development Coordination Council (HUDCC), the Housing and Land Use Regulatory Board (HLURB), _____________________ 16 17

http://www.bworldonline.com http://www.inquirer.net

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Pag-ibig, the Home Guaranty Corporation, and the National Home Mortgage Finance Corporation to reduce the housing backlog by 50% with an annual target of 350,000 housing units. To achieve this, the administration highlighted the need for more PPP programs to use the underutilized government lands.

3. Increased Tourism Demand (OPPORTUNITY): In December 2014, the DOTC and the Civil Aviation Authority of the Philippines invited bids from interested parties for six regional airport projects worth Php116.23B. The contracts are for the financing, design, construction, operation and maintenance of the airports for 30 years and will be developed under the aforementioned PPP program. In addition, The Asian Development Bank (ADB) approved an USD75M loan for the expansion and renovation of Mactan-Cebu International Airport in the Philippines in early February 201518. The aim for all these projects is to improve passenger traffic and support inclusive growth. These recent developments suggests that further momentum is building in the tourism industry, and highlights opportunities presented by growth in this particular sector.

Relevance: The continued emergence of PPP has made long-term social development plans to address traffic, housing and transportation demands now feasible. While large-scale market players within the industry like BSPCI could be able to participate by utilizing the aforementioned joint venture framework, the company should increase efforts to increase capitalization in order to participate in more than one PPP-based project simultaneously.

4. Reconstruction Efforts due to recent calamities (OPPORTUNITY) Recognizing the importance of a quick start to the recovery process, the Government prepared in December 2013 the “Reconstruction Assistance on Yolanda (RAY), a strategic plan to guide recovery and reconstruction in the affected areas.”19 RAY provides a preliminary assessment of damages, loss, and needs covering infrastructure, _________________ 18 19

http://www.bworldonline.com http://www.worldbank.org

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economic, social, and government. It also provides a framework for implementation, including budget estimates for the 2014 reconstruction program.

The 2014 national budget includes PHP 20B for a Rehabilitation and Reconstruction Program to address damage caused by Yolanda and other disasters, and another PHP 80B for reconstruction from standby funds approved under the budget law. These multi-year contracts, includes maintenance and rehabilitation of roads and bridges and may include emergency reconstruction on a long term performance-based maintenance framework. This is emphasis to RAY’s adherence to a pro-active and sustainable effort of not only reconstructing affected areas from past typhoons but also to prepare and implement better quality standards for infrastructure to sustain future calamities.

Relevance:

These efforts should continue to provide a strong tailwind for construction activity throughout 2015, which contributes to what analysts forecast as a real growth for the construction industry of 9.4 %20. This is a marked opportunity for growth in the construction industry, especially with firms that are compliant to International Standards (e.g. ISO). In fact, the framework provided by RAY has transcended to the private sector, from which BSPCI was able to take advantage and secure four typhoon-proofing contracts with the Energy Development Corporation’s Leyte Geothermal Business Unit (LGBU).

4.4 Ecological/Technological Factors Land development and construction have a direct impact on the environment wherein land conversion from agricultural to urban and residential greatly reduces the ability of the land to produce food and other resources for the society. Because of this, sustainable land development is becoming more important in the construction industry. The World Wildlife ________________________ 20

http://www.bmiresearch.com

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Fund (WWF) and Ayala Land, Inc. (ALI) developed an ALI Sustainability Framework21 to “chart, monitor, and report the company’s progress in sustainable land development”. The increasing awareness about environmental impact of construction activities will eventually affect the way residential and commercial developments are built.

In 2006, the Philippine Green Building Council (PHILGBC) was formed as a national nonprofit organization through the alliance of building and construction industry leaders from the private and public sector. This organization was formed to ensure an ecologically and economically sustainable industry and resulted to a local green building rating system that is now called Building for Ecologically Responsive Design Excellence (BERDE). The BERDE scheme is envisioned as the future benchmark for all property developers in the country.

The demand for quality, economy, and completion time are the major considerations for all construction projects that usually dictate the choice of technology. The traditional construction material currently being used for construction projects is the concrete hollow blocks (CHB). In order for the Philippine construction industry to remain competitive especially with the upcoming ASEAN integration, technological advancements should be considered more than ever compared to the usual conventional methods. Relevance: The construction industry in the Philippines is currently leaning toward ecologically and technologically advanced materials in response to these developments, the most trending being pre-fabricated structures envisioned as “the better alternative to concrete hollow blocks (CHB)”. This technology could be used in exterior and interior wall applications in building construction as well as perimeter fencing and other horizontal-based concrete structures. Installation time wall is shorter and the product is smoother compared to conventional

________________________ 21

http://wwf.panda.org/who_we_are/wwf_offices/philippines

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materials and does not need additional plastering (only the joints require additional concrete). The product also serve as good insulators that result to less energy consumption and dissipates noise better. Currently in the Philippines, only 10% are using prefabricated building material in housing and other general construction works22.

This factor would be a great benefit to BSPCI wherein this factor that may be perceived as a threat could be changed into an opportunity while addressing a weakness within the organization. This would be further detailed as one of the proposed intuitive strategies.

__________ 22

Ganiron, T. U. Jr. “Investigation on the use of pleko ceiling board for heat insulator and sound proofing material applications.” International Journal of Advanced Science and Technology, vol. 65, (2014), pp. 23- 32

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V.

INDUSTRY AND COMPETITOR ANALYSIS

5.1 Industry and Market Profile Even though the Philippine construction industry is composed of 955 market players, it is dominated by large scale industries accounting 92.3% of total industry revenues with top 10 players already representing less than half of the market share. After the tenth largest player, market share is considered widely distributed as the remaining 315 large scale market players account for the remaining 49.8% of the market22. Classification

2012 Sales

Micro

No. of players 33.0

Market Contribution 45.1 3.3%

Revenue Average Contribution Revenue 0.0% 1.4

Small

177.0

1,613.5

17.8%

0.6%

9.1

Medium

460.0

20,585.1

46.2%

7.1%

44.8

Large

325.0

265,675.2 32.7%

92.3%

817.5

Total

995.0

287,918.8 100.0%

100.0%

289.4

Note: RA 9178 scale categories were used: Micro = sales of up to PHP3m; Small = sales of up to PHP15m; Medium = sales of up to PHP100m; Large = sales exceeding PHP100m Source: EMIS Business Intelligence Industry: Heavy and Civil Engineering Construction PHP in millions Rank

Company

1

2012 Market Sales share Metro Pacific Investments Corporation 36,475.0 12.7%

2

Makati Development Corporation

17,344.2 6.0%

3

DM Consunji Inc

16,513.0 5.7%

4

Eei Corporation

13,745.0 4.8%

5

Daelim Philippines Inc

8,432.2 2.9%

6

Megawide Construction Corporation

8,204.8 2.8%

7

Ddt Konstract Inc

7,450.5 2.6%

8

Monolith Construction and

5,081.6 1.8%

9

Aboitiz Construction Group Inc

4,712.0 1.6%

10

Datem Inc

4,206.2 1.5%

Top 10 (10 companies)

122,164.4 42.4%

40

J.E. Manalo and Company, Inc.

1,111.0 0.4%

45

Metro Stonerich Corporation

1,023.4 0.4%

46

BSP and Company, Inc.

56

CM Pancho Construction, Inc. Selected competitors (4 companies) Others (981 companies) Total (995 companies)

959.9 0.3% 808.9 0.3% 3,903.2 1.4% 161,851.2 56.2% 287,918.8 100.0%

__________ 22

EMIS Business Intelligence Database

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5.2 PORTER’S FIVE FORCES COMPETITIVE ANALYSIS BSPCI is a large scale enterprise belonging to an industry worth PHP288B as of 2012 with top market players accounting almost half of the market share. BSPCI contributes revenue of slightly below a billion but these represents only a market share of 0.4% due to the wide distribution. Given this, BSPCI is still on the high side in terms of its ranking among large scale companies registering 46th out of a total of 995 players as of 2012. Threat of Competition – STRONG Competitive rivalry is intense due to the numerous large-scale players in the construction industry, industry growth, the bidding format of most procuring agencies and high exit barriers. It is recognized that the Philippine construction industry is, in the main, confined to competition from established local companies. This is particularly so in the sectors of Non-residential Building and Infrastructure because the construction industry operates differently to other industrial or economic sectors. Despite of this, there are 315 large-scale players that vie for half of the market share not being owned by the top corporations and this particular share is very competitive amongst the existing firms. With the system of awarding tenders to the lowest bidder, the competition increases manifold. Also, in segments of non-residence, infrastructure etc., onus is on the established firm to meet the standards as laid won by the government. The construction-industry, especially on horizontal-works, is very capital intensive. In order to stay competitive, companies like BSPCI needs to continuously expand and improve its equipment lineup as opposed to renting. The sub sequential preventive and corrective maintenance is also a critical factor to the company’s success and requires a large revolving fund in consumables alone such as fuel and spare parts. Given the annual depreciative value, it will be difficult to exit the industry without incurring significant losses. .Threat of New Entrants – WEAK As previously illustrated, almost 99% of the market is dominated by the top 10 and other large scale players that make up 50% of the industry. The large disparity is due to the same significant investment required to establish and maintain a competitive construction firm.

A top 10 24

construction company is likely to allocate an average of Php 2B yearly on CAPEX. BSPCI on the other hand has pegged around Php500M for the year 2015. In addition, the required manpower resources, plant and equipment, health and safety procedures and various insurances to be in place together with an established track record to be able to even bid for work in this industry. The prospects of a potential participant to capture market share will primarily be on their ability to reduce the cost key construction supplies while maintaining a reasonable quality and service.

Bargaining Power of Suppliers – MEDIUM Prices of raw materials such as steel and cement are correlated with world prices. Local cement and steel prices are being monitored but not being controlled by the DTI. Current raw materials prices have stabilized. Competition in the raw materials are stiff due to the numerous raw material providers and construction contractors. For example, The demand for reasonably priced hollow blocks are assumed to be growing at 10.5% and construction materials 5.4% which supports the argument that demand is good. Overall, bargaining power of suppliers is moderate due to the numerous suppliers tempered by the lack of substitute to these key inputs.

Bargaining Power of Buyers/Customers – STRONG The concept of bargaining in the construction industry is limited because the said industry is based on system if bidding which states that for a particular project various contractors and construction managers bid for that same project keeping in view their expenses and profits. As previously mentioned, private or public clients normally devotes the project to lowest bidder. It is also worth noting that the construction industry is primarily a business-to-business (B2B) market, B2B buyers are more demanding. They have a responsibility to make the right decision when purchasing on behalf of their companies. They take less risks and therefore need quality to be absolutely right. They have the expertise to recognise a bad offering when they see one. They are used to getting what they want. They are often paying more than they would as a consumer 25

and therefore expect more in return. They are likely to regard themselves as interacting with the product or service supplied to them, rather than playing the role of passive recipient. Most construction service firms would then have to adjust in order to meet the target audience’s needs. However, B2B buyers are more predictable than their consumer counterparts. This means that good quality market intelligence and close attention the client would allow a company to anticipate and adjust to expectations/demands it have. Another point to be considered are the government procurement guidelines, which are now more stringent in determining qualified bidders for construction services. Certain revenue and track record guidelines are strictly being observed to determine a contractors classifications through the Philippine Contractor’s Accreditation Borad (PCAB) and compliance to International Standards (ISO). In a way, government agencies have the power to segment and filter the list of potential contractors depending on the Guidelines or Requirements for Bidding that will be released for a particular project. Overall, the bargaining power is considered strong due to these factors.

Potential for Substitutes- WEAK Site-based infrastructure construction activities are firmly entrenched in applying the traditional method of construction, since it would be a huge undertaking to qualify a new technology or methodology with the current standards.

Although the future may see an increase in the

prefabrication of buildings or other factory-based building techniques, the same cannot be treated as a substitute very easily as compromising on the quality of the materials being used that will be used. Developers do not wish to risk affecting the foundation of their structures, which may likely to collapse, should a cheaper yet substandard material or method would be used. Overall, the threat of potential for substitutes is considered weak due to no established substitutes for major raw materials and construction services.

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5.3 COMPETITIVE PROFILE ANALYSIS BSPCI is a large scale enterprise belonging to an industry worth PHP288B as of 2012 with top market players accounting almost half of the market share. BSPCI contributes revenue of slightly below a billion but these represents only a market share of 0.4% due to the wide distribution. Given this, BSPCI is still on the high side in terms of its ranking among large scale companies registering 46th out of a total of 995 players as of 201223. The choice of competitors was limited to three – JE Manalo Corporation, Metro Stonerich and CM Pancho Corporation. These companies were chosen on the basis of the similarity of core competencies and common clientele; in the case of Metro Stonerich, it was chosen as a benchmark for Vertical Structures Construction and the similar returns in cumulative Sales and Market Share. Key competitors of BSPCI Competitor # 1 JE Manalo Corporation24 The Company was registered with the Securities and Exchange Commission (SEC) on 26 December, 1969 primarily to engage in the business of general contractors and builders such as construction, building and repair of roads, bridges, piers, dams, houses, warehouses, government and private buildings, factories, and other edifications needed and necessary in the ordinary course of human life and for this purpose, to manufacture, fabricate, import and export, deal in, buy and sell and distribute construction materials and equipment and other articles and shall be necessary of expedient in conducting and attaining these primary purposes. Their office is located at P.Bernal St. corner C. Raymundo Ave., Rosario, Pasig City. Competitor #2 Metro Stonerich Corporation25 The Company was incorporated and registered with SEC on 2 November 1999 which started commercial operations in year 2000 and is engaged in the business of construction and real estate __________ 23

EMIS Business Intelligence Database http://www.jemanalo.com 25 http://www.metrostonerich.com 24

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development. MSC has revenues of over Php 1B and has completed over 100 general construction, interior fit-out, renovation and civil work projects nationwide ranging from houses and condominiums to super malls, office buildings, schools, and store outlets. Among its significant projects are the Robinson’s Malls, high-rise buildings such as Senta Tower Condominiums, Texas Instruments Sub-Structure and Super Structure (Test and Assembly Building) in Clark Pampanga; Lyceum of the Philippines and the University in Gen. Trias Cavite. Although its projects are more focused on Building and other Vertical projects, its cumulative sales and market value are the most closely related to BSPCI. Their office is located at 85 Timog Ave., Brgy South Triangle, Quezon City. Competitor #3 CM Pancho Corporation26 The Company was registered with SEC on October 1975 primarily to engage the business of general builders and contractors, either alone or jointly with any other companies or persons “such as the buildings, barracks, piers, including roads, bridges, warehouse, factories, edification of every description, electric, and plumbing works, and sewerage works, and to carry all business incidental thereto.” Their office is located at 341 P. Angeles St. San Jose Baliuag, Bulacan. CRITICAL SUCCCESS FACTORS CSF # 1 Adequate Capitalization Capitalization can be measured by the equity value in its balance sheet and through a leverage ratio (debt to assets ratio). Higher debt would limit future borrowings or attract capital to fund future projects. Large capital is also needed to be able to expand equipment lineup and to secure bulk purchase (lock-in) agreements with major suppliers (i.e. cement, steel, diesel, etc.) on more favourable unit rates and terms. Importance Weight: 15% __________ 23

http://www.cmpancho.com

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CSF # 2 Price Competitiveness Government Procurement Guidelines requires all projects to be subject to bidding, which means that the lowest bid proposal would most likely be awarded the project. Unless a bid proposal is technically deficient, the lowest declared bid usually ends up undertaking the project. Clients in the private sector, though not bound to the same guidelines, will normally award projects to the lowest bidder. Unless a contract to be awarded is a design and build contract, the specifications and bill of materials are the same for every bidder, which means it boils down to effective and accurate cost assumptions, with an eye on providing efficient execution, in arriving with the lowest bid proposal. Importance Weight: 30%

CSF # 3 Equipment Lineup and Management It is of paramount importance not only to own but to have a significant amount of heavy equipment in order to efficiently execute a project, especially on Horizontal Works where a large scope is dependent on equipment utilization. Not only would a good equipment base but a contractor in a better position to submit the lowest bid proposal but having a high standard of equipment quality and management will ensure timely and most effective execution. Importance Weight: 15% CSF # 4 Operational Execution An awarded construction project is based on the aforementioned lowest bid proposal, which is a cost estimate based on information gathered through the bid tender documents, preliminary site inspection and scope of works and specifications. Having an experienced operations management group is key to ensuring that the execution of the project is within the allotted budget, primarily dictated by the awarded contract price. Since most clients award a project on a lumpsum contract basis, the operations group should be able to effectively manage operational costs without compromising quality and timeliness in order to generate profit for the project. Importance Weight: 20% 29

CSF #5 Quality Control All government agencies and most clients in the private sector employ the services of a thirdparty Construction Management Group to oversee the execution of a project and to ensure that the works accomplished are within the defined technical specifications. Since the CMG needs to protect the interests of the client, strict adherence to these specifications must be observed or the contractor will not be paid based on accomplished works. Moreover, compliance to International Standards like ISO is now a requirement to be even qualified to bid for large construction projects. All of these points to better quality control, not only for project execution but other support groups like Engineering, Warehousing, Human Resources, etc. Importance Weight: 10%

CSF # 6 Technical Qualifications and Accreditations One of the reasons why the Threat of New Entrants on Porter’s Five Forces Analysis is low is due to a well-defined multi-tiered qualification requirements for contractors. The Philippine Contractors Accreditation Board (PCAB) serves as the regulating body for these qualifications and no contractor can be allowed to undertake construction projects without a PCAB License, much like an individual is not allowed to operate a vehicle without a driver’s license. The license classification and registration particulars are based on the technical, financial and operational expertise of the contractor and gives ratings from “D” to “AAA”, the highest classification being given to a contractor. Most government agencies have adapted this method on top of the general procurement guidelines to ensure that “qualified bidders” will only be considered based on the said merits. PCAB license renewal is every year and the agency reserves the right to downgrade, or even revoke a license if a contractor does not meet the said requirements. Most of the large private clients have also instituted a third-party accreditation agency that will screen and determine eligibility of a contractor based on the same parameters. Importance Weight: 5%

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CSF # 7 Customer Relations Most large-scale construction contracts are limited to government agencies and the big players of the private real estate development, health, energy and utilities industry so it’s not hard to know and find who the potential clients are. However, it is important to maintain good customer relations with these clients during the bid tender, project execution and post execution process. Establishing the sentiment from clients that they are “well-taken cared of” will greatly help business development efforts by accessing their network through referrals and recommendations. Adversely, not taking care of the same client base can severely affect future business as word gets out easily in the construction industry of any missteps in managing client relations. Importance Weight: 5% BSPCI CSF Ratings CSF#1 BSPCI’s Capitalization (2) BSPCI’s debt to assets ratio of 0.73 which is higher than the industry average of 0.4527 CSF#2 BSPCI’s Price Competitiveness (2) BSPCI has an annual success rate in bidding at 30%. While it could not be determined what the success rate of its competitors, especially since it is rare that its competitors participate in the same project bidding as BSPCI, the sentiment in the industry is that the average bidding success rate of contractors in the same category is pegged at 15-20%. CSF#3 BSPCI’s Equipment Lineup and Management (2) BSPCI boasts of key partnerships with the leading Heavy Equipment dealers in the country (i.e. Maxima, Monark, Civic and Good Morning). However year-end report for 2014 shows that equipment is only utilizing around 74% of its capacity

__________ 27

EMIS Business Intelligence Database

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CSF#4 BSPCI’s Operational Execution (3) BSPCI has completed almost 90% if its projects on-time including changes in schedule due to Variation Orders. However, the under-utilization of Equipment Management prevents the company to gain more profitability to augment its effective cost management. CSF#5 Quality Control (3) BSPCI has a cumulative track record of less than 10% of works completed that was subjected to punchlisting. In addition, BSPCI has been ISO 9001:2008 compliant since 2009 and External Audits have resulted in 0 non-conformances since 2012. CSF#6 BSPCI’s Technical Qualifications and Accreditations (3) With an AAA rating, Large B classification for Roads, Highways, Bridges, General Building and Irrigation/Flood Control and ISO certification, BSPCI is fully qualified to participate in largescale government and private projects. However, it is limited to 480M and 300M with regards to building and bridging projects respectively for government projects due to the procurement regulation of 50% value of completed projects. CSF#7 Customer Relations (2) Although BSPCI has been successful in the retention of around 80% of its existing clients, the customer relations aspect has been primarily limited to the President’s strong ties to industry leaders and various government agencies due to his prior experience in CDCP/PNCC. The Business Development and Project Management Levels need improvement in improving relations to their respective counterparts.

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5.4 COMPETITIVE BUSINESS ANALYSIS Comparative analysis - Cost and expense structure (FY13) JEMCO

MSC

BSPCI

CMPI

Sales

100.0%

100.0%

100.0%

100.0%

Project Costs

(87.6%)

(80.0%)

(83.9%)

(84.6%)

(12.7%)

(7.6%)

(11.2%)

Operating Expenses (5.7%) Operating margin

6.8%

7.3%

8.5%

4.1%

EBITDA margin

9.3%

9.5%

18.8%

10.2%

Note: (1) Operating and EBITDA margin excludes other income and expenses (2) EBITDA margin is computed by adding depreciation to the operating margin. Source: SEC filed audited financial statements

Cost and expense structure: Vertical analysis on the companies’ income statement shows that BSPCI leads its peer for an efficient operation which costs and expenses accounting 91.5% of total revenues resulting to an 8.5% operating margin. EBITDA, which is a measure of CASH operating income reflects that BSPCI widely outperforms its peers. Comparative analysis - Derived tax rates (FY13) JEMCO

MSC

BSPCI

CMPI

Prevailing tax rates

30.0%

30.0%

30.0%

30.0%

Derived tax rates

29.9%

30.0%

29.1%

36.5%

Note: (1) Derived tax rates is computed by dividing actual corporate tax expense with earnings before tax. (Income tax / Income before taxes) Source: SEC filed audited financial statements

Tax Management: Corporate tax are computed 30% of earnings before tax. But these earnings are based on the definition of accrual accounting supported by the international accounting standards for statutory reporting purposes and may not represent the definition of taxable income recognized by our bureau of internal revenue (BIR). The taxable income recognized by BIR also came from the statutory reported figures adjusted with items that are considered taxable and non-taxable (tax shield items). Deriving the actual tax expenses (supported by BIR recognized calculation) to the earnings before tax (supported by the

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statutory reporting standards) would reflect a company’s tax management. An effective tax management would be true if the resulting derived tax rate is below 30%. From the table above, it shows that BSPCI employs the most efficient tax programs with a 29.1% tax rate. While BSPCI leads its peers, the company should look for more ways to take advantage of tax-shield expenditures. It should target at least a derived tax rate of 25%. This may not be much in terms of absolute amounts but this should help the company maximize its profitability.

5.5 EXTERNAL FACTOR EVALUATION External Factor Evaluation (EFE) Matrix summarizes and evaluates various external factors including environmental and competitive factors facilitate strategy formulation. (David, 2009). There are many factors that affect BSPCI but a set of priority factors that has the greatest impact to the company’s success were selected and importance is given based on its potential impact to its bottom line.

Opportunities and BSPCI’s responsiveness O1 - Projected 6% 2015-2016 GDP. Consistent 5% increase in GDP for the next 5 years Rating 2 – BSPCI has a satisfactory rating for this opportunity provided that it maintains its eligibility and technical qualifications without suffering any setbacks in customer relations. That being said, the organization may not be able to capitalize on the forecasted economic growth if it doesn’t make a sustained effort to improve Market Penetration and be more cognizant of the particular projects that fit its core competence (Service Development). Weight: 5% is given; while the overall economic forecast is favourable for the construction industry and the organization, more focus should be given in government allocation and investor interest in infrastructure projects.

34

O2 – Increased government budget for infrastructure projects for 2015 Rating 3 – BSPCI is in a good position to capitalize on the increase in budget for DPWH alone due to the good working relationship with the department, given the amount of projects the organization currently undertakes, regardless of who the Secretary would be in 2016. Weight: 10% is given due to the current emphasis of the government on infrastructure development as reflected by the steep increase in budget allocation for DPWH alone.

O3 – Steady increase in private infrastructure projects Rating 2 – BSPCI has established key business relationships with the most reputable private organizations in the real estate development and commercial industry. However, it lacks presence with the key players in other key industries such as transportation, utilities and power. Weight: 12.5% is given due to the same emphasis and possible dependence of the construction industry on the private sector in infrastructure development post 2016 as noted in External Analysis.

O4 - Emergence of Public-Private-Partnership Program Rating 2 – As part of the large scale construction players, BSPCI has the technical qualifications to participate in PPP-based projects. However, BSPCI lacks the capitalization and organizational strength to qualify and undertake these projects alone unlike the top ten construction companies. It relies on strategic partnerships or joint ventures with other companies to be able to participate. Weight: 10% is given due to majority of government-implemented agencies adapting this framework. O5 - Continuous Growth in the BPO Sector Rating 2 – BSPCI’s core competence is on Horizontal Works even though the organization is qualified to undertake on large-scale Vertical projects. Since the growth in the BPO sector 35

almost directly translate to an increase in opportunities in building construction, BSPCI needs to strengthen its technical and operational competence in Vertical projects to fully take advantage of this opportunity. Weight: 5% is given due to the vertical segments low “market share” in relation to other project classifications making up BSPCI’s total revenue.

O6 – Effect of ASEAN Integration Rating 3 – BSPCI is in a good position to take advantage of the ASEAN integration from a coverage standpoint since it has established satellite offices in the potential of growth areas in Metro Cebu, Iloilo, and Cagayan de Oro. The potential drawback is the threat of new entrants from other ASEAN countries, who may introduce innovations that can compete with the current pricing of BSPCI. Weight: 10% is given in the immediate effect on the region once the economic integration deadline occurs at the end of 2015.

O7 – Effect of Incoming DPWH Secretary Rating 3 – BSPCI has a good working relationship with DPWH since 2011 and almost 50% of the organization’s revenue came from contracts awarded by this department. Moreover, the transformational framework established for the department will ensure any attempts to collude or manipulate any DPWH projects bid on the National level can be immediately flagged and corrected, regardless of the next secretary would be. Weight of 2.5% was given due to the relative inconsequential effect of the incumbent secretary to the agency reforms already set in place. O8 – Social Re-development of Metro Manila Rating 2 – BSPCI is only limited to horizontal/civil works and drainage projects as its core competence, which is not emphasized based on the projects currently in the pipeline. The 36

projects involving the transportation sector requires advanced technical resources that BSPCI has minimal expertise and experience in. Weight: 5% is given due to the long gestation period from which BSPCI could implement organizational strategies to address this weakness.

O9 - Housing Demand Rating 2 – In addition to its lack of experience with Vertical projects, BSPCI almost has no personality and prior experience/relations to the established players on the Housing industry (NHA, Habitat and other NGOs). However, its good relationship with key private commercial and real estate developers will allow BSPCI to be relevant on the private sector. Weight: 10% is given due to the urgency to address housing backlog, which will correlate to an increase in spending on this sector.

O10 - Reconstruction Efforts due to recent calamities Rating 2 – BSPCI is in a good position to participate in any reconstruction project that will be implemented by DPWH and players from the private sector but is in a poor position to participate in any projects that will be implemented by other Government Agencies or NGOs. Weight: 5% is given due to the relatively low budget allocation compared to new infrastructure projects.

O11 – Technological and Ecological Advancements Rating 2 – BSPCI lacks the innovation and technological experience to keep pace with the advancements in technology. Fortunately, it has good working relations with its material suppliers that do take advantage of innovations. BSPCI is a member and has been compliant to the standards of PHILGBC and BERDE since 2011 in efforts to improve its technical eligibility 37

and qualifications. BSPCI has also invested in Modular Formworks technology for its current PSIP-II (PPP based) project with the Department of Education (DepED) in an effort to maximize logistical efficiency. BSPCI should look into efforts of having its own pre-fabricated material capacity to be at pace with industry leaders like MDC and DMCI, who currently has this capacity. Weight: 10% due to the increased awareness of the construction industry to adapt with more technologically and ecologically efficient systems to maintain competitiveness in the wake of the upcoming ASEAN integration.

THREATS and BSPCI’s Responsiveness T1 – Lack of Qualified Personnel Rating 2 – BSPCI’s strong management core and well-established ISO-standard systems in Project Works implementation allows the organization to remain competitive and provide quality service despite the lack of stability within the lower ranks. However, internal organizational development in terms of creating a “winning professional culture” cannot be realized if the employees do not find a sense of fulfilment. Weight: 5% is given due to the emphasis required is internal and in relation to organizational development and cultivating a more positive culture within BSPCI

T2 - Strong Rivalry of competition Rating 3 – BSPCI has a relatively good track record in Pricing Competitiveness, Operational Execution and Quality Control, which not only bears the greatest weight among the critical success factors, but are also the factors from which information from competitors are most accessible. Weight: 10% is given due to the nature of all public and private procurement policies, which require bidding. 38

EFE Matrix

External Factor

Importance Firm's Weight Rating

O1 - Projected GDP of more than 6%

Weighted Score

5.0%

2

0.1

O2 - Increased government budget for infrastructure projects for 2015

10.0%

3

0.3

O3- Steady increase in private infrastructure projects

12.5%

3

0.375

O4 - Emergence of Public-Private-Partnership Program

10.0%

2

0.2

5.0%

2

0.1

10.0%

3

0.3

O7 - Effect of Incoming DPWH Secretary

2.5%

3

0.075

O8- Social Re-development of Metro Manila

5.0%

2

0.1

O10 - Housing Demand O11 - Reconstruction Efforts due to recent calamities

10.0% 5.0%

2 2

0.2 0.1

O11 – Technological/Ecological Advancements

10.0%

2

0.2

5.0%

2

0.1

10.0%

3

0.3

O5 - Continuous Growth in the BPO Sector O6 – Effect of ASEAN Integration

T1 – Lack of Qualified Personnel T2 - Strong Rivalry of competition TOTAL

2.45

100.0%

5.6 STRATEGIC ISSUE BASED ON EXTERNAL FACTORS A major opportunity the company should take advantage of is the emphasis on infrastructure development, particularly for Government and PPP-based projects. Strengthening of the company’s capitalization and development of organizational expertise are key steps in putting BSPCI in a better position compared to its major competitors. BSPCI should also look into being more cost-efficient with regards to its project operation costs and tax management to further augment the value provided by its competitive pricing. This will also put the company in a position to generate more profits and maximize efficiency, which will have an indirect effect on customer service and relations.

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VI.

INTERNAL ANALYSIS

6.1 MANAGEMENT REVIEW

It is practice of the BSPCI to ensure the establishment of annual key initiatives that include quality objectives in line with the company’s mission and vision, communicated to all levels of the organization for the use in establishing each function’s and employees annual key objectives28. The company could further improve the communication of its objectives through its vision given the deficiencies of the company’s vision (see vision analysis).

There is a top to bottom decision structure in BSPCI. Major decisions are made by the top management given the recommendations and information provided by the respective Department Heads and Project Directors and Project Managers. Lower level managers get involved in the decision making process through business planning sessions in line with the company’s quarterly profit and loss (P&L) review involving all levels of management. Action points from and departmental goals from the meeting are delegated to specific departments and managers, which are held accountable through their performance appraisals, which are also being conducted quarterly for managers to have the opportunity to direct the behavior of the employee towards the execution of the company’s objectives.

Human Resource Motivational Factors All new employees shall undergo an employee orientation within the first week of employment. The HR and Admin Department shall conduct the new employee orientation. The new employee orientation shall include introduction to the company profile, company policies and procedures, an introduction to the different department of the company and how his/her job is related in the achievement of the company’s vision and mission. The orientation shall also include a checklist of items covered with the employee’s signature when such orientation is completed.

The company’s retention strategy involves an employee motivation and empowerment program. __________ 28

BSPCI 2014 2nd Management Review

40

A training needs analysis is being conducted yearly, which results in an annual training plan that is being cascaded through all levels of the organization based on the individual employee’s needs analysis. All training sessions involves classroom and workshop format with job mentoring and coaching. High potential employees are also recognized through service excellence awards; an annual Most Outstanding Employee Award is also being given.

FINANCIAL REVIEW Revenue Growth29

Revenues (in Php millions) 2,000.00 1,500.00 1,000.00 500.00 -

2012 Actual Revenue

2013 Actual

2014 Actual

Operation (project) Costs

2015 Projected

Gross Income

BSPCI has experienced a steady growth over the past several years but the growth trend has been decreasing over the past three years, taking into consideration the 2015 projection assuming that the company remains status quo in its strategy implementation. It appears that the company is not fully taking advantage of a bullish industry over the same period of time and risks losing its current market share if no changes would be instituted to its current strategy.

From an industry perspective, the cost and expense structure focuses more on the company’s employment of an efficient operation which is measured by the level of costs and expenses it employs on a particular level of activity which is then measured through sales revenue. __________ 29

see Appendix: BSPCI Financial Statements

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`

30

BSPCI’s superior margin is based from efficient operations and management of operational project costs. However, from a revenue growth perspective, the slowdown is more pronounced in the current market state of the construction industry, with JEMCO clearly taking advantage of the rapid market growth to further establish and increase their market share.

From the owner’s perspective, more focus is being given to the amount of return received on a particular amount invested. This cover the issue on efficient operations but will add factors such as leverage and asset utilization that will ultimately determine how profitable a business is as far as the owner is concerned. Leverage contributes to profitability because the more funds that can be sourced from the company’s own contribution, the ability to create an asset base with risks distributed to other investors. Asset utilization also contributes to profitability because it now shows on how much revenue can be generate on a particular level of investment, which is critical for a horizontal-works inclined company as BSPCI who invests significantly on heavy equipment.

Viability on an Owner's Perspective JEMCO

MSC

BSPCI

CMPI

Leverage

2.3

1.5

3.7

2.5

Asset Turnover

1.1

0.5

0.9

0.6

Profitability

4.7%

4.4%

6.6%

3.8%

Return on Equity

11.6%

3.3%

21.7%

6.1%

__________ 30

see Appendix: Competitor Financial Statements

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Although BSPCI has a higher ROE compared to its competitors, this is primarily caused by a higher leverage due to increased borrowing over the previous year, specifically for the PPPbased DepED project. The company should improve on its asset turnover, mainly by getting a more efficient equipment utilization system, which in turn would increase productivity in project works accomplishment, the main basis for realizing uncollected revenue.

FINANCIAL RATIO ANALYSIS FINANCIAL RATIOS

2010

2011

2012

2013

Profitability Ratios Return on Assets (ROA)

7.82%

6.61%

8.04%

7.93%

24.33%

23.52%

24.89%

21.29%

6%

6%

7%

7%

11%

11%

10%

10%

6%

6%

7%

7%

11.00%

19.00%

Return on Equity (ROE) Return on Sales (ROS) Gross Profit Margin Operating Profit Margin EBITDA Margin Liquidity Ratios Current Ratio

1.21

1.26

1.46

1.85

Quick ratio

1.20

1.26

1.23

1.55

0.72

0.68

0.63

0.73

2.56

2.10

1.68

2.74

Turnover

2.69

2.35

2.32

1.62

Current asset turnover

1.40

1.47

1.29

0.96

Fixed-asset turnover

5.03

5.93

7.92

10.48

Asset Turnover

1.10

1.18

1.11

0.88

-5%

18%

14%

-3%

Leverage Ratios Debt to total assets Debt to equity Efficiency Ratios Accounts Receivable

Growth Trend Ratios Revenue Trend

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Total Operating Revenue Trend

-5%

18%

14%

-3%

106%

115%

129%

101%

12%

17%

33%

3%

Operating Income Trend Net Income Trend

On Profitability: BSPCI, like most large scale construction companies in the country, has benefitted from a growing economy largely focused on infrastructure development. However, the natural growth on ROI relative to the increased revenue has not been realized. While the company has been able to maintain its usual excellent project operational execution, proper utilization of the company’s heavy equipment, a major component of its assets, have been slipping, which explains the marginal increase in Return of Assets. Likewise, the Return on Equity has not experienced the consistent growth expected relative to the Revenue generated by the company.

On Liquidity: BSPCI has been slightly better in liquidity at 1.44 compared to its competitors who average at 1.32. This behavior is common among large scale contractors who constantly needs cashflow in order to keep its payment obligations to mainly suppliers and subcontractors.

On Solvency: BSPCI has been highly leveraged compared to the construction industry. Almost 75% of the company’s assets are being funded via debt compared to its competitors, who averages at 54%. This has increased the company’s financing cost and has significantly reduced profits. Higher debt will also limit the company’s ability to fund its expansion and strategies.

On Efficiency: The decreasing turnover is an indicator that the company is not fully utilizing the investments made on assets, particularly with equipment utilization relative to the revenue generated. The Current Accounts turnover, specifically the Accounts Receivable turnover, has been decreasing and is lower compared to the average turnover of its competitors at 2.45. This indicates that the

44

company should take a closer look into its collection policies in order to ensure the timely collection of outstanding billed accomplishment reports to its clients.

On Growth Trends: As confirmed with the negative growth trend over the past year, BSPCI clearly is not being aggressive enough with its Marketing Penetration strategy to fully take advantage of the growing construction industry.

BIDDING

BSPCI Project Bidding No. of Projects

50 40 30 20 10 0 Bidded Won

2012 35

2013 40

2014 38

2015 46

8

13

12

14

BSPCI has consistently been awarded approximately 30% of the total projects it participating, whether it’s under the Revised Procurement Act of open bidding for government projects or closed bidding for most private projects. This is a relatively high percentage compared to the industry average of around 20-22% as recently reported by the PCA.31 Since most construction projects are being awarded on the merit of the lowest bid proposal, the company’s high winning percentage relative to its competitors can be attributed to an effective price costing system adapted by its Technical Services Department that focuses on efficient and timely project operational execution.

__________ 31

Interview with PCA Executive Director Manolito P. Madrasto

45

QUALITY POLICY As an organization that complies with ISO 9001:2008 standard for construction services, BSPCI adapts a Quality Policy that is engaged in the various construction services and is committed to comply with all the requirements of their clients and to ensure satisfaction and long term business relationships. To implement this policy the following principles are being implemented:

-

On time delivery of projects

-

Compliance with local and international standards appropriate to the industry.

-

Periodically review the performance of the Quality Management System as inputs to continual improvement.

-

Maintain zero customer complaints.

-

Ensure availability of resources needed for the business.

The quality policy is the guideline from which the organization’s quality management system is derived. The eventual goal is to assist BSPCI in establishing and improving its quality management system along with improving its processes of in order to enhance performance.

6.2 MCKINSEY 7S FRAMEWORK

Strategy Established in 1993, BSP & Company Incorporated was initially a company that plied its trade in equipment leasing. Subsequently, the company ventured into civil work contracts through strategic subcontracting partnerships with its more established peers, that evolved into joint ventures that gradually established the companies credibility and reputation as a cost-efficient, value-oriented construction services firm. In the year 1999, the company was able to successfully take over the construction works of Southern Tagalog Arterial Road (also known as the STAR Tollway or CALABARZON Expressway), a construction of a 10-km highway that includes four bridges, from Manifold Construction and complete the project on time. This did not only pave the way for the company to establish its “AAA” contractors rating from PCAB but firmly

46

established itself as a competent and well-organized firm, capable of bringing the same value at a much lower cost or bringing more value through efficient execution for the same cost.

Evaluation: Effective Capitalizing on its effective pricing and execution and now armed with the highest category being given to a local contractor by PCAB, BSPCI has been steadily increasing both revenue and market share, allowing the company to hit Php 1B revenue by 2008 and establishing itself as a large-scale player in the industry. The aforementioned efficient operational execution and overall service value is aligned with its values of building and serving par excellence.

Shared Values Based from its mission statement, the company espouses these core values: Value, Excellence, and service. The mission statement is simple and straightforward: to provide the best value in service to the satisfaction of its customers.

Evaluation: Needs Improvement Shared values needs improvement since they are not clearly reflected on the company’s mission and vision statement but rather is evidenced in the corporate culture and the general work ethic that was instilled by the president. To realize the company’s mission and vision statements, the company demands and inspires dedication to each individual’s task; the top management and key department heads exemplify this dedication that is initially viewed as compliance but eventually becomes an inspiration down the line and even to rank-and-file.

47

Structure

PRESIDENT/CHAIRMAN

TECHNICAL SERVICES

OPERATIONS

EQUIPMENT MANAGEMEN

OPERATIONS CENTER

SAFETY

ESTIMATING AND BILLING

CORP. AFFAIRS

ACCOUNTING / FINANCE

BUSINESS DEVELOPMEN

HUMAN RESOURCES

PROJECT MONITORING

The Company’s organization structure is mainly hierarchical with a functional structure. The division of labor is grouped by the main activity or function that needs to be performed in the organization. The major department or the “bread and butter” department is Project Operations, which is subdivided among the company’s satellite offices. The Equipment Management Group is a separate department but is still under the Project Operations umbrella. The Technical Services Group is the department that is responsible for both project bid proposals and maintenance of actual project budgets that originates once a bid proposal has been accepted and the project eventually awarded. Accounting, finance, human resources and business development are all under the corporate affairs group, who is responsible for the day-to-day operations within the head office.

Evaluation: Adequate The structure clearly defines the function of each department with the flow of responsibility based from the chain of command. However, the company is too centralized and decisionmaking almost always falls under the top management, especially with the President.

Systems As discussed earlier in this chapter under Management Review, BSPCI top management reviews the effectiveness of the Quality Management System and its continual improvement on a semi48

annual basis through Internal Quality Audit(s) and its related processes. This aims to provide a systematic discussion of the QMS and to provide management with the necessary tools for making any relevant changes to the essential to achieve the organization’s goals.

Evaluation: Helpful Systems are being used to plan strategies and implement them. In the area of implementation, performance of goals are being monitored systematically mainly, employees are being appaised and appropriately rewarded in line with their individual goals and objectives based on their job descriptions in a performance-based management scheme.

Style BSPCI exemplifies performance through output, with each individual being subjected for appraisals at least 4 times a year. The purpose is not only to closely monitor an employee’s performance but to immediately provide recognition and reward to individuals going above and beyond what is asked of them. In addition, top management’s leadership style is one of leading by example; no one puts more work than the President and the Department/Project heads, which serves as an inspiration and an imprimatur to the people working for them.

Evaluation: Needs Improvement A work-life balance has to be injected within the company culture as not everyone can emulate the values and ethics that top management shows. This is evidenced by an attrition rate upwards of 20%, mainly in the junior management and rank-and-file levels. Further evaluation should also be given on the company’s current salary-level scale as having employee continuity is key to ensuring future strategy implementations would remain effective.

Staff As mentioned, employee growth is maintained by a motivation and empowerment program. A training needs analysis is being conducted yearly, which results in an annual training plan that is being cascaded through all levels of the organization based on the individual employee’s needs analysis. All employee orientations include introduction to the company profile, company policies and procedures, an introduction to the different department of the company and how 49

his/her job is related in the achievement of the company’s vision and mission. Individual needs assessment for his/her professional growth are also being conducted during the Performance Appraisal, conducted quarterly.

Evaluation: Adequate Development plans for each individual are aligned to the skills needed for the company to achieve its departmental and overall objectives. The periodic review of the individual’s professional growth allows the manager to assign the relevant training, coaching or mentoring program needed to close the skill gap of the employee. This enables the employee to provide meaningful contribution in attaining the goals of the organization.

Skills Each employee is being given the necessary individual training to further develop their respective skillset in line to make a meaningful contribution to his/her department. In addition, the hands-on approach culture the company has promoted also allows each employee to also learn based on their superior(s) experience, which is practical for the company since the construction industry is very applications-based.

Evaluation: Good The company embraces the two main indicators of success that the President views: Character and Competence. Each employee has the necessary tools to gain his/her competence in their respective skillset and the result has been no major customer complaints since the company has been ISO-compliant since 2008.

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6.3 INTERNAL FACTOR EVALUATION

STRENGTHS: Operational Execution Rating 3 – BSPCI has been able to accomplish the prescribed scope of works within or even ahead of the defined construction schedule on over 90% of their awarded projects. Moreover, BSPCI has been able to operate within or below the projected budget at around 85% of their awarded projects. This is due to proper planning during pre-construction, and strict adherence to project cost and quality as prescribed by the client’s Construction Management Group. This allows the organization to not only improve existing client relations through satisfactory performance but to also collect progress billings on time to maintain cash flow.

An Importance Weight of 15% has been given as all clients require timely execution of construction projects as part of their commitments to their stakeholders, especially given the relatively large budget afforded to infrastructure development.

Competitive Pricing Rating 3 – BSPCI’s experienced Engineering team, headed by the president who has over 40 years of experience in Engineering and Project Management, has been able to provide competitive pricing, especially for civil-based works, where customers can achieve the same quality of works per cubic meter at a lower unit cost. The key to maximizing the value for the customers is being able to determine the maximum efficiency rate of every major type of heavy equipment. BSPCI also has an extensive equipment lineup, which gives them the benefit of avoiding mark-ups should a certain type of equipment was to be rented or outsourced.

Importance Weight of 15% is given since the primary metric of awarding projects on both public and private construction projects is total price of the bid proposal.

Wide Range of Coverage Rating 3 – As of 2014, BSPCI has established satellite offices in Batangas, Pampanga, Cebu, Iloilo and Cagayan de Oro, allowing the organization to undertake projects all three major 51

regions of the country. BSPCI has also established key partnerships and joint ventures with other reputable contractors, particularly in Davao and ARMM, which allow them to penetrate those markets where most other competitors are unable to do so.

Importance Weight of 5% is given due to the impact of the aforementioned growth in the BPO sector, which will significantly affect areas outside of Metro Manila (see External Analysis). However, the impact is dependent on how the organization effectively identifies and penetrates these markets.

Good Quality Rating 3 – BSPCI has been ISO 9001:2008 compliant since 2008, which is one of the reasons why the organization is able to achieve project execution to the satisfaction of its customers. Moreover, it is part of the organization’s mission statement to provide service and quality par excellence to their customers.

Importance Weight of 10% is given due to the quality standards the company must uphold not only internally to comply with management and ISO standards but also with its clients through their Construction Management Group (CMG). Accomplishment billings and eventual turnover of the project will not be granted without concurrence from the client CMG.

Strong Management Rating 4 – BSPCI top management, starting from its president, has been critical to the growth and continued success of the organization. The top management, from the Vice President of Operations to the all Department Heads and Project Managers, have been with the organization for at least 10 years and through the years have been able to adapt and eventually synergize. There is also a sense of loyalty and ownership of each key individual’s responsibility, which allows each one to go above and beyond what is asked when the situation calls for it.

Importance Weight of 10% is given since good leadership, management and first line supervision fosters positive client relationship with client involvement, initiates proper project team chemistry, adaptability to changes and a sense of ownership. 52

WEAKNESSES:

Poor Equipment Utilization Rating 2 – BSPCI has only been utilizing 74% of its projected capacity. This has been due to lack of preventive maintenance and lack of responsiveness from both the project site and the central Equipment Management group to correct the concern on time. Not only does this prevents savings in project execution, but it also forces the organization to purchase new equipment to meet project demands even if the current lineup should be capable of handling the workload with proper management.

Importance Weight of 10% is given due to the factors identified in the company’s financial analysis. The underutilization of the company’s primary asset compared to its competitors is affecting its ability to fully take advantage of the growing construction market.

Less Solvency Rating 1 - BSPCI as of end of 2013 is highly leveraged with 73% of its assets being funded by debt. The debt increase alone more than doubled from 2012 of around Php 543M to Php 1.12B, 148M of which was used to acquire new equipment and around 332M used for cash flow. Part of the steep increase is due to the recently awarded PPP-based Public School Infrastructure Program, Phase II (PSIP-II) contract from which BSPCI won’t be compensated until completion and turnover of the project on October 2015.

Importance Weight of 10% is given due to the relatively high leverage figure of the company relative to its competitors and the possibility for the economic landscape to change once the new president assumes office in 2016.

Lack of Marketing Promotional Campaign

Rating 1 – BSPCI has been dependent on participating in public and private bidding for infrastructure projects and the only marketing material being used is the Company Profile, which is largely a requirement for any bidding or accreditation process. The organization’s website has 53

not been updated since 2012 and is hardly visible in any keyword searches using popular search engines such as Google or Yahoo. The organization also does not take advantage of construction trade shows and forums that usually happens once every quarter and does not have any promotional campaign.

Importance Weight of 5% is given since this weakness has not given a significant adverse effect to the company’s revenue yet. However, the company needs to address this weakness in order to effectively pursue Market Penetration strategies.

Lack of Supply Chain Management

Rating 2 – Being involved in a procurement system wherein services are being awarded to the lowest-bidding contractor has a trickle-down effect to BSPCI’s relationships with its suppliers and subcontractors, two of the major factors of their supply chain. Rather than defining client value, integrating their activities with the whole scope of works and managing costs collaboratively, BSPCI just goes for the lowest offer. While the organization recognizes and establishes key supplier/subcontractor relationships, there is no continuity as there will always be a competitor who always comes in with a better price.

Importance Weight given is 10%; eventhough the current industry practice is that the companies may only be linked by contracts that have been procured on lowest price against fixed specifications, The benefits for end-users and project clients include a more responsive industry delivering facilities that better meet user needs, delivered to time and cost with minimum defects. This in turn creates higher customer satisfaction levels and an improved reputation for the company.

High Employee Turnover Rate

Rating 1 – While there is stability on top management, the same cannot be said to middle and Junior management all the way to rank and file. BSPCI experiences an annual employee turnover rate of over 20%. Historically, the organization does not provide the same level of 54

compensation afforded by its competitors, which results to the organization being viewed as a “stepping stone” for young professionals to gain experience before transitioning to a better paying opportunities.

Importance Weight of 5% is given as the strong leadership from top management helps offset the lack of continuity in the lower management levels.

Lack of Innovation/Weak R&D

Rating 1 – Most of BSPCI’s key personnel, especially on the operations group are from the “old-school” way of executing construction works and have a disdain to new methods and technologies that other competitors may be more open to invest time and resources with. The sentiment of “re-inventing the wheel” is not being received very well since most of these people have been used to performing things the same way for such a long time. New technologies and innovations are only being incorporated if they are a requirement from the client.

Importance Weight of 15% is given; while infrastructure development in the country has not been as technologically inclined yet, the instituted BERDE scheme being envisioned as the future benchmark for all property developers in the country, as well as the upcoming ASEAN integration (see External Analysis) should heighten the urgency of the company to be more technologically competent.

IFE MATRIX:

INTERNAL FACTOR

Importance Firm's

Weighted

Weight

Score

Rating

Strengths Operational Execution

15.0%

3

0.45

Competitive Pricing

15.0%

3

0.45

5.0%

3

0.15

Wide Range of Coverage

55

Good Quality

10.0%

3

0.3

Strong Management

10.0%

4

0.4

Poor Equipment Management

10.0%

2

0.2

Less Solvency

10.0%

1

0.10

Lack of Supply Chain Management

10.0%

2

0.2

High Employee Turnover

5.0%

1

0.05

Lack of Innovation/R&D

5.0%

1

0.05

Lack of Marketing/Promotional Campaign

5.0%

1

0.05

Weaknesses

TOTAL

100.0%

2.4

6.4 STRATEGIC ISSUES BASED ON INTERNAL FACTORS

BSPCI delivers the same quality of services that their clients require at a lower price owing to its more than adequate operational execution, experienced personnel, and strong management core. However, its focus in building equipment lineup without proper management has led to a lower degree of financial flexibility. Moreover, the lack of proper supply chain management prevents the firm from maximizing profitability that can be used to make its salary and benefits package more appealing for lower management to rank and file employees. BSPCI should establish a better support core to key management personnel by better employee retention to not only allow a more open-minded approach to more efficient project execution but also to allow more continuity that will ensure the sustainability of the organization especially when its key personnel are ready to retire. BSPCI should also look into increasing its capital base and rely less on short term debt to finance its operations, lower financing costs and improve long term viability.

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VII.

STRATEGY FORMULATION

The information gathered through the CPM, EFE and IFE matrices will be used to develop strategies for BSPCI. SWOT Matrix, SPACE, Internal-External (IE) matrix, Grand Strategy, Summary of Strategies and Quantitative Strategic Planning Matrix (QSPM) will be utilized in strategy formulation. 7.1 SWOT Matrix: This matrix helps develop four types of strategies: Strengths – Opportunities, Weakness- Opportunities, Strength-Threats and Weaknesses-Threats.

SWOT MATRIX

Strengths

Weaknesses

Operational Execution

Poor Equipment Management

Competitive Pricing

Less Solvency

Wide Range of Coverage

Lack of Supply Chain Management

Good Quality

High Employee Turnover

Strong Management

Lack of Innovation/R&D Lack of Promotional Campaign

Opportunities Projected GDP of more than 6% in 2016, Consistent 5% increase in GDP for the next 25 years Gov’t budget for infrastructure projects for 2015 is Php 300B, will increase to 400B in 2016 on DPWH alone Increase in Infrastructure Projects

SO Strategies S1-S4, O1 - Increase Market Penetration efforts, highlighting competitive advantages of price, quality and wide area of coverage while consumer spending power is high S2, O2 - Increase participation in government (esp. DPWH) bidding

WO Strategies W2, O1 - Seek additional cash flow from investing activities W5, O1 - Establish Integrated Marketing Communications (IMC) campaign to increase visibility of organization W2, O2 - Focus participation in non-BOT government projects, which has less captitalization requirements

S1-S4, O3 - Increase Market Penetration efforts, W5, O3 - Establish Integrated Marketing Communications highlighting competitive advantages of price, quality and (IMC) campaign to increase visibility of organization wide area of coverage while consumer spending power is high Emergence of Public-Private-Partnership S2, O4 - Increase participation in bidding for PPP projects W2, O4 - Establish partnerships with other contractors or Program financial institutions to increase capitalization to meet PPP requirements Effect of ASEAN Integration S2, O5 - Venture to bidding for international projects W1&W5, O5 - Seek and incorporate for within ASEAN community technological/innovtive advantage from construction practices of other ASEAN members Continuous Growth in the BPO Sector S3, O6 - Establish BPO client base in growth areas (Cebu, W6, O6 - Increase promotional efforts to create Iloilo, Cagayan De Oro) organization's awareness in BPO industry Housing Demand S1-S4, O7 - Increase participation in both public and W4, O7 - Offer housing incentive based on years of service private Housing projects W6, O7 - Implement promotional campaign to specifically create awareness of organizatoin with private housing developers Ecological/Technological Advancements S4, O8 -Establish high BERDE-rating to increase viability W3, O8 - Establish strategic partnerships / horizontal to participate in PHILGBC-required projects intergration with key suppliers and subcontractors to allow synergy of resources to adapt with Ecological Advancements Reconstruction Efforts due to recent calamitie S3, O9 - Participte in reconstruction projects from Gov't W6, O9 - Increase promotional efforts to create or NGO's that are in Eastern Visayas and Bicol regions organization's awareness within NGO's and other benefactors for socialized housing Threats

ST Strategies

WT Strategies

Lack of Qualified Personnel

S5, T1 - Establish "mentorship program" between qualified personnel and senior management partner, specifically on technical services or operations department S1 & S2, T2 - Update cost scheme incorporating data from recently concluded projects to make pricing more competitive

W4, T1 - Provide better employee compenstaion and benefits package to attract more qualified personnel to the organization

Strong Rivalry of competition

W4, T2 - Provide better employee compensation and benefits package to prevent piracy to competitors

57

Market Penetration Strategies: S1-S4, O1, O3 - Increase promotional/campaigning efforts, highlighting competitive advantages of price, quality and wide area of coverage while consumer spending power is high S2, O2 - Increase participation in government (esp. DPWH) bidding W2, O2 - Focus participation in non-BOT government projects, which has less captitalization requirements W5, O3 - Establish Integrated Marketing Communications (IMC) campaign to increase visibility of organization S2, O4 - Increase participation in bidding for PPP projects S2, O5 - Venture to bidding for international projects within ASEAN community S1-S4, O7 - Increase participation in both public and private Housing projects S3, O9 - Participate in reconstruction projects from Gov't or NGO's that are in Eastern Visayas and Bicol regions W6, O9 - Increase promotional efforts to create organization's awareness within NGO's and other benefactors for socialized housing W2, O2 - Focus participation in non-BOT government projects, which has less captitalization requirements S3, O6 - Establish BPO client base in growth areas (Cebu, Iloilo, Cagayan De Oro)

Product (Service) Development Strategies: S4, O8 - Establish high BERDE-rating to increase viability to participate in PHILGBC-required projects S1 & S2, T2 - Update cost scheme incorporating data from recently concluded projects to make pricing more competitive 58

S5, T1 - Establish "mentorship program" between qualified personnel and senior management partner, specifically on technical services or operations department

Integration Strategies: W1&W5, O5 - Seek and incorporate for technological/innovative advantage from construction practices of other ASEAN members W3, O8 - Establish strategic partnerships / horizontal integration with key suppliers and subcontractors to allow synergy of resources to adapt with Ecological Advancements

Other Strategies: W2, O1 - Seek additional cash flow from investing activities W4, T1 - Provide better employee compensation and benefits package to attract more qualified personnel to the organization W4, O7 – Offer employee housing incentive based on years of service

7.2 SPACE MATRIX The Strategic Position and Action Evaluation (SPACE) matrix allows for the organization to choose the most appropriate set of strategies. The four possible sets of strategies in the SPACE Matrix can be conservative, aggressive, defensive or competitive strategy. As an input, internal factors pertaining to financial strength and competitive advantage are selected along with external factors pertaining to environmental stability and industry strength. A. Financial Strength (FS) Ratings: For FS use +1 (worst) to +7 (best) As stated in the IFE, BSPCI is highly leveraged, which could affect the organizations cashflow in the future, and is therefore rated at +2. However the organizations aggressiveness in financing 59

activities has brought about better liquidity (+6), working capital (+5) and cash flow (+4) compared to its competitors at least for the short term. Liquidity (Current Ratio of BSPCI is 2.12:1): +6 Working Capital (BSPCI has over 412M in working capital for FY 2013): +5 Leverage (BSPCI has leverage ratio of .73:1): +2 Cash Flow (BSPCI has cash balance of 293M for FY 2013): +2 (See Appendices: BSPCI 2013 audited financial statements)

B. Industry Strength (IS) Ratings: For IS use +1 (worst) to +6 (best) Optimism on the country’s sustained economic growth, together with a pronounced focus in infrastructure projects are the primary reasons for the construction industry with more opportunities. With the exception of being in a weak position to take advantage of the emergence of PPP (+2), partly due to its current leverage situation, BSPCI’s price competitiveness and wide range of area (see IFE) allows the organization to be in a good position especially with participating in Government Projects, particularly with the Department of Public Works and Highways (DPWH). GDP Growth (Phl annual estimated growth is 5-6% over next 5-10 years): +5 Government Allocation for Infrastructure Projects (BSPCI has good relationship with DPWH): +6 Emergence of Public-Private-Partnership (PPP): +2 ASEAN Integration (BSPCI has coverage in growth areas to be affected most by ASEAN): +5

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C. Environmental/Stability Position (SP) Ratings: For ES use -1 (best) to -6 (worst) Despite the recent setbacks experienced by the current administration, there has been generally positive effect, especially with good governance (-3), that has promoted confidence in the Philippines and subsequently produced a good economic forecast for the foreseeable future. BSPCI has thrived on these developments as the organizational integrity has allowed more opportunities to participate, especially with government projects, than it was able to during the previous administration. The organization is generally well-positioned to maintain and exceed its current market share and industry standing due to its competitive pricing (-3) and observance and maintenance of the strict technical regulations and qualifications (-3). The aforementioned qualifications, specifically for contractors in the “AAA” level, also puts BSPCI at an advantage since the steep requirements prevent new entrants from easily gaining entry to this level (-3, see also Five forces). Prices of Competitors: -3 Observance to Technical Regulations and Qualifications: -3 Political Stability and Good Governance: -3 Barriers of Entry to Market: -3

D. Competitive Advantage (CA) Ratings: For CA use -1 (best) to -6 (worst): BSPCI’s competitive pricing (-2), good quality that observes international standards (-2) and efficient operational execution (-3) have been the primary reasons for the organizations steady growth over the past 10 years. BSPCI has also been able to successfully expand its area of coverage to most of Visayas and Mindanao (-2) that puts the organization in an advantage to penetrate other markets compared to its competitors. The organization needs to not only expand its equipment lineup but to improve its equipment preventive and corrective maintenance (-5) to become more competitive. Quality (BSPCI has been ISO Compliant since 2008): -2

61

Operational Execution: -3 Strategic location (BSPCI has wide coverage of satellite offices): -2 Competitive Pricing: -2 Equipment Lineup and Management: -5 SPACE MATRIX for BSP and Company Inc. FINANCIAL STRENGTH (FS)

RATINGS

Liquidity (Current Ratio of BSPCI is 2.12:1)

6

Working Capital (BSPCI has over 412M in working capital for

5

FY 2013) Leverage (BSPCI has leverage ratio of .73:1 compared to

2

industry ave of .45:1) Cash Flow (BSPCI has cash balance of 293M for FY 2013)

4

Total

17

Average

4.25

INDUSTRY STRENGTH (IS) GDP Growth (Phl annual estimated growth is 5-6% over next 5-

5

10 years) Government Allocation for Infrastructure Projects

6

Emergence of Public-Private-Partnership (PPP)

2

ASEAN Integration

5

Total

18

62

Average

4.5

ENVIRONMENTAL STABILITY (ES) Prices of Competitors

-3

Observance to Technical Regulations and Qualifications

-3

Political Stability and Good Governance

-3

Barriers of Entry to Market

-3

Total

-12

Average

-3

COMPETITIVE ADVANTAGE (CA) Quality (BSPCI has been ISO Compliant since 2008)

-2

Operational Execution

-3

Strategic location (BSPCI has wide coverage of satellite offices)

-2

Competitive Pricing

-2

Equipment Lineup and Management

-5

Total

-14

Average

-3.5

CONCLUSION X - Axis (CA average + IS average)

1.0

Y- Axis (ES average + FS average)

1.25

63

FS 9 8 7 6 5 4 3 2 1

Conservative

CA

-7

-6

-5

-4

-3

-2

Defensive

-1

0 -1 -2 -3 -4 -5 -6 -7 -8 -9 ES

Aggressive

(1.0, 1.25)

1

2

3

4

5

6

7

IS

Competitive

Based from this particular strategic management tool, the company belongs in the aggressive quadrant; recommended strategies include pursue market penetration, product development, related diversification and integration strategies.

7.3 INTERNAL-EXTERNAL MATRIX The internal-external matrix assigns positions to the organization in a nine cell display based on its IFE and EFE scores. If the firm falls in cell 1, 2 and 4, grow and build strategies are recommended. Hold and Maintain strategies are advised for firms falling in cells 3, 5 and 7. Organizations should consider harvest or divest strategies if they fall in cells 6, 8 and 9. TOTAL IFE RATING: 2.40

TOTAL EFE RATING: 2.45

Strong 3.0 to 4.0

Average 2.0 to 2.99

Weak 1.0 to 1.99

High 3.0 to 4.0

I

II

III

Medium 2.0 to 2.99

IV

V

VI

Low 1.0 to 1.99

VII

VIII

IX 64

Based on the IE matrix, BSPCI falls under cell 5. Hold and maintain strategies are recommended under this group. Intensive strategies such as market penetration and product development can also be implemented.

7.4 GRAND STRATEGY MATRIX Using the grand strategy matrix, organizations are grouped into four quadrants depending on the organization’s competitive position (BSPCI compared to its primary competitors) and the industry’s growth (Construction Industry compared to Economic Growth). MARKET GROWTH: RAPID (Industry Growth exceeds GDP Growth) As earlier stated, the economic projections for the Philippines is optimistic for the next 5-10 years, with the GDP expected to grow at around 6% on the same period (see EFE). The construction industry, one of fastest-growing in the country, experienced a boom in the first quarter of 2014, generating jobs and enhancing the growth of other industries. The Philippine Statistics Authority (PSA) reported that new construction projects, as indicated by approved building permits, reached 29,468 in the first quarter of 2014, up 20.8% from 24,000 in same period in 2013. The continued growth peaked towards the end of 2014, with a massive real expansion of 20.5% year-on-year (y-o-y).32 Reconstruction efforts stemming from the aftereffects of Typhoon Yolanda in late 2013 should continue to provide a strong tailwind for construction activity throughout 2015 and industry is forecasted to experience real growth of 9.4% for this period. COMPETITIVE POSITION: Moderately to Strongly Competitive BSPCI has key advantages over its competitors brought about by competitive pricing, efficient operational execution and strong quality control. The organization also has established relationships with key government agencies, particularly the DPWH, something that has not been accomplished 5 years ago and positions them to take advantage of the focused allocation on __________ 32

http://www.bmiresearch.com

65

infrastructure projects. However, BSPCI’s high financial leverage, mediocre to poor equipment management and lack of organizational depth puts the organization at a disadvantage on these areas as well.

Based on these, BSPCI falls under the first quadrant in the grand strategy matrix. Under this quadrant, continued concentration on current markets and products/services (market development, market penetration, product development) are considered as appropriate strategies. Integration is also possible if the organization has excessive resources, which in BSPCI’s case may not be applicable since due to the aforementioned leverage situation (see IFE). BSPCI can also consider product development in the form of diversification of its services, wherein a focus on improving its competence for vertical projects and assimilation to technological innovations (see EFE) thereby expanding its core competence base.

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7.5 BOSTON CONSULTING GROUP (BCG) MATRIX The BCG Matrix allows multidivisional organizations to manage its portfolio of business by examine relative share position and growth rate of each division and graphically portrays differences among these divisions. Since BSPCI is not a multidivisional organization, this strategy can be exercised among different products (construction services) offered by the organization. The BCG Matrix will be created based on the three major construction works being practiced by BSPCI: Horizontal Works (roads, highways and bridges), Vertical Works (buildings and industrial plants) and Other Works (land and site development, irrigation, flood control and water supply).

RELATIVE MARKET SHARE POSITION .50

1.0

0.0

INDUSTRY SALES GROWTH RATE

+20

V

H 0

STARS (II)

QUESTION MARKS (I)

O -20

CASH COWS (III)

DOGS (IV)

QUESTION MARKS The industry for vertical construction works is currently at the high-growth segment due to the emergence and continuous growth of the BPO sector and the rise of housing demand, particularly for socialized housing and relocation of typhoon victims with Reconstruction Assistance on Yolanda (RAY) as an example (see EFE). However, BSPCI has a relatively low market-share on this sector of 19% due to lack of its personnel’s expertise and general experience. The organization currently holds a “Large B” PCAB Registration Particular for Buildings and Industrial Plants, which means it can participate in the largest vertical works projects. Product development (specifically project and service development) is the most logical 67

strategy to be applied, with a focus on organizational development to equip BSPCI’s key personnel with the tools and knowledge to maintain the same operational efficiency with vertical project execution.

STARS Horizontal Works projects have been the primary beneficiary of the highest government allocation for infrastructure development with Php 170.4B or 62% of the total Php 273.9B budget for DPWH for 2015. BSPCI’s good working relationship with the department resulted in horizontal projects awarded amounting to 52% of the organizations 2014 revenue. And with the department projecting to budget up to Php 400B for 2016, it’s a clear strategy to pursue aggressive Market Penetration by participating in as many project biddings as possible, taking advantage of the organizations competitive pricing and wide area of coverage. Alternative strategies can be pursued in horizontal integration in the form of Joint Ventures with other construction firms rather than acquisition with an eye of keeping a strong cash flow, especially given the organization’s current high financial leverage.

CASH COWS BSPCI was able to consistently increase its overall market share before attaining its “AAA” rating by participating as subcontractor then eventually general contractor with land and site development projects bidded out by notable private clients such as Empire East Holdings, Antel Holdings, Landco Development Corporation and Greenfield Development Corporation. The organization has been able to maintain a respectable market share of 29% and while the real estate development market is forecasted to grow at least through 2016, the competition is more fierce compared to government bidding as technical qualifications and experience are not as stingy. Product Development in terms of improving equipment management will further augment the organization’s already competitive pricing in order to maintain its current market share at least for the short term.

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7.6 SUMARY OF STRATEGIES SPACE STRATEGY OPTIONS Forward Integration Backward Integration Horizontal Integration Market Development Market Penetration Product Development Related Diversification Unrelated Diversification Retrenchment Divestiture Liquidation

x x x x x x x x

IE

x x

GRAND

BCG

TOTAL

x x x x

x x x x x x x

2 2 2 3 4 4 3 1 0 0 1

x

Market Penetration The suggested market penetration strategy will involve a more aggressive pursuit and participation of public and private bidding for various infrastructure projects, taking advantage of the organization’s competitive advantages in pricing and wide area of coverage. The strategy involves increasing the workforce of the Business Development department with technically competent personnel with prior experience in the construction industry. It also requires increasing the workforce of the Technical Services (Engineering) Department to adequately handle the additional load with respect to estimating and costing formal bid price proposals. The target is to double the average participation in project bidding.

Product Development Since BSPCI is a construction services firm, the strategic focus on Product Development is an internal effort to introduce new systems or improve current processes to achieve three objectives: fiscal strength and cost discipline, efficient asset (equipment) utilization, and promoting organizational growth. The objective is to implement a more proactive and efficient Equipment Management system that will promote maximum equipment efficiency, one of the organizations 69

weaknesses, which will then drive down cost of operating activities, and to develop technically competent and highly motivated personnel particularly from junior management to rank-and-file, which is another weakness in the organization.

Related Diversification In an effort to expand BSCPCI’s core competence from just horizontal works, which will augment the previous strategy of Market Penetration, this strategy involves developing a new project works process specifically for vertical construction, which is adaptable to incorporate technological and ecological advancements in anticipation for future compliance. This strategy will also require organizational development of existing Project Managers to improve their competency levels with respect to vertical construction. This strategy also suggests creating an R&D segment under the Engineering Department that will take into consideration new innovations that can further improve the value of construction services currently being provided.

7.7 QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM) The Quantitative Strategic Planning Matrix is a tool to determine the relative attractiveness of feasible alternative actions. Based from the summary of strategies, market penetration, product (service) development, horizontal integration and related diversification are strategies to consider.

70

QUANTITATIVE STRATEGIC PLANNING MATRIX (QSPM) KEY FACTORS

WEIGHT

Market Penetration Product Development Related Diversification AS TAS AS TAS AS TAS

Opportunities Projected GDP of more than 6% Increased government budget for infrastructure projects for 2015 Steady increase in private infrastructure projects Emergence of Public-Private-Partnership Program Continuous Growth in the BPO Sector Effect of ASEAN Integration Effect of Incoming DPWH Secretary Social Re-development of Metro Manila Housing Demand Reconstruction Efforts due to recent calamities Technological/Ecological Advancements

5%

4

0.2

2

0.1

3

0.15

10% 12.5% 10% 5% 10% 2.5% 5% 10% 5% 10%

4 4 3 4 3 3 2 3 3 1

0.4 0.5 0.3 0.2 0.3 0.075 0.1 0.3 0.15 0.1

2 2 2 2 2 1 3 1 1 3

0.2 0.25 0.2 0.1 0.2 0.025 0.15 0.1 0.05 0.3

3 3 1 3 4 2 1 2 2 2

0.3 0.375 0.1 0.15 0.4 0.05 0.05 0.2 0.1 0.2

5% 10%

0 1

0 0.1

2 3

0.1 0.3

1 2

0.05 0.2

15% 10% 5% 15% 10%

1 4 4 3 3

2 2 2 2 1

1 0 1 2 1 4

0.3 0.2 0.1 0.3 0.1 0 0.3 0.3 0.15 0.15 0.15 0.15

3 3 3 1 2

10% 15% 5% 5% 5% 5% 100%

0.15 0.4 0.2 0.45 0.3 0 0.1 0 0.05 0.1 0.05 0.2

0.45 0.3 0.15 0.15 0.2 0 0.2 0.15 0.1 0.05 0.1 0.1

Threats: Lack of Qualified Personnel Strong Rivalry of competition

Strengths: Operational Execution/Project Management Competitive Pricing Wide Area of Coverage Good Quality Strong Management

Weaknesses: Poor Equipment Management High Leverage Lack of Supply Chain Management High Employee Turnover Lack of Innovation/R&D Lack of Marketing/Promotional Campaign

Total Weight SUM TOTAL ATTRACTIVENESS SCORE

4.725

3 2 3 3 3 3

2 1 2 1 2 2

4.275

4.275

On Opportunities: Market penetration is effective when the market shares of major competitors are declining while total industry sales have been increasing.33 Thus, market penetration is highly applicable for the opportunities of the increase in infrastructure projects both public (due to higher allocation of budget for infrastructure) and private (due to steady economic growth projections and continuous __________ 33

Strategic Management 14th Edition (David)

71

growth of BPO industry). This strategy is also applicable to the increased focus/funding on reconstruction efforts due to recent calamities as this market is relatively new with no established players yet. Product (service) development is viewed as most effective for the emergence of PPP and the upcoming ASEAN integration. The PPP framework is most beneficial to organizations that have fiscal strength and efficient project execution, both of which can be improved by internal efforts to develop more effective processes with technically proficient and experienced personnel, as well as sound financial management. Diversification, particularly a focus on developing more expertise and experience in Vertical Works, will be able to fully take advantage of the consistent demand for housing. In addition, the opportunities brought about by the BPO industry and reconstruction efforts can also be taken advantaged of since construction efforts are mostly vertical works in nature.

On Threats: Product development is the most suited strategy to avoid the threats brought about by technological and ecological advancements. With a better processes and a more competent organization, particularly in project management, BSPCI can be more adaptable to future standards and regulations brought about by these advancements. Having a more adaptable system in project works with personnel equipped with the technical experience and expertise will allow the organization to seamlessly incorporate and even take advantage of innovations in major construction supplies and project execution that would make it more competitive moving forward. Weaker housing prices and intensive competitive rivalry can be best responded by market penetration. BSPCI already has a competitive pricing edge and can reinforce this by being more aware and then aggressively pursuing infrastructure projects up for bidding. By doing so, the organization can promote its reputation as “bringing more value for your peso” to a broader market.

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On Strengths: As mentioned previously, market penetration is best suited to take advantage of BSPCI’s competitive pricing. In addition, with the increasing visibility of the construction industry as one of the primary drivers of the Philippine economy, promoting a high quality standard as one the organization’s key attributes through this strategy will also be beneficial. Having a wide area of coverage will also augment market penetration efforts as the geographical limitations are less pronounced with BSPCI compared to its competitors. Diversification is best suited to take advantage of BSPCI’s Project Execution since the organization’s efficient processes in project management will allow it to adequately handle the risks involved in being more exposed to non-horizontal works. This strategy can also utilize the BSPCI’s pricing and wide area advantages by presenting more project opportunities the organization can competitively be involved with. While Product Development requires a need to strengthen the whole systems and organization from top to bottom in order to be more adaptable and build new core competences, the strong management team will allow the organization to maintain its growth while administering organizational and systems change from within. On Weaknesses: Most of BSPCI’s weaknesses are based on the need to improve the current systems and organizational culture… better systems + better people = improved organization. Currently, BSPCI’s ISO Certification only involves Construction Works and not Equipment Management Group, which explains the efficiency of project works and a strong management team, but also the need to improve and develop a more comprehensive process that will enable the most efficient equipment utilization possible. Also, having a better organizational development initiative will allow BSPCI to not only retain more of its junior personnel but be able to instil a renewed sense of ownership and entitlement that will allow the organization to be ready to implement the envisioned growth plan. A focused effort in promoting organizational growth by developing technically competent and highly motivated personnel from the bottom up will ensure the sustainability of BSPCI’s growth in order to achieve its vision.

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VIII. STRATEGIC OBJECTIVES AND RECOMMENDED STRATEGIES 8.1 STRATEGIC OBJECTIVES The strategic short to mid-term objective of BSPCI can be adapted from its current vision statement, which is to be the one of the leading construction firms in 2020 – Top 20 in 2020. From the market analysis, there is a considerable gap between the top 10 construction firms and the other large scale players (11 to 50). The three competing companies identified (JE Manalo, Metro Stonerich and CM Pancho) have competencies in different segments of the market. JEMCO has the most similar competencies, which is horizontal works but is more focused in site development projects such as Ports and Harbor Construction and Bridge and Road constriction. Metro Stonerich’s competencies is with Vertical Works, focused in various mid to high rise buildings, factories and other vertical structures. CM Pancho’s competencies are with water line and irrigation systems but have significant experience in road and bridge construction as well. As mentioned, the large disparity between the market leaders and other large scale players makes it unlikely for players like BSPCI to aim for the market leader position within a three year horizon. However, given that the market followers identified have almost identical position relative to total market share, BSPCI can best succeed in being a significant player among the other large scale players. Aiming to fulfil this objective is both a challenging and rewarding goal as having a market share above 1.0% will result in revenues above Php 3B or a 91% revenue growth over a 3-5 year period. This will also establish BSPCI as among the top 15 projected construction companies, surpassing the current vision established. 8.2 RECOMMENDED BUSINESS STRATEGIES Market Penetration Strategies BSPCI shall use Integrated Marketing Communication (IMC) to build company awareness. IMC is a marketing communication plan that combines a variety of communications discipline to provide clarity, consistency and maximum impact through seamless integration of discrete messages build brand/company awareness. A mix of market communication modes will be used. Industry is B2B-oriented so typical product promotion such as radio/television advertising is not particularly applicable. B2B marketing is “about meeting the needs of other businesses, though 74

ultimately the demand for the products made by these businesses is likely to be driven by consumers”34. This simply means that business-to-business buyers are more demanding. These customers have a responsibility to make the right decision when purchasing on behalf of their companies, therefore they take less risks, have the expertise to recognize a bad offering and are used to getting what they want. However, B2B buyers are more predictable than their consumer counterparts. This means that good quality market intelligence and close attention to target markets’ particular needs will be beneficial for the company and would put the company in a strong marketing position. Development of quick-reference company brochure, which is customized depending on audience, is important. This marketing collateral should immediately focus on the customer value for money that BSPCI is known for and should have iterations depending whether the target audience is from procurement, design or engineering background. The brochure should be concise enough to drive home the Value-Add proposition without losing the interest of the audience. Once the attention has been achieved, the potential customer would then ask for a more detailed company profile. The existing company profile should be improved citing the following major sections: Company Introduction and Mission/Vision Statement, General Information (it is important to highlight the major classifications the company qualifies on) and Organizational Chart, Milestone Projects and List of Clientele, which should be arranged according to revenue, not chronologically, and finally the financial “highlights”, specifically Balance Sheet, Income Statement and Cashflow statements only. The company website should be a mirror-image of the company profile at the very least and needs to be updated quarterly to keep the audience appraised on the recent project accomplishments with their corresponding revenue. The website’s search ability in terms of keywords such as “construction company”, “triple-A contractor”, “accredited construction firms” and “recommended contractors” have to be established to improve the visibility of the company. __________ 34

http://www.b2binternational.com

75

Market Penetration efforts should be made in identifying key growth areas identified in the EFE, like NGO’s actively participating in short and long term reconstruction efforts for example. The Business Development Department should have key account representatives for the existing client base both with key developers and contractors in private sector and Department agencies such as DPWH, NHA, DOTC, NIA, etc.in order to improve client relations, thus resulting into referrals and recommendations to other potential customers. The construction industry is not a large community, especially on a large scale level. Major trade forums, such as Philconstruct, developer and designer seminars and contractor/developer conferences such as the PCA monthly contractor’s conference can easily be identified. BSPCI should increase participation and allocate funds for sponsorship, which in turn will provide a platform for the company to showcase its core competencies and strengths to amplify its valueadd proposition. The proposed strategy will require highly qualified technical sales team, with both experience in the construction industry and B2B marketing to ensure relationship-building particularly with key customers. Continuous exposure to trainings, workshops, and seminars for the business’ employees will be incorporated as part of the company’s existing Training Needs Analysis and Annual Training Program in order equip the team with the necessary technical competency and customer relation skills needed in this environment.

Market Penetration Strategy Map: Specific Objectives

Marketing Communications

Strategic Activities

Promotion

Time Frame

Development of Brochure Company Brouchure

3 months

Improvement of Company Profile

3 months

Company Profile

Person/ Department Involved

Budget Allocation

Business 15,000/month Development Business Development 20,000/month

KPI (Expected Outcome) 20% increase in company revenue 20% increase in company revenue

76

Audio Visual Presentation

Audio Visual 4 months Presentation

Business 20% increase Development 25,000/quarter in company revenue

Contractor Business Sponsorship during and Development 50,000/semiContractor/Developer Continuous Develooper annualy Forums Forums

Customer Relations Improvement

Business 20% increase Development 10,000/annually in company revenue

Website Improvement Internet

4 months

Market Saturation

Business Continuous Development 10,000/month

20% increase in company revenue

Business Development 15,000/month

20% increase in company revenue

Human Resources

10% increase in company expenses = salaries and benefits

Visitation

Continuous visitation Visitation with existing clients

Organizational Development

20% increase in company revenue

Improvement of Technical Business Development Staff

Ongoing

6 months

100,000

Impact of Market penetration strategy BSPCI will generate a 20% increase in revenue, and increase its share from Vertical works by 40% by establishing this proposed strategy due to the increased visibility of the organization, especially with private developments for mid to high rise condominiums and BPO centres and non-profit organizations focused on socialized housing. The corresponding costs in both marketing and workforce improvement are geared to intensify the organization’s involvement in project bidding and promotion of its services to existing and new clients. This workforce increase will be primarily utilized in business development and technical services as part of its business development expansion.

77

Recommended Service Development Strategies Establish Activity-Based Costing for Equipment Management Group (EMG) BSPCI’s core competence is on civil works, which is equipment-intensive. Having owned 90% of the equipment being deployed, the company has a competitive advantage as internal rental rates can pegged at a lower rate compared to companies that rent out equipment externally. However, the company currently does not have an equipment projection as part of the annual budget. Equipment budget normally gets derived from historical data (costs incurred from the previous year + fixed percentage). While the equipment budget allocation is based on actual costs from the previous year, it is not an accurate projection on the actual costs that may incur during the current year. Project management is monitored on an accomplishment vs budget approach so Project managers get too consumed in hitting projected revenue targets per accomplishment report that proper allocation of resources and cost discipline are getting overlooked. Having a lack of a working budget, particularly in equipment prevents such discipline to be observed.

Activity based costing (ABC) assigns equipment overhead costs to products in a more logical manner than the traditional approach of simply allocating costs on the basis of machine hours. ABC first “assigns costs to the activities that are the real cause of the overhead, then assigns the cost of those activities only to the product/service that are actually demanding the activities,”35 in BSPCI’s case, all heavy equipment-related budgeting would be on the basis of per-project level rather than getting the total overhead costs based on historical data.

__________ 35

Garrison, Noreen, Brewer: Managerial Accounting, 14th Edition

78

COST ELEMENTS FIXED

VARIABLE PHP 2M/mo

Repair/Maintenance

PHP 41.014/liter

DM: Fuel

PHP 101/liter

DM: Oil and Lubricants

PHP 52/hour

DL: Equipment Operators

PHP 45/hour

DL: Truck Drivers

PHP 43/hour

FLEXIBLE BUDGET 24,000,000 82,027,986 4,557,110 9,765,236 8,450,685 8,075,099 11,272,113 60,096,963 2,374,201 8,294,866

29,116,751 75,967,200 6,151,900 12,215,463 10,342,534 10,895,426 11,272,113 60,096,963 2,374,201 8,294,866

218,914,259

226,727,417

DL: Maintenance

11,272,113 60,096,963 2,374,201 8,294,866

ORIGINAL BUDGET*

COST ITEM

Indirect Labor Derpiciation Insurance Others

TOTAL

* Original 2015 budget is based on actual 2014 expense + fixed percentage

Impact Having a better understanding of equipment cost derivation and proper budgeting based on activity costing would lead to better budget allocation for equipment utilization. And since the budgets would be monitored on a project-level basis, this initiative will demand better cost discipline and monitoring from the Project Operations and Technical Services Group. The resulting effect could decrease total operational costs by 5-10%. Organizational Development through Employee Motivation/Ownership It should be considered that management understands that employee performance is tied directly to how vested they feel to the company they work for. A profit-sharing program for every completed project that generated income can be a powerful incentive for employees to work harder for the company and gain a sense of satisfaction from knowing that not only will they get a cut of the profits, but also instil a sense of ownership that their performance is tied to the success of the company. According to experts in human resources organizations focused on employee benefits, the objective of a profit sharing plan "is to foster employee identification with the organization's success."36 Moreover, the added productivity may increase the overall financial performance of the company. __________ 36

http://www.worldatwork.org

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The preferred choice is a cash profit sharing plan, wherein an employee's predetermined share of the profits is paid directly in cash or check, and those bonuses are taxed as a part of an employee's overall wages. Top Management will have a lot more leeway to establish the rules for their program and to determine who's eligible and how much they are paid out of the profits. This plan also typically appeals to a younger-skewing workforce, most likely from rank-and-file to junior management levels, and thus would somehow address the glaring concern of High Turnover rate within the company. While the immediate or long-term impact of this strategy could not be quantified in terms of revenue, income, market share or other growth-level indicators, the true value of this initiative is not only to encourage employees to remain in the company, but to promote motivation and empowerment within each individual that BSPCI promotes their best interests and they are a key ingredient to the company’s success moving forward.

8.3 OTHER RECOMMENDED INTUITIVE STRATEGIES Horizontal Integration BSPCI’s current core competence is on Horizontal Works projects, among of which include roads, highways, bridges, land and site development, irrigation, and flood control and water-line projects. The objective is to take advantage of the organization’s civil work-centric operations group and extensive equipment lineup to gain a competitive advantage in pricing and overall execution. Unfortunately, the organization has a less-than-stellar achievement in vertical-works such as Buildings, Warehouse Facilities, or any works that are more labor and material intensive. Moreover, most of BSPCI’s key personnel, especially on the operations group are from the “oldschool” way of executing construction works and have a disdain to new methods and technologies that other competitors may be more open to invest time and resources with. The sentiment of “re-inventing the wheel” is not being received very well since most of these people have been used to performing things the same way for such a long time (see Internal Analysis).

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A viable strategy to both take advantage of the growing opportunity in technological advancements, especially in the pre-fabricated material market, and to strengthen a glaring weakness within the organization of BSP and Company, is to adapt Horizontal Integration with current pre-fabricated concrete suppliers/contractors. This will enable the organization to diversify its services, gain additional market share as well as synergize with the current technological and manufacturing expertise of the pre-fabricated concrete supplier/contractor. An example is EASYHOMES, INC. EHI offers innovative alternative building systems that aim to create more value for clients, through innovation, process efficiency and product improvements. “To date, EHI has 18 registered patents with the Intellectual Property Office (IPO). Its Primary Line of Business is the construction and manufacturing of prefabricated concrete structures, with a plant facility of 10,000 sqm manufacturing facility in Bamban, Tarlac and a 1,000 sqm manufacturing facility in Talisay, Cebu –Q3 2014 - these amounts to 10,000 linear meters standard fence manufactured per month.”37 From the start of their official sales operations in early 2010, EHI has completed 75km of fencing works and established business relationships with prominent real estate developers and reputable construction firms. With competitive pricing and more efficient installation that provides significant cost reductions to the clients, EHI’s pre-fabricated concrete solutions are becoming the more preferred and viable alternative to CHB.

Impact: The Horizontal Integration Strategy is to establish EasyHomes, Inc. as an exclusive prefabricated supplier and R&D arm of BSP & Company Inc. BSPCI will now have the ability to extend its traditional strengths from its core competencies into Vertical Works, allowing the organization to be further aggressive in this market and take advantage of the growing BPO Industry as well as participate in socialized housing efforts not only for government agencies but NGO’s for disaster-relief and relocation efforts. __________ 37

http://www.easyhomes.ph

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Finance Strategies Seeking additional cashflow from investing activities – creating an IPO. This will increase the company's capitalization in anticipation for the expected increase in awarded projects while reducing the dependency for short term debt. Though not specifically tied to any strategy, capital raising activities is an integral part to implement changes in the organization. A major competitive disadvantage of BSPCI currently is its highly leveraged financial situation compared to its competitors. The company’s dependence in short to medium term debt to finance long term investments, though not having an adverse effect, has hindered its ability to support and finance large scale projects, especially under the PPP-framework. Doing an IPO will raise equity to fund its capital intensive market penetration strategies. This will also align its debt to assets ratio with the industry. A dividend policy of 50M pesos annually will be paid starting 2017.

Equity Impact of Strategy: The strategy will provide additional 140M in equity to the company on top of its 400M equity base. It was assumed to calculate for the paid in capital and capital stock that the selling price is at P2 for a P1 par value. Capital Stock:

Actual 2014

Projected 2015

Projected 2016

Projected 2017

Projected 2018

Beginning Balance

90

90

90

190

190

Issuance of Shares

-

-

100

-

-

Ending Balance

90

90

190

190

190

Additional Paid in Capital

10

10

210

210

210

156.9

182.4

232.7

-50

-50

Cumulative earnings

232.7

322.2

Dividends Cumulative earnings ending balance

232.7

322.2

156.9

132.4

182.7

Total equity

322.7

412.2

556.9

532.4

582.7

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8.4 FINANCIAL PROJECTIONS Basis and Assumptions 2014 Financial Statements are unaudited given the timing of this paper in relation to the availability of 2014 Audited Financial Statements. 2015 Financial Statements are projected assuming the firm is status quo on its strategy; strategies recommended will be implemented starting 2016. Industry and Revenue Assumptions: •

Market size will grow 10%. This is the projected annual growth rate for the construction industry for the next 5 years (see EFE).

•

Rapid increase in Housing Demand and the continuous growth of the BPO industry (see EFE) will contribute to a 10% increase in Vertical Works projects for bidding.

•

Base figure will be 2014 sales and applying historical Compounded Annual Growth Rate (CAGR). This assumes that sales will not go down given the improvement in economic factors and continued industry growth (see EFE).

Expense Assumptions •

Projected Cost of Operations will follow the ratio of 2014 (70%) and includes 2.75% forecasted inflation rate as of 202038

•

Salaries will increase at a rate of 9.75% per annum. This projected increase is based on the Towers Watson 2013-14 Asia-Pacific Salary Budget Planning Report of 7% plus the forecasted inflation rate.

•

Percentage increase in salary-related accounts such as employee benefits and premiums (i.e. SSS, Philhealth, Pag-ibig) is at 4% based on historical increase of these items from 2010-2013 (see Appendix).

•

Forecasted inflation rate is considered in projecting future fixed costs.

•

Other expenses will remain constant.

•

Corporate tax rate is at 30% of net income. __________ 38

http://www.tradingeconomics.com/philippines/forecast

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PROJECTED FINANCIALS (HOLD AND MAINTAIN): The following income statement projections are given below based on the assumptions given and if the organization were to remain status quo on its strategy implementation:

INCOME STATEMENT Revenue Operation (project) Costs Gross Income Operating Expenses Salaries and Wages Other Employee Benefits Other Fixed Costs Other Expenses Total Operating Expenses Net Income Before Tax Income Tax TOTAL COMPREHENSIVE INCOME

2016 Projected

2017 Projected

2018 Projected

2019 Projected

1,690,942,765.16 1,212,735,696.46 478,207,068.70

1,741,671,048.12 1,249,117,767.35 492,553,280.76

1,793,921,179.56 1,286,591,300.37 507,329,879.19

1,847,738,814.95 1,325,189,039.39 522,549,775.56

57,034,151.14 12,384,970.65 33,934,274.13 95,091,633.14 198,445,029.06 279,762,039.64 83,928,611.89 195,833,427.75

62,594,980.88 12,880,369.47 34,867,466.66 95,091,633.14 205,434,450.16 287,118,830.60 86,135,649.18 200,983,181.42

68,697,991.52 13,395,584.25 35,826,322.00 95,091,633.14 213,011,530.91 294,318,348.28 88,295,504.48 206,022,843.80

75,396,045.69 13,931,407.62 36,811,545.85 95,091,633.14 221,230,632.30 301,319,143.26 90,395,742.98 210,923,400.28

INCOME EFFECTS FROM MARKET PENETRATION AND DIVERSIFICATION STRATEGIES •

BSPCI will generate a 20% increase in revenue by increasing the bandwidth of its Business Development Department, thereby doubling the participation and public and

84

private infrastructure bidding and by establishing an Integrated Marketing Communications (IMC) campaign that will increase the visibility of the organization, especially with private developments for mid to high rise condominiums and BPO centres and non-profit organizations focused on socialized housing. •

Operation costs (assumed without service development) will increase relative to revenue growth.

Income Targets from Market Penetration and Diversification Strategies

INCOME STATEMENT Revenue Operation (project) Costs Gross Income

2014 Actual

2015 Projected

2016 Projected

2017 Projected

1,593,875,733.02 1,113,146,317.18 480,729,415.84

1,641,692,005.01 1,177,413,297.53 464,278,707.48

2,019,281,166.16 1,730,110,006.76 289,171,159.40

2,483,715,834.38 2,128,035,308.32 355,680,526.06

INCOME STATEMENT Revenue Operation (project) Costs Gross Income

2014 Actual

2018 Projected

2019 Projected

2020 Projected

1,593,875,733.02 1,113,146,317.18 480,729,415.84

3,054,970,476.29 2,617,483,429.23 437,487,047.06

3,757,613,685.83 3,219,504,617.95 538,109,067.88

4,621,864,833.58 3,959,990,680.08 661,874,153.49

EFFECTS OF ORGANIZATIONAL AND SERVICE DEVELOPMENT STRATEGIES: •

Operation Costs will reduce by 10% over the projected period due to improvements in budgeting for Equipment Management and Preventive Maintenance Systems.

Income Targets from Market Penetration, Diversification and Service Development Strategies:

INCOME STATEMENT Revenue Operation (project) Costs Gross Income

2014 Actual

2015 Projected

2016 Projected

2017 Projected

1,593,875,733.02 1,113,146,317.18 480,729,415.84

1,641,692,005.01 1,177,413,297.53 464,278,707.48

2,019,281,166.16 1,589,164,181.36 430,116,984.80

2,483,715,834.38 1,954,671,943.08 529,043,891.30

INCOME STATEMENT Revenue Operation (project) Costs Gross Income

2014 Actual

2018 Projected

2019 Projected

2020 Projected

1,593,875,733.02 1,113,146,317.18 480,729,415.84

3,054,970,476.29 2,404,246,489.99 650,723,986.30

3,757,613,685.83 2,957,223,182.68 800,390,503.15

4,621,864,833.58 3,637,384,514.70 984,480,318.88

85

Expenses Incurred from Strategies •

Marketing and advertising will increase to Php 500K in 2015 with an annual increase of 10%. This is to fund market development and penetration strategies to intensify the organization’s involvement in project bidding and promotion of its services to existing and new clients.

•

Workforce growth from 2016 to 2020 in anticipation of projected revenue increase will amount to a 10% annual increase in total salaries. This increase in employees is relative to the anticipated increase in awarded projects. In addition, additional workforce will be required for business development and technical services as part of its business development expansion.

•

Profit Sharing scheme will result in 3% increase in Other Employee Benefits relative to projected gross income.

•

Projected Annual Budget for Training and Development increased to 500K annual starting 2016. Budget increase will include allocation for Organizational Change Management consultant(s).

Operating Expenses Incurred:

INCOME STATEMENT Operating Expenses Salaries and Wages Other Employee Benefits Other Fixed Costs Other Expenses Total Operating Expenses

2014 Actual

INCOME STATEMENT Operating Expenses Salaries and Wages Other Employee Benefits Other Fixed Costs Other Expenses Total Operating Expenses

2014 Actual

47,350,647.74 11,450,601.56 32,142,148.46 95,091,633.14 186,035,030.90

47,350,647.74 11,450,601.56 32,142,148.46 95,091,633.14 186,035,030.90

2015 Projected 2016 Projected 2017 Projected 51,967,335.89 11,908,625.62 33,026,057.54 95,091,633.14 191,993,652.20

62,230,884.73 25,645,738.96 33,934,274.13 96,091,633.14 217,902,530.96

74,521,484.47 43,312,257.43 34,867,466.66 96,141,633.14 248,842,841.70

2018 Projected 2019 Projected 2020 Projected 89,239,477.65 65,865,835.04 35,826,322.00 96,191,633.14 287,123,267.82

106,864,274.49 94,488,158.58 36,811,545.85 96,241,633.14 334,405,612.06

127,969,968.70 130,636,739.25 37,823,863.36 96,291,633.14 392,722,204.45

86

BALANCE SHEET ASSUMPTIONS: •

Accounts Receivable will grow in proportion to revenue. Accounts Receivable turnover ratio of 2:1 is applied to projected revenue39

•

Inventories were projected using Inventory Turnover ratio of 26:1 applied to projected project costs40

•

Other current assets, including cash, are projected using vertical analysis percentage relative to projected revenue.

•

Total investment in construction equipment and other service and support equipment will increase by 15% to support the projected revenue increase from awarded projects.

•

Property and Equipment are net of Accumulated Depreciation

•

Current Liabilities are projected using vertical analysis percentage relative to projected operating cost.

•

Income Tax payable is projected using historical rate against projected Income Tax. Subscribed capital stock balance of Php 90M is maintained until 2020.

•

Financing Activities (debt, under Trade Payables) is the balancing figure to match assets with liabilities plus equity.

Changes in Equity due to Financing Strategy •

IPO will proceed in 2016 and will generate Php 140M in funds. It was assumed to calculate for the Paid in capital and capital stock that the selling price is at P2 for a P1 par value.

•

To compensate shareholders, a dividend policy of 50M per year will be implemented starting 2017.

87

PROJECTED BALANCE SHEET: BALANCE SHEET ASSETS CURRENT ASSETS CASH ACCOUNTS RECEIVABLE ADVANCES OTHER CURRENT ASSETS INVENTORIES

2015 PROJECTED

2016 PROJECTED

2017 PROJECTED

377,589,161.15 820,846,002.51 213,419,960.65 44,325,684.14 45,285,126.83

464,434,668.22 1,009,640,583.08 262,506,551.60 54,520,591.49 61,121,699.28

571,254,641.91 1,241,857,917.19 322,883,058.47 67,060,327.53 75,179,690.12

1,501,465,935.27

1,852,224,093.67

2,278,235,635.21

189,543,372.04

217,974,877.84

250,671,109.52

1,691,009,307.31

2,070,198,971.51

2,528,906,744.73

CURRENT LIABILITIES TRADE PAYABLES AND OTHER CURRENT LIABILITIES ACCOUNTS PAYABLE - OTHER INCOME TAX PAYABLE

588,706,648.77 91,487,778.57 8,168,551.66

674,582,090.68 71,304,056.49 6,366,433.62

857,335,971.54 94,147,552.67 8,406,031.49

TOTAL CURRENT LIABILITIES

688,362,979.00

752,252,580.79

959,889,555.69

NON-CURRENT LIABILITIES LOANS PAYABLE ACCRUED EXPENSES

45,643,066.69 84,550,465.37

131,316,684.43 103,509,948.58

151,313,756.42 126,445,337.24

TOTAL LIABILITIES

130,193,532.06 818,556,511.05

234,826,633.01 987,079,213.80

277,759,093.66 1,237,648,649.35

STOCKHOLDER'S EQUITY SUBSCRIBED CAPITAL STOCK NET INCOME

90,000,000.00 190,599,538.69

210,000,000.00 148,550,117.69

210,000,000.00 196,140,734.72

RETAINED EARNINGS

591,853,257.56

724,569,640.03

885,117,360.66

872,452,796.25

1,083,119,757.72

1,291,258,095.38

1,691,009,307.31

2,070,198,971.51

2,528,906,744.73

TOTAL CURRENT ASSETS NON-CURRENT ASSETS NET PROPERTY & EQUIPMENT TOTAL ASSETS

TOTAL LIABILITIES & STOCKHOLDER'S EQUITY

*Projected Balance Sheet for 2015 assumes no new strategic intervention

88

BALANCE SHEET ASSETS CURRENT ASSETS CASH ACCOUNTS RECEIVABLE ADVANCES OTHER CURRENT ASSETS INVENTORIES

2018 PROJECTED

2019 PROJECTED

2020 PROJECTED

702,643,209.55 1,527,485,238.14 397,146,161.92 82,484,202.86 92,471,018.85

864,251,147.74 1,878,806,842.92 488,489,779.16 101,455,569.52 113,739,353.18

1,063,028,911.72 2,310,932,416.79 600,842,428.36 124,790,350.51 139,899,404.41

2,802,229,831.31

3,446,742,692.52

4,239,493,511.79

288,271,775.95

331,512,542.34

381,239,423.69

3,090,501,607.26

3,778,255,234.85

4,620,732,935.48

CURRENT LIABILITIES TRADE PAYABLES AND OTHER CURRENT LIABILITIES 1,082,123,244.99 ACCOUNTS PAYABLE - OTHER 122,169,841.41 INCOME TAX PAYABLE 10,908,021.55

1,358,611,591.34 156,570,923.41 13,979,546.73

1,698,692,257.35 198,830,726.45 17,752,743.43

TOTAL CURRENT LIABILITIES

1,215,201,107.96

1,529,162,061.48

1,915,275,727.23

NON-CURRENT LIABILITIES LOANS PAYABLE ACCRUED EXPENSES

174,579,353.46 154,525,080.36

201,601,655.67 188,912,761.74

232,933,353.56 231,036,646.77

329,104,433.82 1,544,305,541.78

390,514,417.41 1,919,676,478.89

463,970,000.33 2,379,245,727.56

210,000,000.00 254,520,502.93

210,000,000.00 326,189,423.76

210,000,000.00 414,230,680.10

1,081,675,562.54

1,322,389,332.20

1,617,256,527.42

1,546,196,065.48

1,858,578,755.96

2,241,487,207.52

3,090,501,607.26

3,778,255,234.85

4,620,732,935.08

TOTAL CURRENT ASSETS NON-CURRENT ASSETS NET PROPERTY & EQUIPMENT TOTAL ASSETS

TOTAL LIABILITIES STOCKHOLDER'S EQUITY SUBSCRIBED CAPITAL STOCK NET INCOME RETAINED EARNINGS TOTAL LIABILITIES & STOCKHOLDER'S EQUITY

89

PROJECTED FINANCIAL RATIOS FINANCIAL

2014

2015

2016

2017

2018

2019

2020

RATIOS

Actual

Projected

Projected

Projected

Projected

Projected

Projected

10.93%

16.10%

10.25%

11.08%

11.77%

12.33%

12.81%

22.29%

31.21%

19.59%

21.70%

23.52%

25.07%

26.40%

9%

17%

11%

11%

12%

12%

13%

19%

28%

21%

21%

21%

21%

21%

Current Ratio

1.85

2.18

2.46

2.37

2.31

2.25

2.21

Quick ratio

1.55

1.74

1.96

1.89

1.84

1.79

1.76

0.73

0.48

0.48

0.49

0.50

0.51

0.51

2.74

0.94

0.91

0.96

1.00

1.03

1.06

2x

2x

2x

2x

2x

2x

2x

1x

1x

1x

1x

1x

1x

1x

10.48

8.66

9.26

9.91

10.60

11.33

12.12

0.88

0.97

0.98

0.98

0.99

0.99

1.00

Profitability Return on Assets (ROA) Return on Equity (ROE) Return on Sales (ROS) Gross Profit Margin Liquidity

Leverage Debt to total assets Debt to equity Efficiency Accounts Receivable Turnover Current asset turnover Fixed-asset turnover Asset Turnover

Through the market penetration and diversification strategies, sales will grow consistently by 23% over the forecast period. The revenues gained from these strategies will offset the expenses incurred to strengthen the Business Development Department and launch an integrated 90

marketing communications program over the same period. Though the Net income is projected to decrease by 22% in 2016 due to the additional expenses, the income in 2017 is projected to surpass 2015 totals by 5% eventually leading to an average of 27% over the forecast period. Solvency of the company will drastically improve to a healthier 50% debt to asset ratio. Proceeds of the planned IPO will be used to reduce the loans of the company. This will be a prudent measure given the adverse economic impact due to the political uncertainty after 2016. Balance sheet management can also be more prudent by having a more aggressive collection policy, which can be aided by having a larger workforce in the Business Development Unit as part of the Market Penetration strategy. It is also advisable to set more favourable rates, stretch credit terms or even enter into bulk order (lock-in) agreements with current suppliers, especially for the key materials (i.e. cement, steel, diesel), taking advantage of the consistently sizeable orders being given by the organization.

91

IX.

DEPARTMENTAL PROGRAMS

9.1 STRATEGY MAP A strategy map is a “visual representation of the cause and effect relationship among the components of an organization’s strategy.”41

Long Term Share Holder Value

Financial Perspective Improved Capitalization

Growth in Net Income

Revenues from New Customers

"to provide value-added construction services to establish lasting relationships to our customers by creating a successful partnership throughout the construction process, exceeding their expectations and gaining their trust through exceptional performance" Customer Perspective

Internal Perspective

Drive competitiveness through aggressive promotion to existing and new markets Operations Mgmt

Customer Mgmt

Innovation

Regulatory

Improve Equipment Utilization

Increase penetration in public and private infra

Provide alternative construction methods

Be BERDE-Compliant

Expand core competencies

Synergize with key suppliers /subcons

Zero customer complaints

Ongoing compliance to regulatory requirements

Penetrate BPO and Housing Markets Tap existing clients for referrals

To establish a competent workforce with solid character and purpose-driven to the mission and objectives of the organization

Learning and Growth Perspective

Human Capital

Information Capital

Organizational Capital

Acquire, retain and develop highly-motivated employees with character

Utilization of electronicbased Document Control Centre

Establish competency based on customer focus and team-oriented culture

Framework to reward employees based on contribution to company's mission and vision

__________ 41

Galbraith, Jay. “Designing Organizations: an executive briefing on strategy, structure and process.” 1st ed. 1995

92

9.2 DEPARTMENTAL ACTIONS AND FUNCTIONAL STRATEGIES The implementation of the market penetration and development strategies will rely on division and their functional programs and action plans. Business Development Business Development will spearhead all Market Penetration efforts. An Integrated Marketing Plan will be developed that will emphasize in obtaining market intelligence and close attention to the clients particular needs and the generation of the corresponding marketing collaterals (brochures, profile, website, A/V presentation) would put the company in a strong marketing position. The Department will then focus penetration efforts in key growth areas identified; the objective being to utilize the company’s wide coverage to make penetration efforts more efficient. Close coordination between the department representatives from the various satellite offices and the head office will facilitate the identification and prioritization depending on time, budgetary and complexity requirements of potential projects to be bid out or negotiated. The target audience would be new real estate and commercial development players brought about by the continuing expansion of the BPO industry and the expected influx of foreign investors brought about by the upcoming ASEAN integration. The communication’s objective is to promote awareness or the ability to identify BSPCI as a value-oriented firm within the construction industry. Numerous events, such as Philconstruct, developer and designer seminars and contractor/developer conferences such as the PCA monthly contractor’s conference can be utilized as a platform for the company to showcase its core competencies and strengths to amplify its value-add proposition. Related diversification from the company’s core competence in Horizontal Works is required to increase revenue and market share. The department needs to “bridge the gap” between the technical and operational aspects of potential projects not within the company’s core competence, therefore giving the opportunity to not only provide a competitive bid proposal but also to provide operations a clear road map and methodology to execute the project to the company’s usual efficient levels. The additional experience in learning new methods and applications will make the organization more competent and adaptable, thus providing more room for growth. 93

Customer Relations Business Development, in coordination with the Project Directors and Managers, are responsible for maintaining zero customer complaints as outlined in the company’s quality policy. The department will assign key account representatives for the existing client base both with key developers and contractors in private sector and Department agencies such as DPWH, NHA, DOTC, NIA, etc.in order to maintain and further improve client relations. The representatives should have the technical background to properly disseminate information relating to project accomplishment, construction schedules and other project key performance indicators, as well as the interpersonal skills to communicate these data with transparency and tact to the respective owner’s representative and construction management. Not only will this facilitate timely and efficient collection, it will also result into referrals and recommendations to other potential customers.

Technical The Technical Services Department is tasked to maintain the company’s reputation in being price-competitive and monitor compliance of the Project Operations in relation to the defined project budget. In addition, the department should also look into ways to expand the company’s core competence base in efforts to diversify the construction services it currently offers. The department will develop a research and development arm to look into innovation of the existing construction methodology by looking into alternatives in key construction materials and efficiently maintain compliance with regulatory requirements.

Operations Being the lifeblood of the organization, the Operations Department, will establish an Equipment Management representative for each key project area (Metro Manila, Southern Luzon, Iloilo, Cebu and Cagayan De Oro). The representative is tasked with not only preventive and corrective maintenance of the equipment, but will also monitor and ensure efficient equipment utilization. 94

The representative will coordinate with the Technical Services Department to align the most efficient tasks for each equipment and assign a budget/cost based on the activity and output per relevant unit measure over the course of the whole project. The objective is to ensure timely execution in accordance with the company’s quality policy and to efficiently manage utilization costs by adapting the activity based cost scheme with each equipment’s actual operation. The Department’s Head Office arm, called the Operations Center (OPS-CEN), will continue to provide logistical and quality control support in order for on time delivery of key materials and other project resources. In addition, the department will spearhead the feasibility study of integrating alternatives to concrete materials through pre-fabricated technology. OPS-CEN will coordinate with Technical Services regarding the feasibility and possible adaption of these innovative methods on the existing construction methodologies being applied.

Corporate Affairs/Finance Finance will spearhead the IPO strategy and will coordinate with the underwriters to raise the needed capital to fund new projects and lower the existing leverage status. Finance will target total proceeds of Php200M. If the IPO is well received, the remaining capital requirement can be sourced via a re-launch of the stocks. If not, the remaining capital raising can be either deferred until market conditions improve or it can be funded via debt. To compensate its existing and new stockholders, a dividend policy of 50M annually starting 2017. Finance will use the proceeds of the IPO not only to fund expansion of the company’s fixed assets such as heavy equipment in anticipation of the increase in projects but also to pay off its short term debt. Success in lowering its leverage will be measured by its improving debt to asset ratio which will move from .73 to .50 by as early as 2016.

Human Resources Human resources will need to hire and train at least 10 additional personnel to augment the Business Development and Technical Services for the Market Penetration and R&D efforts. The 95

department will be responsible for properly analyzing the competence and character of potential hires, as well as implementation of the applicable training based on the derived Annual Training Program. HR will also review the performance appraisal system to include customer service to both new and existing customers as a key performance indicator Business Development. The department will also provide recommendations to top management in the allotted percentage of each employee for the Profit Sharing Program and initiate the establishment of an electronic based Document Control Center to improve handling and maintenance of the necessary forms and documents required for ISO-compliance. 9.3 IMPLEMENTATION SCHEDULE STRATEGIC PLANS

DEPTARTMENT IN-CHARGE

Schedule of Implementation July

Aug

2015

Sep

Oct

Nov

Dec

Jan

Feb

2016

Mar

Apr

Status May

June

Integrated Marketing Communications campaign

Business Development

Ongoing (continuous) compliance starting Q4 2015

Diversification Strategies

Business Development / Technical Services

Revised Methodology to be presented during year-end meeting

Establishment of Key Account Representatives

Business Development / Human Resources

Allocation of additional Manpower to be included in 2016 budget

Horizontal Integration of Concrete Technical Services Supplier / Operations

Integration to be implemented by Q2 2016

Implementation of Activity-Based Operations / Budgeting for Equipment Technical Services Utilization

Revised Equipment Budget for implementation Q4 2015

Issuance of IPO

Finance / Top Managemnt

IPO to be publicly released by Jan 2016

Electronic Document Control Center (e-DCC)

Human Resources

For ongoing compliance 2016

Profit-Sharing Program

Human Resources / Top Management

Approved sharing scheme to be implemented in 2016 budget

96

X.

STRATEGY EVALUATION AND PERORMANCE METRICS

10.1 BALANCED SCORECARD Balanced scorecard is an important strategy evaluation tool that allows firms to evaluate strategy from a financial, customer knowledge, internal business processes and learning and growth. Financial Perspective Objectives

Growth in Net previous year)

Income

Goals – Dashboard Meets expectation Alert Below Expectation (vs

2016: ● ≥ 10% ● 5-10% ● <5%

Responsibilities DACI D – Driver A – Accountable C – Consulted I – Informed D – Operations A – Top Management C – Corporate Affairs / Technical Services I – Business Development

2017: ● ≥23% ● 10-23% ● <10%

Growth in Revenues (vs previous year)

2018: ● ≥29% ● 13-29% ● <13% 2016: ● ≥ 10% ● 5-10% ● <5% 2017: ● ≥23% ● 10-23% ● <23%

Improved Capitalization

2018: ● ≥23% ● 10-23% ● <10% Debt to Assets ● ≤ 0.50 ● 0.50-0.60 ● >0.60

D – Business Development A – Top Management / Business Development C – Corp. Affairs / Technical Services I – Operations

D – Corp. Affairs / Operations A – Top Management C – Technical Services I – Business Development

97

Customer Perspective: Objectives

Goals – Dashboard Meets expectation Alert Below Expectation

Penetration of BPO, Housing and other non-Horizontal Markets

% increase in non-horizontal reveneue 2016: ● ≥ 10% ● 5-10% ● <5%

Responsibilities DACI D – Driver A – Accountable C – Consulted I – Informed D – Business Development A – Business Development C – Technical Services/ Operations I – Top Management

2017: ● ≥ 13% ● 5-13% ● <5%

Minimum Customer Complaints

Increased Market Share

2018: ● ≥15% ● 5-15% ● <5% % of Customer Complaints 2016-2018: ● 0% ● 1-5% ● ≥ 5% Increase in Market Share 2016: ● ≥ 1% ● 0-1% ● <0%

D – Operations / Business Development A – Operations / Top Management C – Top Management I – Technical Services D – Business Development A – Business Development / Top Management C – Corporate Affairs I – Operations /Technical Services

2017: ● ≥1.5% ● 0-1.5% ● <0% 2018: ● ≥2% ● 0.5-1.5% ● <0.5%

98

Increased New Referrals

% of new referrals 2016: ● ≥ 10% ● 5-10% ● <5%

D – Business Development A – Business Development / Top Management C – Operations I – Technical Services / Corporate Affairs

2017: ● ≥12.5% ● 7-12.5% ● <7% 2018: ● ≥15% ● 8-15% ● <8%

Operations/Technical Perspective: Objectives

Goals – Dashboard Meets expectation Alert Below Expectation

Improved Equipment Utilization

% Equipment Utilization 2016: ● ≥ 85% ● 75-85% ● <75%

Responsibilities DACI D – Driver A – Accountable C – Consulted I – Informed D – Operations / Technical Services A – Operations /Top Management C – Corporate Affairs I – Business Development

2017: ● ≥90% ● 80-90% ● <100%

Integration of Key Supplier

2018: ● 100% ● 85-99% ● <85% Integration of Supplier ● on or before October 2015 ● between October 2015 and March 2016 ● after March 2016

D – Operations / Business Development A – Top Management C – Technical Services I – Corporate Affairs

99

Learning and Growth Perspective: Objectives

Improve Retention

Profit Sharing Program

E-DCC (Electronic Document Control Center) Implementation

Responsibilities DACI D – Driver A – Accountable C – Consulted I – Informed % Turnover Rate D – Human resources A – Top Management ● <15% ● 15-20% C – Corporate Affairs ● >20% I – Operations, Technical Services, Business Development Implementation Date D – Human Resources A – Top Management C – Corporate Affairs ● on or before January 2016 ● between January and June 2016 I – Operations, Technical Services, Business Development ● after June 2016 Goals – Dashboard Meets expectation Alert Below Expectation

Implementation Date

D – Human Resources A – Top Management / Corporate Affairs ● on or before January 2016 ● between January and June 2016 C – Business Development ● after June 2016 I – Operations / Technical Services

100

10.2 CONTIGENCY PLANNING Downside Potential Events

Key Concerns

Action Plans •

Determine impact to industry growth

•

Defer IPO to 2017 and re-prioritize new implementations until 2017

•

Determine the key agencies affected by budget decrease and lessen exposure.

•

Re-allocate resources for BPO and other private markets

Decline of BPO market

•

Re-allocate resources for PPP market

IPO will not be well received

•

Defer second tranche (40% of needed capital) until market

Economic Downturn after 2016

Significant decrease in government infrastructure spending after 2016

conditions improve or fund via debt Integration Plans fall through

•

Enter long-term bulk-order agreements with key construction suppliers

Upside Potential Events

Key Concerns Revenue from ASEAN integration higher than expected New Government fully implements BERDE-compliance by 2016

Action Plans •

Determine countries contributing the most to revenue

•

Re-allocate resources to penetrate related overseas markets

•

Secure Horizontal Integration strategies

•

Place emphasis of BERDE-compliance in IMC efforts

- END OF PAPER –

101

XI.

REFERENCES 1. David, Fred. Strategic Management: Concepts and Cases, 14th Edition, 2013 2. Kotler, Philip & Keller, Kevin. Marketing Management, 8th Edition 3. Garrison, Ray, Noreen, Eric & Brewer, Peter. Managerial Accounting, 14th Edition, 2014 4. Galbraith, Jay. “Designing Organizations: an executive briefing on strategy, structure and process.” 1st ed. 1995 5. Securities and Exchange Commission Audited Financial Statements for BSP & Company, Inc., JE Manalo Construction Corporation, Metro Stonerich Corporation and CM Pancho Construction Corporation 6. Ponio, Ben-Azel S., President BSP & Company, Inc. April 2015 7. Ponio, Ben-Azel C. Jr., Vice President for Corporate Affairs, BSP & Company Inc., April 2015 8. Madrasto, Manolito P., Executive Director, Philippine Contractor’s Association, April 2015 9. www.bsp-co.com.ph 10. EMIS Company Intelligence Database 11. www.researchmoz.us 12. www.adb.org 13. www.dpwh.gov.ph 14. www.inquirer.net 15. www.ppp.gov.ph 16. www.deped.gov.ph 17. www.bloomberg.com 18. BSP & Company, Inc. Company Profile 19. www.asean.org 20. www.jica.co.jp 21. www.bworldonline.com 22. www.worldbank.org 23. wwf.panda.org 24. www.jemanalo.com 25. www.metrostonerich.com 102

26. www.cmpancho.com 27. www.b2binternational.com 28. www.worldatwork.org 29. www.easyhomes.ph 30. www.tradingeconomics.com 31. Towers Watson 2013-14 Asia-Pacific Salary Budget Planning Report 32. www.philpad.com 33. www.nwpc.dole.gov.ph

103

XII.

APPENDICES:

PPP Pipeline Projects:

STATUS OF PPP PROJECTS (as of June, 2015) PROJECTS

PROJECT COST (PHP)

AGENCY

FINALIZATION OF NEDA BOARD APPROVAL PROJECT STRUCTURE

BIDDING STAGE

CONTRACT AWARD

DPWH

COMPLETED

COMPLETED

COMPLETED

COMPLETED

DepEd

COMPLETED

COMPLETED

COMPLETED

COMPLETED

DPWH

COMPLETED

COMPLETED

COMPLETED

COMPLETED

3.86 B

DepEd

COMPLETED

COMPLETED

COMPLETED

COMPLETED

8.69 B

DOH

COMPLETED

COMPLETED

COMPLETED

COMPLETED

1.72 B

DOTC

COMPLETED

COMPLETED

COMPLETED

COMPLETED

17.52 B

DOTC

COMPLETED

COMPLETED

COMPLETED

COMPLETED

LRT Line 1 Cavite Extension and 64.9 B O&M Southw est Integrated Transport 2.50 B System (ITS) Project Cavite - Laguna (CALA) Expressw ay 55.51 B

DOTC

COMPLETED

COMPLETED

COMPLETED

COMPLETED

DOTC

COMPLETED

COMPLETED

COMPLETED

COMPLETED

DPWH

COMPLETED

COMPLETED

COMPLETED

COMPLETED

4.00 B

DOTC

COMPLETED

COMPLETED

FOR BID SUBMISSION

24.40 B No CAPEX

MWSS DOTC

COMPLETED

COMPLETED

FOR BID SUBMISSION

COMPLETED

COMPLETED

FOR BID SUBMISSION

122.80 B

DPWH

COMPLETED

COMPLETED

FOR BID SUBMISSION

18.72 B

MWSS

COMPLETED

COMPLETED

Daang Hari-SLEX Link Road Project

2.01 B

PPP for School Infrastructure 16.43 B Project (PSIP) Phase I NAIA Expressw ay (Phase II) Project 15.86 B PPP for School Infrastructure Project (PSIP) Phase II Modernization of the Philippine Orthopedic Center Automatic Fare Collection System (AFCS) Mactan-Cebu International Airport Passenger Terminal Building

Integrated Transport System South Terminal Project Bulacan Bulk Water Supply Project Operation & Maintenance of LRT Line-2 Laguna Lakeshore Expressw ay Dike Project New Centennial Water SourceKaliw a Dam Project

FOR REISSUANCE OF INSTRUCTION TO PROSPECTIVE BIDDERS (ITPB)

BPO Growth Forecast:

104

Reconstruction Assistance on Yolanda (RAY) Estimated Recovery and Reconstruction Needs*

105

Industry Size:

Peer Analysis - Concentration Analysis Source: EMIS Company Database Figures are in: Thousands, PHP No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Companies/Year 2012 Sales Market Share Metro Pacific Investments Corporation 36,475,000.00 12.67% Makati Development Corporation 17,344,174.97 6.02% DM Consunji Inc 16,512,952.79 5.74% Eei Corporation 13,744,985.00 4.77% Daelim Philippines Inc 8,432,199.48 2.93% Megawide Construction Corporation 8,204,810.00 2.85% Ddt Konstract Inc 7,450,528.16 2.59% Monolith Construction & Development Corporation 5,081,591.79 1.76% Aboitiz Construction Group Inc 4,712,015.79 1.64% Datem Inc 4,206,182.96 1.46% Shimizu Phil Contractors Inc 3,746,267.92 1.30% New San Jose Builders Inc 3,468,080.70 1.20% Hilmarc'S Construction Corporation 3,440,457.25 1.19% Leighton Contractors Philippines Inc 3,039,778.71 1.06% Smcc Philippines Inc 2,979,497.38 1.03% Atlantic Gulf And Pacific Company Of Manila Inc 2,678,884.71 0.93% China International Water And Electric Corporation 2,601,477.75 0.90% Longridge Construction Inc 2,275,352.84 0.79% China Construction And Electric Equipment Philippine Corporation 2,151,251.59 0.75% Sta Clara IntL Corporation (Makati ) 2,102,582.75 0.73% First Balfour Inc 2,059,032.63 0.72% F F Cruz & Co Inc 2,029,368.22 0.70% Toyo Construction Co Ltd. 1,814,772.47 0.63% Cct Constructors Corporation 1,798,252.50 0.62% Irvine Construction Corporation 1,772,392.49 0.62% HRD Singapore Pte Ltd 1,691,399.40 0.59% Asec Development And Construction Corporation 1,605,784.45 0.56% Cavdealcavite Ideal International Construction And Development Corporation 1,430,710.49 0.50% Metro Pacific Tollways Development Corporation 1,425,229.90 0.50% Whiteport Inc 1,408,867.80 0.49% Readycon Trading And Construction Corporation 1,362,505.67 0.47% Taisei Philippine Construction Inc 1,268,321.66 0.44% Ahnex Builders And Ready Mix Corporation 1,247,889.14 0.43% Kajima Philippines Inc 1,235,757.65 0.43% Ulticon Builders Inc 1,227,816.56 0.43% Hr Construction Corporation 1,189,383.13 0.41% Mgs Construction Inc 1,144,029.21 0.40% Ce Construction Corporation 1,130,033.20 0.39% East Asia Utilities Corporation 1,120,235.33 0.39% Je Manalo & Company Inc 1,111,029.01 0.39% Verdantpoint Development Corporation 1,086,535.06 0.38% Will Decena And Associates Inc 1,064,273.96 0.37% JV Angeles Construction Corporation 1,045,973.91 0.36% Primary Structures Corporation 1,029,041.22 0.36% Metro Stonerich Corporation 1,023,401.75 0.36% Bsp & Company Inc. 959,913.53 0.33% Donpin Corporation 951,755.79 0.33% HiTone Construction And Development Corporation 948,626.35 0.33% Sumisetsu Philippines Inc 947,201.12 0.33% Technoserve Construction Company Inc 921,490.37 0.32%

106

51 Ag Araja Construction And Development Corp 52 Millennium Erectors Corporation 53 Meralco Industrial Engineering Services Corporation 54 Mabuhay Conglomerate Asphalt Inc 55 Advanced Foundation Construction Systems Corporation 56 Cm Pancho Construction Inc 57 Longyuan Construction Group Phils Corp 58 Socor Construction Corporation 59 Marcbilt Construction Inc 60 International Solid Waste Integrated Management Specialists Inc 61 E E Black Ltd 62 Bf Corporation 63 Spc Island Power Corporation 64 Artbuilders Construction & Management Inc 65 Legazpi Premium Development Corp 66 Duros Development Corporation 67 Geo Transport And Construction Inc 68 Wtg Construction & Development Corporation 69 Floridablanca Construction And Development Corporation 70 Fodcfirst Orient Development & Construction Corp 71 Cape East Philippines Inc 72 Ragojos Heritage Construction Corporation 73 Bauer Foundations Philippines Inc 74 RG Simbulan And Partners Corp 75 Liberty Telecoms Holding Incorporation 76 Am Oreta And Co Inc 77 Trans Asia Construction Dev'T Corp 78 Hgiii Construction And Development Corporation 79 Bf Metal Corporation 80 Terp Asia Construction Corporation 81 Highlands Prime Inc 82 Rmd Kwikform Philippine Inc 83 Pampanga Block Builders Inc 84 Comm Builders And Technology Philippines Corp 85 Betonbau Phil Inc 86 Rs Developer Co Inc 87 Build Erect Corporation 88 Consolidated Building Maintenance Inc 89 Monolithic Construction And Concrete Products Inc 90 Mcconnell Dowell Philippines Inc 91 SL Development Construction Corporation 92 Mhi Technical Services Corporation 93 10k Concrete Mix Specialist Inc 94 Halrey Construction Inc 95 Ciriaco Corp 96 Agchem Construction And Development Corporation 97 Lilai Construction And Development Corp 98 Royal Crown Monarch Construction And Supplies Corporation 99 Daruma Corporation 100 Wcs Construction Inc

888,713.60 853,499.42 836,712.41 834,307.69 813,296.35 808,898.28 794,868.55 784,328.15 759,720.92 754,912.46 750,527.10 734,659.72 731,474.76 724,595.28 723,845.69 678,084.32 666,038.00 653,234.49 647,256.30 638,561.61 629,129.78 618,710.02 604,453.60 603,539.57 587,544.00 583,821.27 580,048.63 564,693.31 542,944.22 542,668.96 538,424.00 534,948.55 534,948.11 519,952.33 519,004.91 508,884.20 506,053.16 503,155.94 497,960.26 497,677.82 487,549.97 486,389.23 471,255.59 460,243.65 457,621.29 450,363.99 434,400.81 429,960.71 428,261.46 427,740.47

0.31% 0.30% 0.29% 0.29% 0.28% 0.28% 0.28% 0.27% 0.26% 0.26% 0.26% 0.26% 0.25% 0.25% 0.25% 0.24% 0.23% 0.23% 0.22% 0.22% 0.22% 0.21% 0.21% 0.21% 0.20% 0.20% 0.20% 0.20% 0.19% 0.19% 0.19% 0.19% 0.19% 0.18% 0.18% 0.18% 0.18% 0.17% 0.17% 0.17% 0.17% 0.17% 0.16% 0.16% 0.16% 0.16% 0.15% 0.15% 0.15% 0.15%

107

BSPCI Financial Statements PHP in millions

FY08

FY09

FY10

FY11

FY12

FY13

Balance sheet Cash Receivables Advances Other current assets Total current assets

19.3 395.1

93.4 358.9

295.5 323.2

252.0 421.9

0.9 415.3

0.8 453.1

3.0 621.7

2.6 676.5

Property & equipment - net Deferred tax asset Total noncurrent assets Total assets

137.4 2.1 139.5 554.8

124.7 2.7 127.3 580.4

169.4 3.7 173.1 794.8

Trade payables and other liabilities Accounts payable - others Notes payable Loans payable Income tax payable Total current liabilities

363.1

367.9

3.0 5.0 371.1

5.0 0.1 373.1

Notes payable Advances from stockholders Accrued retirement benefits Total noncurrent liabilities Total liabilities Share capital Cumulative earnings Total equity Total liabilities and equity

10.7 11.9 6.0 28.6 399.7 66.5 88.6 155.1 554.8

11.9 8.9 20.8 393.8 66.5 120.1 186.6 580.4

PHP in millions

FY08

FY09

213.8 414.0 73.6 43.9 745.3

293.7 890.9 143.7 81.8 1,409.9

162.1 4.9 166.9 843.4

121.1

129.7

121.1 866.4

129.7 1,539.7

495.4

525.1

19.9

10.3

419.1 70.8 2.2

573.3 115.9 60.4

0.4 515.7

0.5 535.9

18.4 510.4

12.7 762.2

21.1 22.2 12.3 55.7 571.4 66.5 156.9 223.4 794.8

10.8 8.1 16.2 35.1 571.0 90.0 182.4 272.4 843.4

8.6 10.0 14.6 33.3 543.7 90.0 232.7 322.7 866.4

339.8 8.8 16.6 365.2 1,127.4 90.0 322.2 412.2 1,539.7

FY10

FY11

FY12

959.9

FY13

Income statement Contract revenue Contract costs Gross profit Administrative expense Operating income Other items: Miscellaneous income Sale from Batching plant Forex gain (loss) Gain (loss) on sale of assets Operating income with other items Interest expense Income before tax Taxes Net income

779.1

739.7

870.7

993.6

1,359.8

(694.3) 84.8 (40.9) 44.0

(656.5) 83.2 (37.7) 45.5

(773.9) 96.8 (49.0) 47.8

(890.4) 103.2 (42.9) 60.4

44.0 (0.8)

0.3 0.3 45.8 (0.4)

0.7 4.0 4.7 52.6

5.7 1.8 (0.0) 7.5 67.8

5.8 1.4 5.5 12.7 68.7

5.3 0.7 3.2 (0.1) 1.6 10.7 126.2

43.2 (15.1) 28.1

45.4 (13.9) 31.5

52.6 (15.7) 36.8

67.8 (18.8) 49.0

68.7 (18.4) 50.3

126.2 (36.7) 89.5

(862.4) (1,140.6) 97.5 219.3 (41.5) (103.7) 56.0 115.6

108

JE Manalo Corporation (JEMCO) Financial Statements PHP in millions

FY08

FY09

FY10

FY11

FY12

FY13

Balance sheet Cash Trade and other receivables Advances to officers & employees Costs of contracts in progress Tax credits Construction supplies and inventory Other current assets Total current assets

11.2 94.9 1.7 57.7 20.0 14.1 12.3 211.8

60.7 145.8 1.5 117.9 16.7 8.3 16.3 367.3

65.4 223.2 1.7 137.3 11.6 10.4 14.7 464.3

47.8 275.0 2.4 74.3 10.7 19.9 32.0 462.2

60.3 502.2 1.5 129.2 7.5 24.3 97.2 822.0

87.5 590.9 3.5 81.3 8.1 19.7 85.0 875.9

Property & equipment - net Available for sale (AFS) asset Total noncurrent assets Total assets

249.5 51.9 301.4 513.2

264.0 52.5 316.6 683.9

237.4 67.5 304.9 769.2

262.5 63.0 325.4 787.6

308.1 69.4 377.5 1,199.5

345.7 74.9 420.6 1,296.5

Deposits from contracts Trade payables and accruals Current portion of long-term debt Output VAT payable Other current liabilities Total current liabilities

123.5 18.8 142.3

278.4 14.8 293.2

232.4 74.3 39.2 345.9

189.5 58.6 69.2 0.7 318.0

343.2 213.5 8.5 79.8 1.6 646.6

406.7 147.9 36.5 106.6 2.2 700.0

Loans payable - long term portion Rent deposit Total noncurrent liabilities Total liabilities Share capital Deposit for future stock subscription Revaluation surplus Cumulative earnings Total equity Total liabilities and equity

11.5 11.5 153.9 149.8 144.8 64.8 359.4 513.2

293.2 150.0 144.8 95.9 390.7 683.9

0.4 0.4 346.3 150.0 3.1 117.7 152.1 422.9 769.2

0.4 0.4 318.4 150.0 9.4 117.7 192.1 469.2 787.6

36.5 0.6 37.1 683.7 250.0 117.7 148.1 515.8 1,199.5

20.0 1.0 21.0 721.0 300.0 117.7 157.8 575.5 1,296.5 FY13

PHP in millions

FY08

FY09

FY10

FY11

FY12

318.6 (256.5) 62.1 (32.4) 29.7

462.2 (380.7) 81.4 (36.7) 44.8

761.3 (661.0) 100.3 (39.6) 60.6

634.0 (535.4) 98.6 (41.8) 56.8

1,111.0 1,413.4 (977.1) (1,237.5) 133.9 175.8 (56.9) (79.9) 77.0 95.9

0.0 0.0 29.7 (1.4) 28.3 (9.7) 18.6

0.1 0.0 0.1 44.9 44.9 (13.7) 31.1

0.2 0.0 13.5 13.7 74.3 74.3 (18.2) 56.1

0.3 0.0 0.3 57.0 57.0 (17.0) 40.0

Income statement Contract revenue Contract costs Gross profit Administrative expense Operating income Other items: Interest income from bank Dividend income Other income Operating income with other items Interest expense Income before tax Taxes Net income

0.7 0.0 1.1 1.8 78.7 (0.5) 78.2 (23.3) 54.9

0.2 0.2 96.1 (1.9) 94.2 (28.2) 66.0

109

Metro Stonerich Corporation (MSC) Financial Statements PHP in millions

FY08

FY09

FY10

FY11

FY12

FY13

Balance sheet Cash Billed contract receivables Construction in progress Other current assets Total current assets

36.0 709.6 230.7 26.0 1,002.4

75.7 658.4 253.8 7.9 995.7

112.3 1,182.3 493.7 41.9 1,830.2

77.4 1,680.0 738.1 90.4 2,585.9

141.9 143.3 795.8 22.1 1,103.2

176.5 448.4 333.2 48.6 1,006.8

Property & equipment - net 63.2 Deferred asset - unbilled contract receivables Other noncurrent assets 20.8 Total noncurrent assets 84.1 Total assets 1,086.5

82.6 17.1 99.7 1,095.4

169.7 18.5 188.1 2,018.3

180.9 31.1 212.0 2,797.9

176.3 1,879.8 36.6 2,092.7 3,195.9

190.8 1,101.3 15.0 1,307.0 2,313.8

765.3 20.5 785.8

697.4 27.3 724.7

836.6 35.9 872.6

733.2 47.3 780.5

548.4 5.5 553.9

Notes payable 88.0 83.3 Advances from stockholders 0.2 0.2 Unearned revenue from unbilled contract receivables Total noncurrent liabilities 88.2 83.6 Total liabilities 898.3 869.3 Share capital 120.0 120.0 Deposit for future stock subscription 20.0 20.0 Cumulative earnings 48.2 86.1 Total equity 188.2 226.1 Total liabilities and equity 1,086.5 1,095.4

58.4 5.2 963.6 1,027.2 1,751.9 120.0 20.0 126.4 266.4 2,018.3

103.7 25.2 1,484.5 1,613.4 2,486.0 200.0 111.9 311.9 2,797.9

145.6 30.2 1,879.8 2,055.7 2,836.2 200.0 159.7 359.7 3,195.9

208.7 40.2 1,101.3 1,350.2 1,904.0 200.0 209.8 409.8 2,313.8

PHP in millions

Trade payables Other current liabilities Total current liabilities

791.5 18.6 810.1

FY08

FY09

FY10

FY11

FY12

FY13

753.4 (675.4) 78.0 (40.3) 37.7

848.6 (724.9) 123.7 (61.2) 62.5

958.7 (823.9) 134.8 (71.9) 62.9

1,002.8 (837.3) 165.5 (80.8) 84.7

1,023.4 (855.4) 168.0 (89.6) 78.4

1,145.6 (916.5) 229.1 (145.6) 83.5

0.7 1.7 2.4 40.2 (6.0) 34.2 (12.0) 22.2

0.9 0.9 63.4 (9.3) 54.1 (16.2) 37.9

1.1 (0.2) 1.0 63.9 (6.2) 57.7 (17.3) 40.4

(0.8) 0.2 (0.6) 84.1 (19.1) 65.0 (19.5) 45.5

1.2 1.2 79.6 (11.4) 68.3 (20.5) 47.8

0.6 0.6 84.1 (12.6) 71.5 (21.4) 50.0

Income statement Contract revenue Contract costs Gross profit Administrative expense Operating income Other items: Interest income Other charges Operating income with other items Interest expense and other charges Income before tax Taxes Net income

110

CM Pancho Corporation (CMPCI) Financial Statements PHP in millions

FY08

FY09

FY10

FY11

FY12

FY13

Balance sheet Cash Trade and other receivables Inventories Other current asset Total current assets

9.9 322.9 10.0 7.0 349.8

41.5 220.0 43.8 23.2 328.5

23.4 296.4 18.5 1.0 339.3

26.6 332.2 10.9 369.7

58.8 446.7 16.1 521.5

56.4 696.2 10.0 762.6

Property & equipment - net Investment Total noncurrent assets Total assets

500.4 500.4 850.2

531.8 531.8 860.3

500.9 98.2 599.0 938.3

502.5 123.2 625.6 995.3

644.3 123.2 767.4 1,289.0

643.8 123.2 767.0 1,529.5

Trade payables and other payables Income tax payable Total current liabilities

125.3 0.5 125.8

126.3 0.2 126.5

129.8 0.6 130.4

117.0 2.6 119.6

179.5 4.2 183.8

477.6 5.3 482.8

Loans payable Advances from customers Total noncurrent liabilities Total liabilities Share capital Deposit for future stock subscription Revaluation surplus Cumulative earnings Total equity Total liabilities and equity

25.0 224.7 249.7 375.4 100.0 294.1 80.7 474.8 850.2

35.0 172.1 207.1 333.6 100.0 314.1 112.6 526.8 860.3

51.6 217.7 269.3 399.7 100.0 289.5 149.0 538.5 938.3

100.7 210.9 311.6 431.1 150.0 277.5 136.6 564.2 995.3

103.1 365.9 469.0 652.8 150.0 315.7 170.5 636.2 1,289.0

41.1 402.4 443.5 926.3 150.0 251.5 201.7 603.2 1,529.5

PHP in millions

FY08

FY09

FY10

FY11

FY12

FY13

810.8 (697.1) 113.6 (73.1) 40.5 (12.7)

823.8 (700.2) 123.6 (60.0) 63.6 (12.4)

616.3 (536.4) 80.0 (45.9) 34.0 (12.2)

720.3 (603.9) 116.4 (55.3) 61.0 (12.0)

808.9 (683.4) 125.4 (68.1) 57.4 (11.8)

976.1 (826.2) 149.9 (109.6) 40.4 (12.6)

27.9 (0.3) 27.6 (14.1) 13.5

51.2 (0.2) 51.0 (19.0) 32.0

0.6 0.6 22.5 (0.3) 22.2 (10.1) 12.0

0.3 0.3 49.3 (0.5) 48.8 (18.2) 30.6

0.3 0.3 45.8 (0.8) 45.0 (17.0) 28.0

0.2 32.1 32.3 60.1 (2.4) 57.7 (21.0) 36.7

Income statement Contract revenue Contract costs Gross profit Administrative expense Operating income Depreciation on revaluation reserve Other items: Interest income Net income sharing Operating income with other items Interest expense Income before tax Taxes Net income

111

PhilHealth Premium Contribution Table

http://philpad.com/new-philhealth-contribution-table-2014/ http://www.nwpc.dole.gov.ph/pages/region_4a/cmwr_table.html

112

SSS Contribution Table

http://philpad.com/new-sss-contribution-table-2014/

113

PROJECTED INCOME STATEMENT USING MARKET PENETRATION STRATEGIES:

INCOME STATEMENT 2014 Actual Revenue 1,593,875,733.02 Operation (project) Costs 1,113,146,317.18 Gross Income 480,729,415.84 Operating Expenses Salaries and Wages 47,350,647.74 Other Employee Benefits 11,450,601.56 Other Fixed Costs 32,142,148.46 Other Expenses 95,091,633.14 Total Operating Expenses 186,035,030.90 Net Income Before Tax 294,694,384.94 Income Tax 88,408,315.48 TOTAL COMPREHENSIVE INCOME 206,286,069.46

2015 Projected

2016 Projected

2017 Projected

1,641,692,005.01 1,177,413,297.53 464,278,707.48

2,019,281,166.16 1,730,110,006.76 289,171,159.40

2,483,715,834.38 2,128,035,308.32 355,680,526.06

51,967,335.89 11,908,625.62 33,026,057.54 95,091,633.14 191,993,652.20 272,285,055.28 81,685,516.58 190,599,538.69

62,230,884.73 12,742,229.42 33,934,274.13 95,591,633.14 204,499,021.41 84,672,137.99 25,401,641.40 59,270,496.59

74,521,484.47 13,634,185.48 34,867,466.66 95,641,633.14 218,664,769.75 137,015,756.32 41,104,726.89 95,911,029.42

2014 Actual INCOME STATEMENT Revenue 1,593,875,733.02 Operation (project) Costs 1,113,146,317.18 Gross Income 480,729,415.84 Operating Expenses Salaries and Wages 47,350,647.74 Other Employee Benefits 11,450,601.56 Other Fixed Costs 32,142,148.46 Other Expenses 95,091,633.14 Total Operating Expenses 186,035,030.90 Net Income Before Tax 294,694,384.94 Income Tax 88,408,315.48 TOTAL COMPREHENSIVE INCOME 206,286,069.46

2018 Projected

2019 Projected

2020 Projected

3,054,970,476.29 2,617,483,429.23 437,487,047.06

3,757,613,685.83 3,219,504,617.95 538,109,067.88

4,621,864,833.58 3,959,990,680.08 661,874,153.49

89,239,477.65 14,588,578.46 35,826,322.00 95,691,633.14 235,346,011.25 202,141,035.81 60,642,310.74 141,498,725.07

106,864,274.49 15,609,778.95 36,811,545.85 95,741,633.14 255,027,232.43 283,081,835.45 84,924,550.64 198,157,284.82

127,969,968.70 16,702,463.48 37,823,863.36 95,791,633.14 278,287,928.68 383,586,224.81 115,075,867.44 268,510,357.37

114

PROJECTED INCOME STATEMENT APPLYING MARKET PENETRATION AND SERVICE DEVELOPMENT STRATEGIES:

INCOME STATEMENT Revenue Operation (project) Costs Gross Income Operating Expenses Salaries and Wages Other Employee Benefits Other Fixed Costs Other Expenses Total Operating Expenses Net Income Before Tax Income Tax TOTAL COMPREHENSIVE INCOME

INCOME STATEMENT Revenue Operation (project) Costs Gross Income Operating Expenses Salaries and Wages Other Employee Benefits Other Fixed Costs Other Expenses Total Operating Expenses Net Income Before Tax Income Tax TOTAL COMPREHENSIVE INCOME

2014 Actual

2015 Projected

2016 Projected

2017 Projected

1,593,875,733.02 1,113,146,317.18 480,729,415.84

1,641,692,005.01 1,177,413,297.53 464,278,707.48

2,019,281,166.16 1,589,164,181.36 430,116,984.80

2,483,715,834.38 1,954,671,943.08 529,043,891.30

47,350,647.74 11,450,601.56 32,142,148.46 95,091,633.14 186,035,030.90 294,694,384.94 88,408,315.48 206,286,069.46

51,967,335.89 11,908,625.62 33,026,057.54 95,091,633.14 191,993,652.20 272,285,055.28 81,685,516.58 190,599,538.69

62,230,884.73 25,645,738.96 33,934,274.13 96,091,633.14 217,902,530.96 212,214,453.84 63,664,336.15 148,550,117.69

74,521,484.47 43,312,257.43 34,867,466.66 96,141,633.14 248,842,841.70 280,201,049.60 84,060,314.88 196,140,734.72

2014 Actual

2018 Projected

2019 Projected

2020 Projected

1,593,875,733.02 1,113,146,317.18 480,729,415.84

3,054,970,476.29 2,404,246,489.99 650,723,986.30

3,757,613,685.83 2,957,223,182.68 800,390,503.15

4,621,864,833.58 3,637,384,514.70 984,480,318.88

47,350,647.74 11,450,601.56 32,142,148.46 95,091,633.14 186,035,030.90 294,694,384.94 88,408,315.48 206,286,069.46

89,239,477.65 65,865,835.04 35,826,322.00 96,191,633.14 287,123,267.82 363,600,718.48 109,080,215.54 254,520,502.93

106,864,274.49 94,488,158.58 36,811,545.85 96,241,633.14 334,405,612.06 465,984,891.09 139,795,467.33 326,189,423.76

127,969,968.70 130,636,739.25 37,823,863.36 96,291,633.14 392,722,204.45 591,758,114.43 177,527,434.33 414,230,680.10

115