AYALA CORPORATION ASM SPEECH
2020 ANNUAL STOCKHOLDERS’ MEETING
MESSAGE OF THE CHAIRMAN & CEO JAIME AUGUSTO ZOBEL DE AYALA
APRIL 24, 2020
The events of the past year have challenged the corporate momentum we have built over the last decade. However, history has shown Ayala’s resilience across multiple business cycles over the 186 years that we have been in operation. This ability to deal with adversity has been built on our fundamental strengths of adhering to the highest standards of corporate governance, always looking to develop value over the long term, remaining flexible to adjust to changing circumstances, and constantly aligning our business objectives with the broader development needs of the country.
These fundamental values have stood us in good stead through the years, defined Ayala as a successful multi-business group, and ensured our continuity and relevance throughout the years.
While the challenges of the past year have resulted in one of the most difficult periods in our corporate history, it is also during trying times that the strength of our diversification initiatives and massive expansion program are put to the test.
Recall that in 2011, the Ayala group set in motion a strategic agenda that led to the expansion of our established franchises in real estate, banking, and telecommunications to capitalize on the strong momentum we saw taking place in the domestic environment.
In parallel, we invested in energy generation as a new growth platform from which we would derive future sources of earnings and value creation. These initiatives have cemented our competitive advantage, maintained our relevance in our markets, and established the foundation for long-term growth and value regardless of the prevailing macroeconomic or competitive environment.
In particular, we have seen how the strong performance of our core business pillars–Ayala Land, Bank of the Philippine Islands, Globe Telecom, and AC Energy–sustained Ayala’s trajectory in 2019. Their results cushioned the impact of the setbacks faced by Manila Water in connection with the water supply shortage in the metropolis. Further, these core businesses helped mitigate the slowdown AC Industrials confronted which arose from headwinds in global manufacturing and the domestic automotive industries. I am pleased to report that despite a challenging period, our profitability improved 11 percent to ₱35.3 billion in 2019.
Let me provide a background of the macroeconomic environment we faced during the period to put this yearend review into perspective.
Global economic growth in 2019 was at its slowest since the Global Financial Crisis, but developing countries in Asia still recorded strong growth even as trade tensions dampened outlook for the region.
Here at home, while the Philippine economic growth of 5.9 percent in 2019 fell below the above-6 percent growth that we witnessed over the past seven consecutive years, it continued to be bolstered by solid domestic consumption, driven by stable inflation, higher remittances, and record-low unemployment. This continued to benefit Ayala Land, BPI, and Globe, which remained as the top contributors to Ayala’s performance during the year, along with AC Energy, which has been a consistent significant source of growth over the past three years. AC Energy’s announced pivot towards renewable energy and the sale of some of its conventional power assets allowed it to recycle capital, recognize gains, pointing us towards an exciting new future.
We envision these four business pillars to remain as Ayala’s core value drivers in the medium term.
We have always actively managed our portfolio and believe in constantly rebalancing our businesses interests to either realize value as opportunities arise or to launch a new business-building cycle in a specific industry. In particular, we have always been proud of what Manila Water has achieved, turning around the East Zone concession and laying an efficient water supply and distribution system for the metropolis despite the absence of new water sources. However, we also need to be flexible, quick and open-minded to how industries, economic environments, and regulatory agencies evolve. Thus, in February 2020, we invited the Razon group as a strategic partner in Manila Water. I look forward to this partnership with a group that shares a deep commitment to contributing to the country’s water infrastructure development.
In AC Industrials, the company experienced a number of geopolitical headwinds including the US-China trade war and Brexit that contributed to the world economy’s slowest year-on-year expansion since the financial crisis a decade ago. We recognize the acceleration of disruptive changes, driven by intensifying competition and evolving customer demands, which has created a challenging environment for worldwide manufacturing and trade. These have posed operational challenges for the various platforms under AC Industrials. To address this, we are in the process of reassessing AC Industrials’ portfolio to identify the pain points, develop solutions, and rationalize the long-term strategic direction of the business.
Meanwhile, our social infrastructure portfolio continues to gain traction. AC Health continues to ramp up its clinic footprint with the acquisition of a 100 percent stake in Healthway Philippines, which operates a network of mall-based multispecialty and corporate clinics. This complements FamilyDoc, the largest network of primary care clinics in the country. In education, with the merger of AC Education and iPeople, we have established a group of seven educational institutions with a combined student population of approximately 60,000 across 28 campuses in Metro Manila and the Calabarzon, Bicol, and Mindanao regions.
During the year, the Ayala group also made great strides in our digital transformation journey. Our digital portfolio includes Zalora, the country’s largest fashion e-commerce site with 10 million visits per month and carrying 20,000 fashion brands, as well as its adjacent company Entrego, a technology-driven logistics company that has gained foothold servicing the major e-commerce players in the country. In financial services, we are happy to see the many touchpoints that both BPI and Globe have been able to harness to address financial inclusion and facilitate higher engagement from the unserved and underserved segments of the population, including MSMEs and the low-income consumer segment.
Between the BPI mobile app and Globe’s Gcash, the group has been able to reach over 1.9 million banking clients, 20 million registered users, and over 75,000 merchants and partners.
Today, the BPI app ranks 5th in mobile banking on the App Store and 17th on Google Play. Moreover, I am delighted to share that our efforts to grow the fintech landscape in the country has gained significant traction as GCash is currently the number one finance app in the Philippines on both the App Store and Google Play.
While we intend to remain as a Philippine-centric business group, we are open to overseas investments on an opportunistic basis, particularly in markets and sectors where we can bring our strengths and expertise. In November 2019, we acquired a 20 percent stake in the Yoma group, Myanmar’s leading conglomerate with interests in sectors that are overlapping with Ayala, including real estate, power, and financial services.
Myanmar is an underpenetrated frontier market with a promising economic growth story, supported by its government’s broad liberalization initiatives. We envision our investment in the Yoma group to serve as Ayala’s main platform for strategic investments in Myanmar.
As a final word, the unfortunate episodes that transpired in our country and the rest of the world at the beginning of 2020 have resulted in an existential moment of radical business transformation. The COVID-19 pandemic is adversely impacting many economies, markets, and businesses, and the national and global scale which has not spared the Ayala group. Our President and COO will give more color on how the Ayala group is responding to help alleviate some of the challenges our nation is facing from the COVID-19 pandemic.
In the Philippines, even before the onset of this global pandemic, the eruption of the Taal Volcano in January had already affected certain industries domestically, including real estate and retail within the volcano’s vicinity.
While the outlook for the business environment has radically changed as a result of these unfortunate events, we take comfort in the fact that we have built a healthy balance sheet at the holding company and across the group that gives us a buffer to absorb external shocks such as the current global health crisis. We consider this to be one of our strongest attributes, having survived and thrived under multiple crises.
It is within this context that I thank our board of directors for their engagement and foresight across a variety of working committees, our management team for ensuring a culture of professional commitment, our many business partners for their willingness to collaborate with us, and our fellow shareholders for their continued support, trust, and confidence in Ayala. We look forward to a lasting partnership as we weather these uncertain times, supporting our employees and our many stakeholders as we continue to contribute to society through our institutions, our products, and our services.