Category: News

At its annual stockholders’ meeting held on April 16, 2010, Ayala Corporation chairman and chief executive officer Jaime Augusto Zobel de Ayala announced its group companies is allotting P70 billion in capital expenditure in 2010, the highest on record for the conglomerate. The group’s capital expenditure plan spans investments across the real estate, telecommunications, and water utilities sectors. Mr. Zobel de Ayala said, “We see room for growth moving forward as our businesses expand into new markets and geographies.”

Ayala is increasingly combining its competencies across its core businesses as it seeks to address the needs of a much broader consumer base. The Ayala chief executive stressed, “It is part of our long-term growth strategy to find innovative and creative ways of serving the needs of a much larger segment of our population. We are increasingly aligning our business models across the group to be responsive and relevant to our commitment to provide sustainable growth and development to a broader and more diverse community.”

Ayala recently formed BPI Globe BanKO, a joint venture with its banking unit and telecom unit to develop microfinance services in which Ayala has a 20% stake. The group sees microfinance as a transformational force in society from both a social development perspective and as a profitable enterprise.

Its real estate unit, Ayala Land, Inc. expanded its foray in the economic housing segment to meet the growing demand for housing at much lower price points. The real estate unit also tapped a partnership with the group’s water utilities arm, Manila Water Co., Inc., for the development of water and wastewater facilities of its existing real estate developments.

Ayala is pursuing these new initiatives in tandem with its growth objectives in its traditional markets. Ayala seeks to expand in selective areas overseas and is carrying these out through Manila Water, Integrated Micro electronics, Inc. (IMI), and its business process outsourcing businesses. Manila Water is looking at water and wastewater projects in Vietnam and India, while IMI recently opened its sixth manufacturing facility in China. Its BPO unit continues to participate in acquisition opportunities as the industry continues to consolidate globally.

Ayala president and chief operating officer Fernando Zobel de Ayala, in his report to shareholders, pointed out that most of its business units performed well in 2009 despite a severe slowdown in the global economy, resulting in Ayala’s gains-adjusted earnings rising by 34% in 2009 compared to the prior year. The Ayala President said, “We are optimistic about this year as the economy continues to show positive signs of recovery. Ayala continues to explore new investment opportunities and platforms to enhance value creation for our shareholders.” Earlier this year, Ayala announced its intent to bid for the 246-MW Angat Hydropower plant through a consortium with Metro Pacific Investments and the Lopez group.

At the same meeting the shareholders approved an amendment to Ayala’s Articles of Incorporation creating voting preferred shares which would allow greater foreign ownership of Ayala’s common shares and further enhance liquidity. The amendment included a provision which gives Ayala flexibility to issue shares in exchange for property, such as shares of other companies, and enable the company to act quickly to value-accretive investment opportunities.

Ayala’s share price has risen 14% year-to-date to P342.50 per share, with market capitalization of P172 billion.

Growth Fuelled by Strong Performance of Core Businesses and Turnaround of AC Capital Units

Ayala Corporation’s 2009 unaudited net income reached P8.2 billion at par with prior year’s earnings with substantially lower capital gains from share sales in 2009. Excluding capital gains, net income grew by 34%. The growth was driven by the strong performance of its major business units, even amidst a sluggish economic environment. Ayala’s total equity share in the earnings of its business units rose by 18% to P9.2 billion.

Ayala Corporation president and chief operating officer, Fernando Zobel de Ayala said, “Our efforts the past few years to strengthen our balance sheet prepared us well for the economic downturn. Our healthy cash position and comfortable gearing kept fundamentals intact across the group. This position of financial strength amidst a challenging environment kept our focus on strengthening each of our business units, enhancing our current portfolio, and seeking opportunities for future growth.”

In real estate, Ayala Land’s residential sales recovered beginning the second quarter with take-up rates improving through the fourth quarter. Its leasing revenues from shopping centers and office/BPO spaces grew by 20% with the expansion in gross leasable area and generally steady occupancy rates. Ayala Land posted P4 billion in net income in 2009, 16% lower than prior year which included gains from a lot sale. Excluding the impact of the lot sale, net income was down by only 2%.

The recovery in the residential sector was reaffirmed by two very successful residential project launches in January 2010. Ayala Land is embarking on its most aggressive launch this year as it expands its presence in key cities and areas in the Philippines. The company recently sealed several lease and joint venture agreements with strategic partners for the construction of regional malls in the Subic Bay Freeport Area and Cagayan de Oro. It has opened MarQuee Mall in Pampanga in September last year and will also unveil Abreeza Mall in Davao City by next year.

Its banking unit, Bank of the Philippine Islands (BPI) registered strong business volume, revenue, and earnings growth. Net income was up 33% to P8.5 billion. Net interest income increased by 10% on account of the expansion in asset base and improvement in spreads. Non-interest income grew at an even faster rate of 25%. While corporate lending slowed, challenged by the high level of liquidity and the availability of funding through the capital markets, loans to SME, consumer market, and credit card customers remained robust, expanding at double-digit levels. The bank’s remittance business outpaced industry growth which resulted in BPI capturing over 20% of the overseas Filipino remittance business.

Globe Telecom registered 11% earnings growth to P12.6 billion. While its core mobile business was weighed down by intense competition and subscribers’ increasing preference for value offers on the back of weaker consumption, Globe made significant gains in its broadband business. Globe’s broadband subscribers expanded three-fold to over 715,000, while mobile subscribers reached 23.2 million by year-end following a deliberate churn out of marginal subscribers. Globe continues to invest in its broadband business to augment existing capacity, expand coverage, and improve the availability of 3G, WiMax, and DSL broadband services. Globe recently increased its dividend payout to a range of 75% to 90% of prior year’s earnings as it remains committed to optimizing its capital structure and delivering superior value to its shareholders. In line with this, Globe declared its first semi-annual cash dividend of P40 per common share payable on March 15, 2010.

AC Capital contributed positively in 2009, reversing the loss in 2008. This was driven by the strong earnings growth of water distribution unit, Manila Water Co., Inc., the turnaround of the electronics manufacturing business, Integrated Microelectronics, Inc. (IMI), and the significantly improved performance of Ayala’s holding company for its BPO investments.

Manila Water posted a net income of P3.2 billion, 16% higher than in 2008 as it expanded customer base, increased billed volume, and improved operating efficiency. Manila Water continued to expand its businesses in wastewater management and concessions outside of the east zone. In 2009 the company commissioned the 4–million liter per day Pineda Sewage Treatment Plant, in addition to the five additional sewage treatment facilities currently being constructed in the cities of Makati, Marikina, Quezon, and Taguig. These plants put the company on track to achieve 30% sewerage coverage by 2010. Beyond the east zone, Manila Water commenced the concessions in Laguna and Boracay with plans to improve the system, upgrade the existing network, reduce system losses, and improve reliability of water and wastewater services. Manila Water is also exploring water projects overseas and signed joint venture agreements with REE Corporation in Vietnam and Jindal Water Infrastructure Ltd. of India to explore water and wastewater-related projects in these countries.

IMI posted a turnaround in 2009 with US$10 million in consolidated net income, a reversal of the net loss in 2008. However, with the electronics sector weighed down by the global economic downturn, full year revenues fell by 10% to US$395M. Revenue trends began to improve in the third quarter, with increased volumes for a leading Chinese OEM in the telecom sector, underpinned by 3G network deployments in emerging markets. Philippine revenues were generated mainly from storage device, automotive, and consumer electronics. IMI has a strong balance sheet with consolidated cash of US$54M, strong liquidity, and zero net debt position which gives it sufficient flexibility to support its growth initiatives. IMI is well positioned to capture opportunities as the electronics industry recovers given its solid track record with its OEM customers, global footprint, and robust financial position. It recently completed it listing by way of introduction at the Philippine Stock Exchange in January 2010.

Ayala’s BPO businesses held through LiveIt made considerable gains in achieving both scale and profitability. The merger of eTelecare with Stream in October 2009 created a top 7 global call center company, while Integreon’s acquisitions positioned it as the top global knowledge process outsourcing company. In the fourth quarter of 2009, the BPO companies attained combined annualized run rate revenues of US$911 million and EBITDA of US$77 million, of which LiveIt’s share was US$300 million and US$25 million respectively. LiveIt achieved positive operating net income before deal related charges and interest expense starting in the third quarter, which contributed to a significant reduction in its consolidated net loss to US$12 million in 2009. The loss was largely due to acquisition driven expenses and leverage.

Ayala ended 2009 with cash of P30 billion and parent net debt to equity ratio of 0.04 to 1. It recently announced its intent to bid for the Angat Hydroelectric Plant in early 2010.

Ayala Corporation chairman and CEO, Jaime Augusto Zobel de Ayala, expressed optimism about the strong performance of the Ayala group even amidst a severe global economic slowdown. “We are pleased with the strong performance and resilience of our core businesses and are confident that we are well-positioned to capture opportunities as the economic cycle turns. We are significantly increasing group capital expenditure this year, reinvesting in our existing businesses as well as exploring investments in new sectors where we can lay a platform for a higher growth trajectory moving forward.”

The above statement pertains to the disclosure made to the PSE and SEC by Ayala senior managing director and CFO Rufino Luis T. Manotok on March 8, 2010.

Asiamoney, one of the most widely-read financial magazines in the Asia Pacific region, cited Ayala Corporation as the Overall Best Company in the Philippines for Corporate Governance in its 2009 Corporate Governance Polls.

Ayala also received the highest marks among Philippine companies in two categories, “Best for Responsibilities of Management and Board of Directors” and “Best for Shareholders’ Rights and Equitable Treatment.”

A total of 104 senior executives and research analysts from 96 firms participated in the survey covering more than 250 companies in the region. According to Asiamoney, the latest Corporate Governance Poll was “notable given that the polling period coincided with some of the most pronounced financial volatility in history.”

Never Stop Believing, Ayala’s 175th anniversary program, received the Public Relations Society of the Philippines’ second highest honor, the Bronze Anvil, at the 45th Anvil Awards held on February 26 at EDSA Shangri-La Hotel.

With emphasis on messaging and content, Ayala’s 175th anniversary program made use of multi-media platforms to reach internal and external stakeholders. These include the distinctive “Never Stop Believing” print ad campaign; internal print publications (the Ayala group newsletter Ayala Now and the Ayala at 175 special magazine); an anniversary video featuring chairman emeritus Jaime Zobel de Ayala; a special website and online timeline; animated screensavers; and below-the-line collaterals including banners and exhibits. The 175th anniversary program won an Asian Multimedia Publishing Award in 2009.

Bank of the Philippine Islands’ Herencia, a coffeetable book on its art collection and its supplement teacher’s guide, also received a Bronze Anvil. Ayala at 175, a special publication on Ayala’s history and legacy, was given an Anvil Award of Excellence.

Other Ayala companies figured prominently in the Anvils. Globe Telecom received 4 Excellence and 6 Merit awards for various corporate social responsibility programs. Manila Water received 4 Merit awards for programs in environment and disaster response. Ayala Land’s malls were recognized for unique PR programs: Excellence for Market! Market!‘s Recycliing is in the Bag, and Merit for Cebu Holdings’ Think Pink! health campaign.

Manila Water, Cebu Holdings, and Ayala Foundation also received Merit awards for their annual reports.

PRSP received a total of 292 entries for the 45th Anvil Awards. Winners were selected by an independent board of jurors led by Dr. Cayetano Paderanga, Jr.

Actis, an emerging markets private equity specialist, announced today that it has invested US$50 million to acquire a substantial minority stake in Integreon, the leading global provider of legal support, research and business services to law firms, financial institutions and corporations.

As part of this investment, JM Trivedi, Actis’s Head of South Asia, and Gautham Radhakrishnan, a Director at Actis, will join Integreon’s board of directors.

Actis has invested alongside Ayala Corporation, the oldest and one of the leading conglomerates in the Philippines, which initially invested in Integreon in 2006 through LiveIt Investments, its business process outsourcing holding company. Ayala Corporation will continue to hold a majority stake in Integreon.

Today, professionals at leading organizations including 11 of the top 50 global brands such as Microsoft; 32 of the AmLaw 50 such as Clifford Chance and DLA Piper US LLP; and 9 of the top 10 global investment banks, focus on their ‘highest and best use’ by trusting high-quality research, document, and legal solutions from Integreon.

Integreon revenues have grown at an 83% CAGR since 2006 to an $89 million revenue run rate in Q4 2009.

With Actis’s investment, Integreon plans to grow its range of services and technologies, launch new delivery centers, and seek strategic acquisitions.

Commenting on the transaction, Paul Fletcher, Senior Partner at Actis said, “Outsourced professional services are one of Actis’s core investment strategies and Integreon represents a best in class investment in this sector. Leading international corporations, financial institutions and law firms harness the specialist knowledge capabilities of the emerging markets, and Actis’s investment in Integreon further strengthens this link. We hold the management team of Integreon in high regard and are excited about partnering with Ayala to drive the continued growth, profitability and ambition of the business.”

Fred Ayala, CEO of LiveIt said, “We are very pleased to bring in Actis as a strong new partner whose proven business building skills and deep knowledge of emerging markets will help us to take Integreon to the next level.”

Liam Brown, CEO of Integreon added, “Actis’s long-established understanding of emerging markets, along with their experience investing in business services outsourcing, makes them an ideal partner for Integreon.”

Jefferies India Private Limited acted as financial advisors to Actis. Marks Baughan & Co. served as financial advisors to Integreon.

Actis

Actis is a leading private equity investor in emerging markets with a growing portfolio of investments in Asia, Africa and Latin America; it currently has US$4.8bn funds under management. With over 100 investment professionals on the ground in 9 offices worldwide, Actis identifies investment opportunities in India and the emerging markets by bringing local experts together with specialist sector teams. Actis announced the close of its global emerging markets fund, Actis Emerging Markets 3 on 1 December 2008 with commitments totaling US$2.9bn. Actis announced the close of its global infrastructure fund, Actis Infrastructure 2, on 30 September 2009 with commitments totaling US$750m. www.act.is

Ayala Corporation/LiveIt Investments

Ayala Corporation was founded in 1834 and is the holding company of one of the largest and most diversified business groups in the Philippines, with interests that include real estate, financial services, telecommunications, electronics, water distribution, and information technology. Ayala and its listed subsidiaries and affiliates have a combined market capitalization of approximately US$13 billion. LiveIt is its investment arm in the business process outsourcing (BPO) sector. Its strategy is to acquire or invest in existing global BPO companies that have the potential to become a Global Top 5 leader in their sectors, and can leverage the Philippines; it owns significant shareholdings in Integreon, Stream Global Services (voice BPO), Affinity Express (graphics and creative services) and HRMall (HR and payroll services).

Integreon

Integreon is the premier global provider of outsourced research, legal and business Knowledge Process Outsourcing (KPO) services, and is a trusted partner for demanding professionals at the world’s leading corporations, law firms, and investment banks. Integreon’s nearly 2,000 Associates deliver services from centers in the US, UK, India, China, South Africa and the Philippines. www.integreon.com

The above statement pertains to the Manila press release issued by Integreon on February 16, 2010.

Ayala Corporation and Metro Pacific Investments Corporation (MPIC) have executed a letter-agreement confirming their interest in participating in the privatization of the 246 MW Angat Hydroelectric Power Plant located in Norzagaray, Bulacan, which is subject of the bidding process initiated by the Power Sector Assets and Liabilities Management Corporation (PSALM).

Ayala and MPIC have agreed to participate in the bidding through Michigan Power, Inc. (MPI), a subsidiary of Ayala that submitted a letter of interest to PSALM in relation to the bidding. MPI will be owned by Ayala and MPIC, subject to allocation of required equity to a technical partner in accordance with the bidding procedures.

This initiative is in line with Ayala’s desire to participate in the power sector, especially in the realm of clean and renewable energy.

The above statement is based on the disclosure made today to the Securities and Exchange Commission and the Philippine Stock Exchange by Ayala general counsel and compliance officer Solomon M. Hermosura.

Eighty-one college students from all over the Philippines will gather in Alfonso, Cavite, from February 9 to 12, to take part in the 12th National Ayala Young Leaders Congress (AYLC). The annual summit engages young leaders in three days of dialogues, teambuilding, and vision-setting in the spirit of servant leadership.

With the theme, “Ako: Pagbabago!” this year’s AYLC will formally open on February 10 with a keynote address by CNN Hero of the Year and founder of Dynamic Teen Company, Efren Peñaflorida.

Over the course of AYLC, participants will interact with leaders from the business, government, and socio-civic sectors as well as from the field of the arts and media. Speakers include South Cotabato Governor Daisy Avance-Fuentes, Manila Water Company president Rene Almendras, YouthVotePhilippines convenor Jaime Garchitorena, Probe Productions president Che-Che Lazaro, RockEd Philippines founder Gang Badoy, and AYLC alumni Edward Nino Puyod of Philippine Greenfarm Development Corporation, Coun. Concon Hernandez of Lipa City, and Lesley Cordero of the USAID Energy and Clean Air Project. Facilitators include McCann Erickson Philippines chairman emeritus Emily Abrera, Prof. Solita Monsod, and ABS-CBN host Pia Hontiveros-Pagkalinawan.

Congress participants were chosen for their strong track record of service to their school or community and for demonstrating leadership qualities. Key officers in the Ayala group of companies led by Ayala Corporation chairman emeritus Jaime Zobel de Ayala, chairman and CEO Jaime Augusto Zobel de Ayala, and president and COO Fernando Zobel de Ayala, helped select the young leaders by way of panel interviews. Of the 81 participants, 44 percent are from Luzon, 26 percent from the Visayas, 11 percent from Mindanao, and 19 percent from the National Capital Region. This year’s summit is the first time that a seminary and the Philippine National Police Academy are sending delegates.

“We in the Ayala group of companies believe that leadership—one that is founded on integrity and service—leads to positive change for those whom leaders serve and for society at large. The Ayala Young Leaders Congress aims to highlight the tremendous impact that each of these young Filipinos can make, and more importantly, the change we can all make by working together,” says John Philip Orbeta, Ayala managing director for corporate resources and AYLC program director.

Ayala Land, Inc. (ALI) was awarded the Best Large-Capitalization Corporate in the Philippines for 2009, among companies having a market capitalization of over $2 billion, by Asiamoney magazine. The magazine also named ALI president Antonino T. Aquino as the Best Executive in the Philippines in its recent poll.

“We are honored and very grateful for the recognition given by such a prestigious publication as Asiamoney. We have put great effort into overcoming challenges in 2009 and these awards validate the success of those efforts,” said Aquino.

Asiamoney is a monthly financial magazine that has been an important source of intelligence and information for corporate executives and the investment community in Asia since 1989. It is a division of the Euromoney Institutional Investor Plc, a respected global media group.

In an article published on the magazine’s website, ALI was cited for taking “a strategic change of direction” and expanding into the economic housing segment in order to broaden the company’s market penetration. According to the article: “It is a move that makes sense as the bulk of the country’s real estate demand lies in this segment…”

Asiamoney also recognized Aquino for his work in implementing the strategic changes, after just eight months at the helm, to propel the company’s growth in the coming years. “The president of Ayala Land has wasted no time in changing its strategic focus, making it more effective and sensitive to the market,” said the article.

Aside from venturing into economic housing, the company is entering into new geographies and expanding its base of master-planned and mixed use growth centers. It will complement this with small-format retail developments.

Recent initiatives along these pursuits include its partnership with the National Housing Authority for the development of the 29-hectare North Triangle property in Quezon City. ALI also entered into a letter of agreement with the city government of Olongapo and the Subic Bay Metropolitan Authority to master-plan the seven-hectare Olongapo City Triangle near the Subic Bay Freeport Zone’s main gate. (ALI press statement)

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.