Message from the Chairman and President

Dear Valued Shareholders,

PhilWeb has begun its second decade with a rousing start. We have taken great strides towards realizing our vision, which is to be the dominant gaming solutions provider in the Asia Pacific region.

For 2011, our eleventh year of operations, we attained a Net Income of P914 million, just short of cracking the billion peso mark. This is the sixth year in a row that we have reported Net Income growth, proof positive that our core businesses remain solid and our new endeavors are bearing fruit.

• PAGCOR e-Games Cafés

  As we reported last year, we signed a new contract with the Philippine Amusement and Gaming Corporation (PAGCOR), the government agency that regulates all gaming in the country, effective January 1, 2011. This new contract enabled us to grow our core PAGCOR e-Games café or PeGS business to a Total Casino Win of P4.09 billion, setting a record for the business and a 23% increase versus the previous year’s record.
  
  This growth was delivered primarily by opening 37 new PeGS cafés for a total of 227 at year-end. Additionally we convinced many PeGS operators to refurbish and expand their sites, and as a result, the average Win per PeGS café increased by 3.6% to P18 million for the year.
  
  The combined result of both forms of expansion is that in terms of total computer terminals, we increased by 1,229 terminals in 2011, a growth of 30% versus the previous year. We now have a total of 5,375 computer terminals across the PeGS network or about 24 per café. Each of these terminals delivers an average Total Win of P2,453 per day, and the network set a record Daily Win of P15.8 million in December 2011.
  
  As a result of our PeGS growth, we have become one of the most significant contributors of revenue to PAGCOR. Last year, we remitted a total of P1.7 billion to the agency, 34% more than the previous year. This amount comes without a centavo of capital expenditure or operating expense on PAGCOR’s part, and therefore lows directly to their bottom line.
  
  We continue to invest in servers and software development to continue our PeGS success. We added the Sigma server farm during the year and are in the midst of installing yet another set of servers in early 2012. On the software side, we re-launched our in-house developed Café POS system to fully integrate multiple software from more than one casino software vendor.

• BigGame cafés

  Our company-owned PeGS expanded from wholly owned BigGame to include a minority investment in Major Amusements and Gaming Corporation or MAGCOR, which operates the first and only PeGS in Makati City. MAGCOR’s site, in the Alphaland Southgate Mall, is the most upscale PeGS in the country and one of the largest as well, with 91 terminals.
  
  On the BigGame front, we opened two new sites during the year and expanded our flagship branch on Timog Avenue in Quezon City from 64 to 134 terminals. As we head into 2012, we are continuing to look at ways in which BigGame can expand into new sites around the country.
  
  We treat BigGame as an R&D laboratory for PeGS, testing the ideas and product improvements within BigGame’s smaller network before presenting the results to the entire network of PeGS operators. Among the successful enhancements tested in BigGame and MAGCOR this year are putting terminals on craps tables, which gives the cafés more of a casino feel.

• Sports Betting and Premyo sa Resibo

  Our sports betting business had a very good year, as our partnership with MegaSportsWorld increased its number of sites and total bet volumes significantly. We forecast that MSW’s continued expansion will soon make it as large as our own Basketball Jackpot franchise.
  
  Premyo Sa Resibo, the mobile raffle we conduct in support of the Bureau of Internal Revenue’s tax collection efforts, had a good year as well. We have expanded the service to allow submission of Official Receipts via Facebook and Twitter, and the new social media entrants have breathed new life into the program.
  
  We are proud that in six years, PSR has generated over 180 million total text entries and given away over P174 million in prizes. Over 149 people have become instant millionaires, all thanks to Premyo Sa Resibo. With the continued support of our telco partners, Smart, Globe, and Sun, we believe PSR will remain a robust contributor of revenues in 2012 and beyond.

• Asia Pacific Expansion

  The real excitement in the business comes from our new endeavors in Asia Pacific, which started to deliver revenue during the last quarter of the year. We opened The Sweeps Center in Guam in October and started selling Scratch Cards in Timor Leste in November. The former is an Internet café that offers Guamanians sweepstakes coupons that they can exchange for prizes or for computer points to play our games. The business model is similar to other sweepstakes cafés in the United States, where we tie up with local companies to provide sweepstakes services.
  
  In Timor Leste, our scratch cards business started with a bang, as we sold a million cards in our first month of operations. We also have a license for mobile lottery and are working on other gaming licenses in that country. We believe Asia Pacific will be the engine of growth for PhilWeb in the medium term. Already, 2012 has started auspiciously, as we have just received a license and have started selling scratch cards in Cambodia, together with the mobile lottery license we received last year. We have also made good inroads into Laos, Nepal, Sri Lanka and several other countries.
  
  Our corporate investments in Acentic GmbH, a German company that provides video on demand and high-speed Internet access to a network of over 180,000 hotel rooms in Europe, and in ISM Communications Corporation, a holding company, have delivered significantly to our bottom line.

• Record-Setting Milestones

  ISM Communications Corporation, together with a group of other investors, acquired 96.81% of the Philippine Bank of Communications or PBCom in the latter half of 2011. ISM’s stake in PBCom is 36.64% for a total investment of P1.77 billion. PhilWeb’s own investment in ISM is 24.3% with a book value of P1 billion. With ISM shares trading at end January 2012 at P3.19 per share, the market value of our investment in ISM is about P1.5 billion, for an unrealized gain of almost P500 million.
  
  With all our businesses and corporate investments doing so well, it is no surprise that our financial statements have all set new records in 2011.
  
  Revenue grew 12% to a record P1.16 billion, and our Net Income of P914 million represents a profit margin of 60%. This impressive margin was recognized by Forbes Asia magazine for the second year in a row in its Best Under a Billion list, their annual listing of the 200 best performing, publicly listed companies in Asia Pacific with sales under US$1 billion. PhilWeb also garnered a special award for being Most Profitable among the 200 for the second year in a row, an unprecedented feat according to the magazine’s editors.
  
  Our balance sheet remains robust, with total assets of P3.4 billion, of which almost a billion is in cash. We continue to have no borrowings from any banks or financial institutions. In 2011, we again declared dividends. In fact, we did so in April and September, thus doubling the amount that we paid out to our stockholders compared to the previous year. We expect to continue declaring dividends in 2012 and beyond. All this growth has meant that our headcount has grown to a total of 250 at the end of 2011 versus 207 the previous year. We now occupy three floors of the Alphaland Southgate Tower in Makati City and have offices in Phnom Penh, Cambodia, and Dili, Timor Leste. We would like to acknowledge all the contributions from these individuals and teams, who collectively and with integrity, dedication, and perseverance, have driven our Company to these performance levels.
  
  As we now pause to look forward into the coming year, we see an acceleration of our push to improve our businesses and hasten our launches in new countries. No doubt 2012 will be a year of continuous activity as we move forward with our aggressive growth plans in the Philippines and Asia Pacific region.
  
  In closing, we would like to extend our appreciation to our Board of Directors for their support, and to you, our Shareholders, for your trust. We look forward to continuing to provide more value to you in the years to come.

• Forbes Asia's Best Under a Billion

  As we push forward towards more aggressive growth, it is good to be able to occasionally look back and see what we have accomplished on behalf of you, our Stockholders.
  
  It is even better when our progress is noticed by others. Late last year, Forbes Asia magazine included us in their list of the 200 Best Under a Billion, a listing of companies throughout the region, all with market capitalizations under a billion U.S. dollars, that they deemed to be the cream of the crop. When we attended the awards ceremony in Hong Kong, we found out that we had been one of three companies slated to receive an extra award. PhilWeb was also awarded as the Most Profitable of the 200, based on our profit margins.
   
  Despite all these achievements, there is much left to do, and as we move forward into 2011 and beyond, we will count on your continued support of our management initiatives to be able to realize our vision to be the dominant gaming solutions provider in the Asia Pacific region.