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11

March 2014

Ayala’s 2013 Profits Rose 22% to P12.8B; Core Net Income Jumps 28% to P14.8B

Ayala Corporation’s consolidated net income in 2013 expanded by 22 percent to P12.8 billion on the back of sustained robust performance of its real estate and banking businesses. Without the impact of the accelerated depreciation from its telecom unit’s network transformation initiative, Ayala’s core net income jumped even higher to P14.8 billion, a 28-percent improvement from a year ago.

The conglomerate’s strong earnings performance was driven by equity earnings primarily from its banking and property units, boosted by significant improvements in equity earnings of its electronics and business process outsourcing businesses. Ayala’s equity earnings expanded 23 percent in 2013 to P17.6 billion.

“We are encouraged by the strong performance across our business units as they reap the benefits of the aggressive growth strategies they started a few years back. In turn, we have also been able to optimize earnings and value at the parent level as we continued to rebalance our portfolio and adjusted our ownership, particularly in our banking and water units, over the past year,” Ayala Corporation President and Chief Operating Officer Fernando Zobel de Ayala said. “As we ramp up our power business and as the economic environment remains sound, we are optimistic we can sustain double-digit earnings growth through 2014,” Mr. Zobel added.

Last year, the Ayala group collectively spent roughly P120 billion in capital expenditures to fund the various growth initiatives of its real estate, telecommunications and water units. Part of the amount was also used to bankroll the parent company’s own strategic initiatives, including the acquisition of additional stakes in the Bank of the Philippine Islands (BPI) and Manila Water Company (MWC) as well as its new investments in the power and transport infrastructure spaces.

Earlier this year, Ayala participated in BPI’s stock rights offering. It also closed the acquisition of an approximately 17 percent ownership stake in GNPower Mariveles Coal Plant Ltd. Co. GNPower is the owner of the 600-megawatt coal-fired power generating plant in Mariveles, Bataan province.

This year, the Ayala Group earmarked nearly P190 billion in capital expenditures to continue its investment programs in its real estate, banking, telecommunications, and water businesses as well as to ramp up its new businesses.

REAL ESTATE
Ayala Land, Inc.’s (ALI) net income rose by 30 percent to a record P11.7 billion on the back of double-digit revenue growth and stable margins across its business segments. ALI recorded P81.5 billion in total revenues, a 36-percent jump from its year-ago level as its property development, commercial leasing and construction businesses continued to post gains.

Revenues from property development expanded by 51 percent to P52 billion driven by strong gains from its residential segment as well as the sale of commercial lots in NUVALI and Arca South, which is the Food Terminal Inc. property ALI acquired in 2012. Revenues from commercial leasing grew 21 percent to P18 billion on a combination of higher average lease rates and occupied gross leasable area in shopping centers and offices coupled with the opening of new malls. This was boosted by higher revenues from hotels and resorts, which rose 64 percent to P4 billion, as new hotels and resorts begin to contribute. Revenues from construction and property management generated combined revenues of P26.3 billion, 29 percent higher than the previous year.

ALI spent P66 billion in capital expenditures in 2013, the bulk of which was used to fund projects in residential development and land acquisition. ALI has earmarked P70 billion in capital expenditures for 2014 as it continues to pursue its growth initiatives.

BANKING
BPI registered a 15-percent gain in net income to P18.8 billion, primarily driven by higher interest income on the back of a 21-percent growth in the bank’s loan portfolio. Higher fee-based income and foreign exchange trading likewise contributed to the bank’s earnings in 2013. This translated to a return on equity of 18 percent.

The double-digit loan growth was driven by higher corporate and consumer loans, which grew by 23 percent and 13 percent, respectively. While the net interest income expanded as a result of an 18-percent growth in the bank’s average asset base, net interest margin slightly contracted by 26 basis points to 3.3 percent owing to the competitive lending environment. BPI’s asset quality further improved with 90-day gross non-performing loan ratio closing at 1.8 percent from the 2.1 percent registered a year ago.

BPI’s total assets at the end of 2013 expanded 21 percent to P1.2 trillion. Deposits jumped 23 percent to P989 billion as a result of higher savings and demand deposits. The bank’s operating expenses rose 7 percent, with increases largely attributed to regulatory, technology and occupancy-related costs. Despite this, BPI managed to post modest gains in its cost-to-income ratio to 51 percent from 52 percent the previous year.

TELECOM
Globe Telecom sustained its growth momentum with core net income of P11.6 billion, a 13-percent increase year-on-year. This was driven by consolidated service revenues of P90.5 billion, up 9 percent from last year, led by the continued growth in mobile telephony and the demand for data connectivity across its mobile, broadband and fixed line businesses.

Mobile revenues, which account for 80 percent of total revenues, rose 8 percent to P72.8 billion on the back of sustained growth in postpaid revenues, which expanded by 18 percent to P27.1 billion. Prepaid revenues inched up 3 percent to P45.7 billion despite yield pressures from the shift to value-based from pay-per-use bucket. Globe’s mobile subscribers climbed 16 percent to 38.5 million in 2013. Its broadband business registered a sharp gain in both revenues and customer base, climbing 20 percent and 22 percent, respectively year-on-year. Fixed line data expanded by 13 percent to P4.7 billion, mitigating the decline in traditional fixed line voice services.

Globe’s operating expenses rose 13 percent to P54.0 billion, largely due to subsidy and recontracting costs. Globe’s reported net income declined 28 percent in 2013 owing to accelerated depreciation charges arising from its network transformation initiative.

WATER
MWC’s net income expanded by 5 percent in 2013 to P5.8 billion, driven by higher billed volume in the East Zone and increased contribution from new businesses. New businesses, which include operations in Laguna, Boracay, Clark and Vietnam, accounted for 10 percent of MWC’s earnings in 2013. Additional income from the liquidation of connection fees in the East Zone was also recognized, boosting net income.

Total revenues grew by 6 percent to P15.3 billion with total billed volume up 5 percent versus prior year. Revenues from its Vietnam operations, which consist of a leakage reduction project and two bulk water companies, Thu Duc Water B.O.O. Corporation and Kenh Dong Water Supply Joint Stock Company, grew by 42 percent from the previous year to P294 million.

MWC recently took over as exclusive water provider within the Laguna Technopark through its subsidiary, Laguna Water Company. It is also constructing a bulk water project in Cebu, which is expected to start operations in June.

INTERNATIONAL BUSINESSES
Ayala’s international businesses continued to improve despite lingering uncertainties in the global economy. Its electronics business, Integrated Microelectronics, Inc. (IMI), nearly doubled its net income in 2013 to US$10.5 million due mainly to business expansion in Europe and the Philippines. Despite a contraction in the electronics sector, IMI continued to register higher revenues in 2013, reaching US$745 million, a 12.6 percent growth from a year ago. This resilient performance was primarily driven by IMI’s diversification strategy. This includes the company’s move to higher-growth, higher margin niche markets in automotive, industrial, medical, and telecommunications segments.

Ayala’s business process outsourcing unit, LiveIt, posted a net income of US$1.7 million, an improvement of US$15.8 million over the previous year’s losses. Its share of revenues reached a record US$391 million, up 14 percent from the previous year, while share of EBITDA (earnings before interest, taxes, depreciation and amortization) grew by 31 percent to US$38 million. In 2014, LiveIt expects further growth and margin improvement in its operating units as they achieve additional scale.

Earlier this year, LiveIt sold its entire stake in Stream Global Services to Convergys Corporation. Liveit realized approximately US$145 million proceeds from its equity stake and a loan it provided Stream, while Ayala realized a net gain of P1.8 billion from the sale.

BALANCE SHEET
Ayala parent company ended the year with a gross debt of P70.9 billion and cash of P25.5 billion. Its balance sheet remains solid with parent company net debt to equity ratio at 0.32 and consolidated net debt to equity ratio at 0.98.

Last year, Ayala raised debt and equity capital for its expected pipeline of new projects. These included the reissuance of P10-billion, 15-year preferred class “B” shares. It also sold common shares held in treasury, raising P3.3 billion from the placement.

The above statement pertains to the disclosure made today, March 11, 2014, to the SEC, PSE, PDex, by Ayala CFO Delfin Gonzalez Jr.