AYALA’S CORE BUSINESS UNITS DRIVE 1Q09 EARNINGS TO P2.2B

Ayala Corporation’s consolidated net income reached P2.2 billion in the first quarter, the highest in the past four quarters, excluding capital gains, but 18% lower than the same period last year. Its core business units in telecom and banking registered double-digit expansion in earnings with sustained business volume growth in its key markets. Equity earnings from these units expanded by 7% and 86%, respectively, a reversal of the 35% and 55% decline in the fourth quarter of 2008 and three consecutive quarters of contraction. Equity earnings from its real estate unit, however, declined by 51% as earnings dipped in the absence of one-time gains and slower demand particularly in its residential business.

President and chief operating officer Fernando Zobel de Ayala said, “We are pleased to see some degree of resiliency in domestic demand despite the slowdown in the global economy. This continues to drive the growth of our core business units. However, consumer confidence continues to be tempered relative to pre-crisis levels, but we expect this to eventually turn as macro economic conditions stabilize moving forward.”

Ayala’s telecom unit, Globe, sustained its growth momentum with net income up 17% to P4 billion. Excluding an after-tax gain of P398 million arising from an equipment exchange transaction with an equipment supplier and foreign exchange and mark-to-market gains and losses, core net income was up 5% to P3.7 billion. This quarter’s net income was the highest in the past five quarters. The steady performance of its wireless business and the strong growth of its broadband and wireline data business resulted in net service revenue growth of 3% to P16 billion. Globe’s wireless SIM base continued to expand, reaching 25.7 million subscribers as of end-March. To further gain subscribers, it recently introduced Globe DUO, an innovative service that combines a mobile and wireless landline service into one handset.

Meanwhile, its broadband and wireline data business gained traction. Globe broadband subscribers more than doubled year-on-year with subscribers of the fully mobile broadband service under Tattoo accounting for the bulk of the net additions. Globe has commercially launched its WiMAX (802.16e) service on the 2.5Ghz band, which is one of the first and largest in Southeast Asia. The service is currently available in selected key areas in South Luzon, Visayas, and Mindanao. WiMAX is a leading edge technology solution that provides higher capacity and a dedicated access system that can deliver superior customer experience for Globe’s broadband subscribers. Globe plans to introduce more service innovations that will deliver superior value to its customers and further reinforce its competitive edge in the market.

Its banking unit, Bank of the Philippine Islands (BPI), posted P2.9 billion in net income. This was 86% higher year-on-year, the highest in the past five quarters, and exceeded fourth quarter 2008’s net income by more than 2.6 times. Strong growth in core market segments, better net interest spreads, and trading opportunities amidst a falling interest rate environment drove earnings growth.

Lending activity was strong and broad based with net loans expanding by 12%. Both corporate and consumer loans grew by 13.8% and 18.9%, respectively. Despite the healthy loan expansion, credit quality remained stable with net 30-day non-performing loans ratio at 3.26%, better than the 3.94% a year ago. Total resources as of end-March reached P643 billion, 8% ahead of last year, while deposits expanded by 8.8%. The bank’s remittance inflows increased by over 20%, outpacing industry growth. The bank’s better than expected performance affirms the resilience of the domestic economy and validates the strength of BPI’s banking franchise. BPI maintains the largest market capitalization in the industry at P110.3 billion with a capital adequacy ratio of 14.6% at end-March.

Ayala’s real estate unit, Ayala Land, posted a net income of P907 million. Excluding gains in the first quarter of 2008, net income was 21% lower year-on-year. Consolidated revenues declined by 10% to P7.4 billion as revenues in the first quarter included gains from the said transaction. Overall, most of its core product lines registered healthy revenue growth. Revenues from shopping centers rose by 6%, while corporate business revenues increased by 67%. These were offset by lower residential sales with combined bookings across its three residential brands down by 48% due to slower demand. However, monthly trends show signs that sales are beginning to stabilize with take-up in the first three months significantly better than the prior quarter.

Ayala Land maintains its capital expenditure plan of P17.4 billion this year and is looking to tap more aggressively opportunities where it can expand its geographic footprint in other parts of the country and cater to a broader base of customers.

From its portfolio of companies under AC Capital, Manila Water continued to deliver double-digit earnings growth with net income up 14% to P622 million. Cumulative water sales in the first three months of 2009 was stable and, combined with the partial impact of the inflation rate adjustment, pushed revenues up 6%. The company maintains strong operational efficiencies with non-revenue water down to 20.7% as of March, 2.5 percentage points better than the 23.2% achieved in March 2008.

Manila Water was recently granted a renewal of its concession agreement covering the East Zone for another 15 years. This is expected to benefit all its stakeholders as well as ensure Manila Water’s long-term growth. Beyond this, Manila Water continues to pursue growth opportunities outside of its concession area. Last April, it signed a Memorandum of Agreement with the Philippine Tourism Authority for the management and operation of the wastewater and water distribution facility in Boracay.

Ayala’s export-oriented units, particularly in electronics manufacturing and business process outsourcing, which are more exposed to the global downturn, faced lower volumes.

Integrated Microelectronics, Inc.’s (IMI) sales contracted by 26% as world demand for electronic products remained muted. While various cost management programs partly cushioned the impact and kept operating income positive, lower volumes and pricing pressures resulted in a net loss of P21 million during the period. IMI maintains a solid balance sheet with cash of US$59 million and first-quarter net cash flow from operations at US$5 million. IMI will continue to pursue its cost and risk management programs as well as its marketing initiatives to expand its customer base with high revenue-generating customers.

Ayala’s BPO companies generated US$82 million in revenues, 3% lower than last year, with operating income excluding depreciation and amortization flat year-on-year at US$7 million. However, interest expense and non-cash charges resulted in a combined net loss for Ayala of P307 million.

Ayala continues to believe in the medium to long term growth potential of the BPO sector in the Philippines as companies worldwide intensify cost cutting initiatives. Ayala is expanding its geographic and service capabilities in this space through its investee companies. Recently, eTelecare acquired The Phone House, a South African contact center company, as it eyes opportunities to tap the strategic U.K. market. Integreon also launched in January its first U.K. onshore shared-services center for the legal sector with Osborne Clarke, a top 50 U.K. law firm, as its anchor client. This was followed by the acquisition of Onsite, a leading global provider of electronic evidence solutions for law firms and corporations, based in Arlington, Virginia.

Ayala ended the quarter with close to P30 billion in cash and net debt of P8.7 billion. Zobel added, “Ayala’s strong financial and cash position give the group the flexibility to pursue growth initiatives at both the holding company level and at the level of the operating units. These initiatives will continue to build on the strong market position we have achieved in our key markets and allow us to achieve a stronger growth trajectory as the economic cycle turns.”

Ayala Dominates FinanceAsia’s Poll of Best Managed Companies in the Philippines; Zobel is Named Top Chief Executive

Ayala Corporation and its listed subsidiaries led FinanceAsia’s ninth annual poll of the Philippines’ top companies, the Hong Kong-based publication recently announced.

Ayala retained its leadership as the best managed company and best in corporate governance in the Philippines, while four of the top eight companies in both categories are Ayala subsidiaries, namely, Globe Telecom, Manila Water, Bank of the Philippine Islands (BPI), and Ayala Land, Inc. (ALI).

Chairman and chief executive officer Jaime Augusto Zobel de Ayala was named best CEO, a new category introduced in this year’s polls. Globe Telecom chief finance officer Delfin Gonzalez, Jr. and Ayala treasurer Ramon Opulencia were once again cited as best CFOs in the country.

Ayala also earned high marks in investor relations together with Globe, ALI and Manila Water, and topped another new category, best corporate social responsibility, with Manila Water and ALI. Globe and BPI were considered second and third most committed to a strong dividend policy, respectively, and Manila Water was named best mid-capitalization company.

Other companies that made it to FinanceAsia’s list of best managed companies in the Philippines were PLDT, Banco de Oro, Security Bank, Megaworld, and ICTSI. The FinanceAsia poll was conducted among 238 investors and analysts across the region.