Ayala Corporation’s consolidated net income in the first nine months of 2008 reached P7.8 billion, 43% lower than the same period last year on lower equity earnings and substantially lower capital gains. However, Ayala’s liquidity position remains strong with cash of P47 billion at the end of the first nine months of the year and net debt at its lowest in the past five years. It maintains a low gearing with net debt to equity ratio at 0.07 to 1.

Ayala chairman and CEO Jaime Augusto Zobel de Ayala said, “Our efforts to aggressively reduce debt levels and lengthen our maturities at the holding company level, coupled with the value realization initiatives we have undertaken the past two years, have allowed us to take advantage of the favorable market conditions last year and significantly strengthen our financial position. These efforts have given us both strength and flexibility in the face of the on-going external shocks and volatility in the market. The treasury and funding strategies we have undertaken in past years have sufficiently mitigated fund sourcing risks, and have given us the flexibility to pursue our growth platforms.”

Earnings of Ayala’s operating units were muted in the first nine months, with mainly the property and water distribution businesses registering double-digit growth.

Ayala’s property unit posted a 23% growth in net income to P3.8 billion with a 37% expansion in revenues underpinned by sustained demand for its residential projects, particularly the middle income and affordable residential brands. Sales of Alveo rose by 29% while Avida’s increased by 45%, offsetting the slight decline on its high-end Ayala Land Premier brand. Demand for middle-income and affordable residential products, particularly from overseas-based Filipinos, remained robust in the first nine months, making up 70% of sales to this market. Ayala Land’s revenues from its Shopping Centers were flat, while revenues from its Corporate Business declined by 15% in the absence of lot sales this year, despite growing revenues from its BPO and headquarter buildings. While overall margins were under pressure from rising construction costs, Ayala Land posted an 11% growth in net operating income.

Ayala’s banking unit, Bank of the Philippine Islands saw its core business resilient amidst the volatility in the financial markets. Its net loans grew by 21% in the first nine months, with all market segments posting double-digit growth. The bank’s remittance volume was up 38%, surpassing industry’s 17% growth and despite the expansion in loans, the bank’s NPL ratio improved to 3.3% by the end of September, better than industry’s 3.9%. BPI does not have any collateralized debt obligation in its books and has no direct exposure to any major US investment bank. It is well capitalized with risk-adjusted CAR at 13.2%. The bank announced plans to issue P10 to P15 billion of Tier 2 capital to further strengthen its capital base and position itself for possible acquisition opportunities. However, due mainly to the absence of securities trading gains, revenues contracted by 9% which put net income at P5.3 billion, 30% lower than the prior year.

Telecom unit Globe posted steady revenues although wireless subscriber base grew by 24%, putting total wireless subscribers at 23.7 million. Wireless revenues slipped by 2% as consumers tempered usage. This was offset by a 5% growth in its wireline revenues, which was driven by the broadband and corporate data businesses. Globe introduced a prepaid version of Visibility, its fully mobile internet service, resulting in broadband subscriber growth of 51% year-on-year. Globe’s WiMax service is also expected to boost broadband revenues with roll-out on track. EBITDA margins remained healthy at 61% but lower than last year’s driven by an 8% increase in operating expenses and subsidy. Net income reached P8.8 billion, 9% lower year-on-year as reductions in interest expense in 2008 coupled with non-recurring charges related to the bond prepayment in 2007, helped offset the impact of the lower operating earnings.

Ayala’s portfolio of companies under AC Capital contributed P125 million in equity earnings driven largely by its water distribution business, Manila Water Company. Manila Water registered a 13% growth in net earnings as operating efficiencies continued to improve. Its capital investments resulted in new connections, thus adding to the sustained growth in billed volume, while system losses were brought down to only 20.2% from 25% at the beginning of the year. Manila Water continues to pursue its projects to improve and expand its network, and has intensified its efforts to implement sewerage and sanitation programs. The Company is also looking at other water and wastewater projects outside of its current concession area. Earlier, it completed a highly successful peso bond issue which raised a total of P4.0 billion for the company.

The company’s electronics subsidiary, Integrated Microelectronics, Inc. saw an 11% growth in revenues fuelled by higher sales volumes from key customers. The company, however, registered a net loss of P373 million in the first nine months due to a one-time loss incurred in the second quarter of this year from currency hedging-related transactions. Excluding these losses, however, IMI’s underlying business remained strong, as earnings would have grown by 15% year-on-year.

Ayala’s direct investments in the business process outsourcing space continue to ramp up. The company recently announced it will pursue a tender offer, together with Providence Equity Partners, to acquire up to 100% of the outstanding common shares of eTelecare. eTelecare provided guidance of US$9-US$11 million in net income in 2008. Ayala remains positive in the long term growth prospects of the BPO industry. While the current global economic slowdown may impact volumes in the interim, there remains an overall global trend to cut cost and favor outsourcing alternatives.

“The impending slowdown in global economic growth coupled with inflation pressures on basic goods in recent months have had a dampening effect on consumer spending. This, to some extent, has impacted topline growth of some of our key businesses,” said Ayala Corporation President Fernando Zobel de Ayala. “But despite the prevailing challenges, each of our business units remains fundamentally sound, with sufficient liquidity and capitalization to keep them on track with their respective growth plans moving forward.”