Month: November 2009

Below is the speech of Ayala Corporation chairman and CEO Jaime Augusto Zobel de Ayala at the Asian Forum on Corporate Social Responsibility on the conference theme, “Sustaining CSR in Difficult Times: How Business Can Benefit and Why It Still Makes Sense.”

I am delighted to be here and honored by the invitation of Mon del Rosario to speak before you today. I congratulate him and AIM for this continuing initiative (the 8th this year) to bring together CSR practitioners, business executives, non-government organizations from the Philippines and across the region, to share best practices and ideas on corporate social responsibility.

WHY CSR

With every passing year, CSR continues to grow in relevance to private sector enterprises. I am sure you have all seen a dramatic change since the first conference was organized. There is a continuing realization that businesses need to take a more active role in addressing many of the social development challenges we face today and this has been accentuated by two key trends.

First, businesses today are increasingly seen as having an implicit social contract with a society that expects them to be more mindful of their impact within the broader contextual framework of their social and environmental setting.

And second, businesses increasingly realize the need to have a social development agenda to ensure their own viability. Ultimately, no business will ever thrive in a society where poverty continues to grow and where the social and economic environment remains unstable.

On the positive side, CSR programs continue to grow among private sector enterprises. Social giving and business philanthropy have seen significant growth in recent years.

Yet, despite this increase, extreme poverty and social inequity persist in many parts of the world, and we are certainly not immune from it here in the Philippines. The sheer enormity, gravity and magnitude of the challenges seem to blunt the impact of this growing engagement by private sector enterprises in helping address social issues.

One just has to look at the statistics. Just a few weeks ago, the UN World Food Program reported that over the past two years alone, 200 million people were counted to have joined the ranks of the hungry.

In the Philippines, the latest numbers of the SWS Survey, for the second quarter of 2009, reveal that 20.3% of Filipino families are suffering from involuntary hunger and 50% are rating themselves as poor. While these are self-rating mechanisms, they are increasingly being accepted worldwide as a valid measurement of well-being.

Income disparities have also widened tremendously. The poorest 40% of the world’s population accounts for only 5% of global income today, while the richest 20% accounts for three-quarters of it.

The poverty problem is only further aggravated by the effects of climate change and the increasing degradation of our natural resources which are, in turn, threatening major ecosystems on which our food sources depend. Ondoy, here in Manila, was just the latest gripping reminded of the devastating impact of climate change.

Finally, it is also ironic that all these social, economic, and environmental strains are also happening amidst the unprecedented global economic growth of the past few decades.

When reflecting on my remarks for today, I came to realize that this paradox suggests that we should re-examine our current economic paradigms and question our models of engagement. The world has, since, the post-world war era, pursued an economic framework that has not always led to the desired outcome of raising the standards of living of all citizens equally and effectively.

There are no finite right or wrong answers, but to my mind, there are three fundamental questions we must ask of the future economic frameworks of our countries.

First, at the very core, is whether our current measurements of economic success are appropriate. I feel there is some validity to the thinking of Prof. Joseph Stiglitz, the recipient of the Nobel Prize in economics, and former Chief Economist at the World Bank, when he states that there has been too much focus on the material aspects of growth. He has been quite vocal about this lately.

The world has traditionally measured itself, and defined growth based on product and output related metrics like GDP. It equates growth mainly with an increase in the quantity of goods and services produced. However, it says practically nothing about the way in which these are produced.

Nor is there sufficient attention to how the resources used affect all other aspects of our quality of life and the state of the environment we rely on for our well being. Given the realities we face today, which include poverty, social inequity, and global warming, a GDP scorecard may not be entirely sufficient.

I am inclined to agree with Prof. Stiglitz when he suggests that what we measure affects what we do. The metrics lay the foundation for executive focus. In the quest to increase GDP, we may end up with a society in which negative externalities end up outweighing the positive ones, even as we grow in general terms.

Initiatives, however, are taking place to improve measurements and indicators of economic progress and human development. These new metrics encompass social capital, happiness, health, and mental well-being as part of the analysis. The United Nations Development Program (UNDP) has, for example, been pushing for a better measure of human development through the human development index (HDI). This index combines factors like life expectancy, literacy, educational attainment, GDP per capita, health care, education, income, and employment.

In the Philippines, Winnie Monsod and Arsi Balisacan at the University of the Philippines are trying to mainstream the sustainable human development concept under the Human Development Network Foundation by monitoring achievements, breakthroughs, deficiencies and gaps regarding human development in the work of both governments and non-government organizations.

For similar reasons, I would suggest that businesses must begin to expand their metrics and definitions of success to take into account the broader impact they have on their communities. The move towards “sustainability” reporting is a step in this direction and gives a more holistic scorecard of the effects of any institution on its community. We have taken this issue of “sustainability” reporting seriously in our group and have just issued our first set of reports for each of our publicly listed companies. I will discuss this in more detail later.

The second question has to do with our approach towards poverty alleviation. While many countries have managed to climb out of poverty, many others, including the Philippines, have found it challenging to develop a virtuous cycle of economic improvements for each citizen.

One could argue that traditional approaches to poverty alleviation rely heavily on multilateral aid and on “under resourced” governments to provide the needed services and infrastructure to cover income inequalities.

The success of this framework has been increasingly debated by economists like Jeffrey Sachs of Harvard University who claim that the value of multilateral aid, after costs, is marginal. His points of view are often controversial and I do not fully subscribe to all his points.

However, it does seem apparent that this system relies on under-resourced governments and their bureaucracies to translate the aid into a holistic set of interventions delivered to thousands of low income communities. But more often than not, the developmental aid that does make it to communities is less effective due to incomplete or poorly executed programs. Delivery of the critical infrastructure needed at the community level, such as food, water, energy, healthcare, education, and access infrastructure then falls short.

The consequence of this is the fact that the lack of basic infrastructure then discourages the private sector from providing goods and services to these marginalized communities in favor or more developed segments of the market. Private investment capital, which is far more abundant and self-sustaining than aid or donations, is then unable to trickle down and reach the segment of the market with the greatest need for modern goods and services.

The third and last issue, when reflecting on our current economic framework and its emphasis on GDP growth, is that it fails to assign any cost to goods and services that produce negative externalities.

As our economies continue to grow, and as wealth is created, there is an increasing tension between the demand for resources and their availability. This tension is most visible in countries with an aggressive growth agenda or with strong consumer demand. Technology is used to counter cost-related issues and encourage productivity, but sustainable solutions are not always the end result. Environmental degradation is one obvious manifestation of this tension to gain access to natural resources while just minimizing economic cost. The denudation of forests, the poisoning of land, and the problems of overfishing are just some of the end results.

These three challenges, taken together, are helping create an unsustainable and increasingly self-destructive path that threatens the health and life of our communities.

The way I see it, businesses cannot operate, thrive, and succeed if the society within which it operates is not progressing. It also cannot expand and grow productively if the resources it needs, and the environment it works in, continue to deteriorate. The long term goals must be made to outweigh the short term ones.

We must improve on our current CSR responses and help create a new level of engagement that helps address these negative externalities.

This is where I believe that private enterprise has an important role to play in this new framework for action. Businesses have the tools, the discipline, the creative adeptness, the appropriate resources and investment capital to be a productive force in helping address these environmental and social problems. We must understand that by 2050, the world population is projected to approach 9.5 billion, approximately 40% more people than today. Our own Philippine population is expected to reach 145 million by 2050. Our capacity to sustain this growth and provide an increase in the quality of life of each citizen in a fair, progressive and equitable way is increasingly being challenged.

There are three positive trends worth mentioning that should help create a sustainable cycle of growth and which we should increasingly align ourselves to.

First, businesses are increasingly realizing that market-oriented solutions are effective in providing solutions to lower income and marginalized groups.

Enterprises are now looking at the base of the economic pyramid as a legitimate market that needs to be served and which can be engaged profitably. It is spurring innovation in products and services, through creative business models, that penetrate lower income segments of the market in financially viable ways. Although much has been achieved, there is room for greater awareness of the potential opportunities for the many disenfranchised consumers at the bottom of the economic pyramid.

There is a growing list of companies that have been successful at significantly increasing their social and environmental impact, while simultaneously growing profitability. They demonstrate that it is possible to integrate CSR objectives into their strategic business models as a self-sustaining way of empowering lower income groups to lift themselves out of the economic challenges of their community setting.

For instance, in South Africa, companies like Vodaphone are making telecommunications services available in imaginative ways for many people who cannot afford a mobile phone or where a phone line is inaccessible. Vodafone has a joint venture that provides community phone shops to provide telecommunications to the poor, rural, and under-serviced areas particularly where there are few or no fixed line phones.

The company provides training and support for local people to run phone shops as franchise businesses and calls are connected to the Vodafone network. This allows them to expand their reach while providing livelihood opportunities to poor communities.

Another example is ITC Ltd., one of India’s largest exporters of agricultural products. It developed what they call the “e-Choupal” initiative, which is enabling Indian farmers to significantly enhance their competitiveness through the power of the Internet. In essence, ITC created a network of “e-Choupals” (choupal means village square) in rural communities and, through these, farmers are able to check the market trading price of their produce and sell directly to ITC. This system has helped eliminate the inefficiencies in the supply chain caused by middle men at local rural markets.

Here in the Philippines our own Ayala group has developed some exciting new initiatives around increasing the accessibility and reach of microfinance.

Microcredit is a highly empowering tool for self-employment but many of the lower income segments of the market do not have access to credit from the legitimate banking sector. Using new technology platforms today, it is becoming economically viable to lend small amounts of money to customers who remain unbanked. In a new initiative, three of our companies, BPI, Globe, and Ayala, for example, are working together to extend microfinance facilities to poor communities and microfinance institutions using Globe’s cost effective over-the-air value transfer technology platform and BPI’s expertise in financial services. This, we believe, does not only help unbanked communities, but allows BPI and Globe to expand their market reach and create value for their businesses.

We are just continuing a trend that has been pioneered by highly respected non-profits like CARD here in the Philippines.

The second positive trend I see is the evolution of corporate philanthropy towards highly strategic and deeply collaborative approaches.

Never has corporate philanthropy been so integrated and cooperative than it is today.

The Bill and Melinda Gates Foundation, for example, is working with a wide range of partners, including the Rockefeller Foundation, to empower millions of small farmers in Africa to grow and build better, healthier lives. It has laid out a vision to provide everyone equal opportunity to uplift and improve their lives but it is using its influence to encourage collaboration. For example, it is investing in better seeds, training, market access, and working for policies that support small farmers in Africa. It is also providing education training and internet access to under resourced schools all over the United States. I have also been delighted to see their continuing support for agriculture and research through their support of IRRI in Los Banos, as one more example.

We have seen the same kind of multi-sector collaboration in the Philippines with our own experience with GILAS, where private corporations, local government units, and the Department of Education, have come together to help connect all the public high schools in the Philippines to the Internet. Ramon del Rosario’s own initiatives in helping promote a progressive agenda in education through Philippine Business for Education (PBEd) is another.

It is the same spirit of collaboration that is alive in the efforts of many public and private companies, local government units, non-government organizations, and citizen volunteers to work together to clean up the Pasig River, under the Kapit Bisig Para Sa Ilog Pasig. This massive and concerted movement harnesses the expertise and competencies of each individual and corporate volunteer to provide an encompassing, end-to-end solution to solve a huge problem like the Pasig River.

What these examples are telling us is that collaboration is key to bringing more permanent and long-lasting solutions. No one enterprise or sector can do it alone. Corporate philanthropy must apply the same strategic thinking and discipline of any business undertaking and work in partnership with a broad array of entities for it to achieve scale and impact.

The third trend I see is that businesses are increasingly open to the idea of managing with a “triple bottom line” approach.

This means companies are incorporating social, economic, and environmental goals to their performance as enterprises and are making sure that their business strategies and models adjust to this new reality.

Today, many institutions are incorporating a deliberate set of goals to reduce carbon emissions in their business operations, produce greener products, harness and tap the wealth of talent and expertise among small and medium enterprises, and develop more sustainable models of engagement with customers.

Businesses realize that there are tangible business benefits to be gained from this approach to responsible investing.

It can lead to real savings, higher profits, stronger brand and employee engagement, and broader community and local government support. Bottom line, I would like to argue that if successful, good execution along responsible lines can reduce overall business risk.

I would like to point out further that harnessing the resources of private initiatives to address social issues can be far more scalable and sustainable over the long term than charitable giving.

Looking at our own experience in the Ayala group, charitable contributions of our CSR initiatives were valued at P330 million in 2008. This is a small amount relative to the estimated p145 billion in distributions made as a group in terms of capital investments spread to suppliers, government (through taxes), employees, shareholder value redistribution, and capital investments.

When directed responsibly, with progressive goals aligned to sustainable practices, these investments can have a more lasting impact in creating progress for the many communities that are engaged with our group.

As a group of corporations, we have taken the first step to adopt the triple bottom line approach. We have laid out our goals in our group-wide sustainability reports which have been published and distributed recently. For the medium term, we find there are three key sustainable strategies that we can pursue as a group.

First is to reduce our environmental footprint. Second is to create high-impact self-funding CSR programs; and third is building businesses that have a focus on creating a significant social and environmental impact.

I do not intend to expand on this here but it is relevant to note that we are setting clear targets for ourselves. We are starting to take steps to calculate our carbon footprint and see how it can be reduced.

We are tracking our engagement as business entities with our environment and making a sincere effort to mitigate negative externalities. From the protection of watersheds to waste management in our commercial centers.

We are also putting a focus on our CSR activities as a group and are aiming to create relevance and impact across the themes of education, the environment, and entrepreneurship. This is being achieved through our Foundation, our company strategies, and our volunteerism.

Finally, we are increasingly looking to expand our engagement within groups and communities that are not always a part of our traditional service network. From overseas Filipinos to micro-entrepreneurs.

Finally through our real estate and banking initiatives, we are putting more weight on setting the bar higher for our environmental goals.

The current project of Ayala Land in Canlubang, Nuvali, is breaking new ground on this front and BPI is increasingly widening its portfolio of “green” financing; to name a few.

I am hopeful that these trends will only continue to grow and become more relevant to the execution of strategy among our business community. However, these efforts must be supported by the right public policy framework that equally recognizes the importance of sustainable development in our plans for the future. Policies that promote sustainable initiatives have long-term social and environmental benefits that would be hard for public services of the national government to match.

Ultimately, businesses cannot succeed in societies that fail. It is vital and urgent that we pursue a framework of growth that is responsible, inclusive, and sustainable. It is a goal that transcends local and global borders and a goal we must all work for to ensure the right quality of life for all our communities.

Visit this site to view Mr. Zobel’s presentation and a video of his keynote speech at the 21st Philippine Advertising Congress held on November 19, 2009, at the Subic Bay Exhibition and Convention Center.

Good evening ladies and gentlemen.

Thank you for inviting me to be with you today. I know that this is one of the most eagerly awaited events in your industry. I feel honored to be part of this event – to be among some of the most creative minds in the country.

The Ad Congress is a vast opportunity for learning and a great opportunity for us to challenge traditional thinking.

This is precisely what we need today in a world rudely awakened to alarming environmental and social realities that can no longer be ignored or accepted.

We’ve all seen the devastating impact of climate change. Whichever part of the world you’re from, the outcomes are one and the same – countless lives lost, human displacement, livelihoods and businesses disrupted, agricultural resources obliterated and the tragic loss of hope for so many.

These devastating environmental problems can no longer pass as ‘acts of God’. We are witnessing the direct consequences of a human footprint that is so large that it is degrading nature on a massive scale.

We are consuming more goods, using more resources and creating more garbage than we are equipped to handle. Technology has allowed us to push the limits even further, but has resulted in more emissions that warm the atmosphere. Companies are pressured to grow faster, produce more goods, increase profits, expanding environmental footprints in the process.

These are all reinforced by the promised rewards of a capitalist system under which much of the world operates. Ironically, it is the same system that created great wealth for nations and improved the well being of societies. Capitalism, after all, has been the most positive force in uplifting the human condition. History has proven it is the single greatest engine for the creation of wealth. Countries which adopted it, like China, have sustained economic growth for years and spread prosperity. But along with this, it also finds itself surrounded by environmental ruin and persistent poverty that afflicts a great part of its population.

While it is true that capitalism has allowed many countries to climb out of poverty, many have not. A great percentage of the world’s population is caught in a poverty trap which climate change will only worsen.

Certainly, there is a host of complex reasons why millions are stuck in poverty. Population explosion is one of them. But it is also clear that inherent failings of our current economic system have aggravated it.

While capitalism has been a great economic model, it has also not been efficient in providing goods and services to people who need them most. It has failed to provide basic infrastructure needed to allow the poorer sectors of society to join the formal economy.

Poverty alleviation approaches have relied heavily on charity through multilateral aid or donations of rich countries to poor countries. There has been a dependence on government for the provision of basic goods and services to the poor.

This model does not work sustainably. The charity system has tremendous inefficiencies that leaves it grossly insufficient. The US, for example, has given billions of dollars to Africa. But, according to Jeffrey Sachs of Harvard University, the true developmental aid, net of the portion for US consultants, food, and other emergency aid, amounts to a grand total of six cents per African. Hardly enough to make a difference.

Charity has not been able to deliver long term solutions on a scale that can genuinely uplift the lives of the poor. Businesses in turn have traditionally prioritized more developed segments of society which tend to be more profitable. This further isolates the majority and leaves them entrenched in a vicious cycle of poverty.

From a moral standpoint and even as a businessman it is unacceptable.

Business simply cannot flourish in failing societies. The building blocks of society–families, communities and businesses cannot prosper if the air is polluted, if the rivers are clogged, if forests are denuded, if biodiversity is threatened, and if people are mired in poverty.

These realities must force all of us to stop and rethink the very conduct of our lives, the way we govern, and do business. They scream for radical shifts in our current paradigm of capitalism and deeply ingrained human practices that have led us to this state.

Let me emphasize that the problem is not capitalism per se – but in the self-interested way that it is practiced today. It is capitalism that is highly individualistic, that is motivated by purely personal gain at any cost, and in many cases, with no regard for anything else. This, I believe, can be as destructive as it is creative.

Instead, we need to fundamentally reorient this economic paradigm towards a more “responsible and enlightened form of capitalism”, one that seeks long-term sustainability and balance, one that uses the mechanisms of the free market, but recognizes the needs of the broader community. If we don’t, I’m afraid we will continue on a path that leads to more frequent natural disasters and the resulting toll on human suffering and poverty.

I have confidence that practical and realistic solutions exist and are within reach. Today, I see three trends combining to form the foundation of a new, more “enlightened” capitalism, or what Bill Gates calls “creative or soft capitalism”. This is capitalism that uses market forces to address the needs of the poor, those at the base of the economic pyramid, who in the past were not considered a profitable market. This is capitalism that looks at greening the supply chain, that minimizes environmental footprint, that seeks more efficient use of natural resources and replaces those it has used. I see many people and companies beginning to transform, ready to embrace an alternative path that leads to sustainable, more inclusive, and equitable growth.

The first trend I see is an emerging social pact. People are increasingly demanding greater accountability, higher levels of ethics, heightened social and environmental responsibility, and governance from both the public and private sectors. Consumers are demanding products that are environmentally safe. Employees are more inclined to pursue careers with companies that are ethically and socially responsible. Capital is finding its way into companies that have strong social and environmental dimensions in their business strategies. It is imperative that this momentum is nurtured and reinforced so that it is adopted at all levels.

The second trend is the increasing ability of business – using new business models, new technologies, and partnerships with communities and government – to profitably meet the needs of the lower income groups. By finding ground-breaking ways to tap this market profitably, companies are unlocking new opportunities, and unleashing billions of dollars as they provide access to services and goods for the poor.

There are many successful examples of business models that cater to the base of the economic pyramid or the poorest sectors of our society.

In India, Philips Electronics is making access to healthcare facilities more affordable through custom-built clinical vans. These vans constitute a real business that combines the capabilities, technologies, and expertise of business using approaches developed by the non-profit sector.

The same impact has been made by the telecom industry in the Philippines. When Globe and Smart collectively brought down the cost of mobile phone services through innovations in technology platforms, the penetration rate of phones dramatically increased. Today, an astounding 80% of the population has access to a mobile phone to communicate with family and friends and to manage their businesses.

We saw the same outcome in our experience in Manila Water. Bringing piped water to communities that didn’t have access to it at a fraction of the cost, created a huge leap in people’s quality of life and an enormous improvement in health, especially for lower income groups.

But perhaps, no other base of the pyramid business model is more powerful than microfinance. We all know how the Grameen bank in Bangladesh introduced microfinance and radically transformed the lives of millions of people who otherwise would have had no access to credit.

This model has been taken to most emerging economies where mainstream financial institutions are now moving into this space successfully. There are examples like Compartamos Banco in Mexico, Credi Amigo in Brazil, Bank Andara in Indonesia and ICICI in India. These institutions and many others are already serving millions of people around the world. With 80% of the population in the Philippines still un-banked many people in our country are exposed to unscrupulous characters that lend them money at exorbitant rates. This will rapidly change as more and more institutions look into microfinance as a profitable business opportunity.

Within our group we recently decided to tap this sector by combining Globe’s G-Cash technology with BPI’s expertise in managing loan portfolios. Through a combination of technology and experience, we feel we can expand the reach of microfinance and bring down transaction costs in a profitable way to ensure its sustainability.

Companies are clearly moving into sectors that were previously left to the NGOs or government agencies. They have shown that they can operate profitably within this space and give basic access to the poor. Companies like Pfizer, Unilever, Nike, Microsoft, Petron, and many others are aggressively looking for solutions to serve the broader base of the market. As these businesses can be profitable, you will see an enormous amount of innovation and resources being channeled to a sector that has been neglected for so many decades. In many cases, the lower income groups will be getting access to basic services for the first time and in many other cases the drive for efficiency in the private sector will allow them to get the services and goods at a much lower price than in the past.

The third very positive trend I see is the move towards more Strategic Philanthropy. Philanthropic activities have dramatically evolved from being relatively small sporadic distributions to larger, more strategic social consortiums. These cross-border and multi-sectoral partnerships enable programs to scale up and magnify their impact, benefitting entire sectors, cities, and even an entire country.

The Bill Gates Foundation is perhaps the most prominent example. It uses its own resources and its partner institutions’ to strategically address infectious disease problems in developing countries. They support sustainable ways of delivering technology and invest in R&D for affordable interventions such as natural vaccines, low cost repellants, and diagnostics. Their efforts apply the same kind of strategic thinking and discipline that made Microsoft a global enterprise.

Another example and one that we can see right here in our country is the Shell Foundation’s work with an alliance of over 200 international companies to combat tuberculosis and malaria in Palawan, Apayao, Quirino, Sulu, and Tawi-Tawi. To succeed, it relies on equally critical partnerships with various government units to ultimately eradicate these health problems.

We are gradually witnessing the replication of these massive collaborations. I am very interested in the on-going effort for an environmental clean-up and transformation of our very own Pasig River.

A river that was once a source of life, a central feature of the city, a means of transport, and a center of economic activity has been denigrated into a dumpsite of human and industrial waste after 80 years of abuse. The Kapit Bisig Para Sa Ilog Pasig Project is a huge effort that only a multi-sectoral collaboration can manage because it needs a full range of solutions, from housing, livelihood, clean water, to health services, education, sanitation, and waste management.

The Pasig River represents an opportunity for a new approach and thinking towards such a critical resource. I have decided to get involved both personally and through the companies that I work with, in the relocation effort for the people living on the banks of the river. Through Habitat for Humanity and other partners we will help relocate all the families to new sites.

I am fully convinced that under the leadership of Gina Lopez and the ABS CBN Foundation and with everyone’s committed assistance, we can bring this river back to life again. Its success will show our capacity as a nation to solve problems of this magnitude in our country. It will invigorate our confidence to work together for a common cause.

These three trends show that businesses and capitalism can be harnessed for greater positive impact in society. They can become a force for change as they have the tools and solutions at hand for the problems we face today.

Across the world, societies clamor to put an end to the irresponsible use of resources, an end to environmental degradation, and a beginning of a new and better standard of living for itself and for its children. I have absolute confidence in this unfolding movement. Societies have always demonstrated a unique ability to adapt, adjust, and create solutions to problems at every critical juncture in history. But these solutions ultimately rest in all of us, individuals, who make up and chart society’s course.

If we do not have the individual willingness and capacity to work together and make a radical change in our ways, if we do not demand a higher standard for ourselves and from our leaders, if we do not reject apathy and mediocrity, we are doomed to muddle through, feeling frustrated and impotent to change our lives for the better.

But if we do, even our own individual modest efforts, replicated and multiplied a thousand fold, can save our country from the slippery slope to economic failure and social dislocation.

In this room tonight are some of the most creative minds in our country. You have the power to fuel the passion, the hope and the desire for every Filipino to transform our country into a vibrant, entrepreneurial and caring nation.

Let us all play our part in rebuilding our country today. I thank you once again for this opportunity.

Ayala Corporation’s consolidated net income in the third quarter of 2009 rose by 13% versus the same period last year to P1.7 billion. This put net income in the first nine months of the year at P5.8 billion, 26% lower year-on-year, but 14% higher excluding gains from share sales realized last year.

Combined equity earnings from core business units, Ayala Land, Inc. (ALI), Bank of the Philippine Islands (BPI), and Globe Telecom (Globe) grew by 16% during the quarter as their net incomes registered strong growth during the period. This was, however, offset by the mixed performance of units under AC Capital. Equity earnings in the nine month period ending September remained stable at P6.8 billion.

Ayala Corporation President and Chief Operating Officer, Mr. Fernando Zobel de Ayala, said “Our core business units remained resilient despite the difficult operating environment. With positive trends in the third quarter, we are optimistic about the continued growth trajectory of our businesses particularly as they tap new market segments and explore new geographies. We also continue to support their growth initiatives as part of a broader plan to constantly enhance and optimize value from our portfolio.”

Ayala recently announced it increased its stake in Manila Water to 43.3% from 31.7% as it signed a Sale and Purchase Agreement with United Utilities, Inc. to acquire the latter’s 11.6% interest in the water company. The move is viewed value accretive given the growth potential of Manila Water as it looks to expand beyond its concession area.

Ayala has also continued to actively invest in the business process outsourcing (BPO) space. Recently, it announced the merger of its contact center investment, eTelecare Global Solutions, with US based Stream Global Services, Inc., a leading global call center company. This combination creates one of the five largest global call center companies, with approximately 30,000 employees in more than 50 sites in 22 countries worldwide, and revenues of approximately $800 million. LiveIt, Ayala’s holding company for its BPO investments, has a 25.5% ownership in the combined entity.

Subsequently, Ayala’s knowledge process outsourcing (KPO) unit, Integreon, announced the acquisition of Grail Research, the captive Strategic Research and Decision Support unit of the Monitor Group, one of the world’s leading management consulting companies, who will enter into a 5 year contract to buy research services from Integreon. The acquisition accelerates the expansion of Integreon’s business intelligence, research and analytics business into high-end, custom market research, and strengthens Integreon’s position as one of the leading integrated KPO companies globally. Grail is headquartered in Cambridge, Massachusetts and has 200 employees in the US, India, China and South Africa.

These transactions are part of Ayala’s strategy to invest in global BPO companies that are in the top 5 in their respective sectors worldwide, and can leverage the Philippines’ competitive advantages. In the third quarter, the combined revenues of Ayala’s BPO companies, excluding Stream and Grail, grew by 6% to $93.5 million versus the second quarter, and their combined EBITDA grew by over 20% to $8.7 million, as they continued to recover from the impact of the global recession. Ayala’s share of their net loss for the first three quarters of 2009 was P648 million, which includes P439 million in merger and acquisition related transaction costs, amortization of intangibles, and interest expense.

Ayala’s core business units continued to achieve robust earnings growth, offsetting losses in its international real estate unit, AG Holdings. The latter booked a net loss of P336 million for the nine month period due to provisions for several projects in the US, given the persistent weakness in the U.S. property market.

BPI’s net income in the first nine months of the year grew by 38% to P7.3 billion with revenues up 16%. An increase in the bank’s average asset base coupled with a 13-basis point improvement in spreads contributed to the growth in net interest income, while the declining interest rate environment allowed the bank to realize trading gains from the sale of part of its securities inventory. Business remained brisk, with average loans up 8% driven mainly by its middle market and consumer clients.

Globe’s net income rose by 12% to P9.9 billion with core earnings stable at P9.4 billion year-to-date September. Revenue growth was underpinned by its consumer broadband business, which increased by 69% year-on-year with a significant expansion in subscriber base. Globe’s broadband subscribers nearly tripled versus last year to over 500,000, while its wireless mobile subscriber base contracted to 23.1 million at the end of the period. Globe continues to invest in network expansion to improve service delivery to consumer, allow better reach, and enhance network quality. It recently declared a special cash dividend of P50 per share, equivalent to a pay-out of 134% or a yield of 14%.

In the meantime, trends in its real estate unit Ayala Land, Inc. were encouraging with net income up 9% quarter-on-quarter and 12% year-on-year in the third quarter coming from two consecutive quarters of decline. ALI’s earnings in the first nine months, however, were still lower than prior year by 24% at P2.9 billion. Aggregate residential bookings continued to improve across all brands, indicative of a convincing reversal from its bottom early this year. In the meantime, overall leased-out rates in Ayala Malls improved to 95% while its office business completed a significant expansion in its BPO portfolio which saw its average leased-out rate dip to 64% due to the influx of new office space in the third quarter. ALI shares the optimism in the medium to long term growth potential of the BPO sector in tandem with the recovery in the global economy and the compelling trend for global offshoring and outsourcing.

The gradual recovery in the electronics sector improved the performance of its electronics manufacturing unit, Integrated Microelectronics, Inc. (IMI). The company posted a turnaround with net income of P170 million, a reversal of the net loss incurred last year. Revenues on a year-to-date basis, however, remained below last year’s levels due to softer global demand for electronics. The third quarter saw notable improvements in revenues and margins compared to the first half of the year. The company recently obtained approval from the Securities and Exchange Commission for a Listing by way of introduction of its shares in the Philippine Stock Exchange and is currently awaiting approval from the stock exchange.

Ayala’s water unit, Manila Water Co. grew net income by 14% to P2.3 billion in the first nine months on the back of a 6% increase in core revenues and better operating and tax efficiencies. The increase in the company’s customer base from the expansion areas helped boost year-to-date sales. Non-revenue water also continued to drop to 15.4% year-to-date. Last September, the company assumed full control of operations of its subsidiary Laguna Water, making significant headway in its domestic expansion outside the East Zone.

Ayala Corporation ended the period with cash at the holding company level of P26 billion and net debt to equity of 0.09 to 1.

Ayala Corporation, United Utilities (UU) and Philwater Holdings Company Inc., a company owned 60% by Ayala and 40% by UU, signed today agreements for Ayala’s acquisition of UU’s 81.9 million common shares and economic interest in 2 billion preferred shares in Manila Water Co. for a total consideration of P3.5 billion.

The acquisition increases Ayala’s economic interest in Manila Water to 43.3% from the current 31.7%. UU, who has been Ayala’s technical partner in Manila Water since it began operating the water concession in Metro Manila’s East Zone in 1997, will continue to provide technical services to Manila Water and retain voting rights in the water company through its 40% ownership in Philwater, which holds Manila Water’s outstanding preferred shares.

Manila Water recently obtained a formal approval for the renewal of its MWSS concession, which is now extended up to 2037, allowing it to implement its aggressive P450 billion investment plan for Metro Manila’s East Zone. The company continues to tap opportunities beyond the East Zone. It recently took over the water concession of Sta. Rosa, Binan and Cabuyao in Laguna, and entered into a joint venture agreement with the Philippine Tourism Authority to develop the water distribution and sewerage facilities in the tourist island of Boracay.

Beyond the Philippines, Manila Water is exploring other water projects in the region where it plans to apply its expertise and track record in the provision of efficient water and wastewater services.

The above statement pertains to the disclosure made to the Philippine Stock Exchange and the Securities and Exchange Commission by Ayala senior managing director and CFO Rufino Luis T. Manotok.

Acquisition Strengthens Integreon’s Leadership in Research and Analytics and Expands Global Footprint to China and South Africa; Enables Monitor Group to Realize Its Vision for Grail

Integreon, the global leader in integrated knowledge process outsourcing (KPO), announced today the acquisition of Grail Research, a global strategic research and decision support firm headquartered in Cambridge, Mass. Integreon acquired the business from Monitor Group, a global advisory, capability-building and capital services firm. Grail Research provides the market intelligence and strategic research that global corporations need to make decisions in today’s rapidly changing business environment. Monitor Group has also signed a five-year contract to buy research services from Integreon. Integreon is owned by its management team and LiveIt Investments, Ayala Corp.’s BPO investment arm.

Grail Research serves the world’s leading technology, consumer products and life sciences organizations, including Microsoft, Estée Lauder and a majority of the top ten pharmaceutical companies. These organizations rely on Grail Research to provide the insights they need to launch products, build brands, assess new opportunities, evaluate M&A/partnership deals, address competitive threats and understand regulatory issues. Grail Research is headquartered in Cambridge, Mass., and in addition to its other offices in North America has offices in Beijing (China), Delhi (India) and Johannesburg (South Africa). The company has 200 employees worldwide.

“I am delighted to welcome the entire Grail Research team to Integreon,” said Liam Brown, CEO of Integreon. “This acquisition accelerates the expansion of our business intelligence, research and analytics business with high-end, custom market research.

“With the addition of Grail’s capabilities, Integreon can meet the most demanding global research requirements of our investment banking, law firm and corporate clients on an enterprise basis. Grail also expands our global delivery and service capability to South Africa and China, which are strategic markets for Integreon,” added Erik Tabuena, President of Integreon Managed Solutions (Philippines), Inc.

Colin Gounden, CEO and Founder of Grail Research, has joined Integreon as Chief Marketing Officer and will report directly to Liam Brown. Gounden brings to Integreon nearly 20 years of strategy consulting and research experience and as a Senior Partner and Board Member of Monitor Group, has advised executives from leading global corporations on their most strategic challenges. “I’m genuinely excited about the growth opportunities that Integreon provides. Together we expect to strengthen Integreon’s market-leading position as the next-generation research and analytics firm,” said Gounden.

“We formed Grail Research in 2006 to provide global corporations and Monitor Group consultants with strategic market intelligence and decision support services,” said Steve Jennings, co-Managing Partner of Monitor Group. “With the rapid growth of Grail Research and the still substantial opportunity to expand its scope and scale of services, we realized that Integreon offers the best platform for Grail to achieve its full potential. We have signed a five-year research contract with Integreon; as a continuing customer of Grail, we look forward to benefitting from the growth in capabilities that Grail’s new owner, Integreon, will help drive.”

“Grail will enable Integreon to further climb the value chain, and will strengthen its position as the leading KPO company,” said Fred Ayala, CEO of LiveIt Investments.

Terms of the transaction were not disclosed. For more information about Integreon’s full range of research and analytic capabilities, please visit us at www.integreon.com or at www.grailresearch.com.

About Integreon
Integreon provides a range of outsourced knowledge services to demanding professionals using Document KPO, Research KPO, Legal KPO and Business Services to transform its customers’ Middle Office, allowing professionals to focus their time and energy on their ‘highest and best use.’ Its customers include many AmLaw 100 and UK top 50 law firms, almost all of the global investment banks, several top-tier private equity firms and hedge funds, as well as many Fortune 100 and FTSE 100 corporations. For more information about Integreon, please visit www.integreon.com.

About Monitor Group
Monitor Group works with the world’s leading corporations, governments and social sector organizations to drive growth on the issues that are most important to them. Founded and based in Cambridge, Massachusetts, the firm offers a range of services – advisory, capability-building and capital services – designed to unlock the challenges of achieving sustained growth. Monitor brings leading-edge ideas, approaches, and methods to bear on clients’ toughest problems and biggest opportunities. For more information, visit www.monitor.com.