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10

March 2015

Ayala’s net income jumps 46% to P18.6 billion in 2014

Ayala Corporation’s net income expanded 46 percent in 2014 to P18.6 billion primarily driven by the solid performance of its real estate, telecom and electronics manufacturing units and boosted by a net gain from the sale of its business process outsourcing asset.

Without the impact of the accelerated depreciation from its telecom unit’s network transformation initiative in the previous year, Ayala’s core net income actually grew 25 percent in 2014. Ayala’s profits have been growing above 20 percent for the past three years.

Ayala’s robust earnings performance was a result of the strong equity earnings contribution from its business units, which reached P24.9 billion, a 42 percent-jump from its level a year ago. This was bolstered by equity earnings from Ayala Land Inc. which rose 28 percent and the significant improvement in the contributions of Globe Telecom Inc., which more than doubled, and Integrated Micro-Electronics Inc., which expanded threefold. In addition, the P1.8 billion net divestment gain from Stream Global Services Inc. boosted Ayala’s equity earnings during the year.

The strong equity earnings from these business units counterbalanced the relatively flat contribution from the Bank of the Philippine Islands, which registered lower trading income during the year.

“We are very pleased with the performance of our business units as they continue to benefit from the aggressive growth strategy they executed a few years ago. This has, in turn, allowed us to optimize earnings and value at the parent level. We continued to invest in new areas of growth, particularly in power generation and transport infrastructure. As our business units sustain their growth momentum and the overall business environment continues to be encouraging, we are optimistic we can achieve our net income target of P20 billion this year, a year ahead of the plan,” Ayala President and Chief Operating Officer Fernando Zobel de Ayala said.

Real Estate

As the positive momentum in the real estate sector continued, Ayala Land’s net income expanded 26 percent to P14.8 billion year-on-year. The robust performance of its property development and commercial leasing operations, which rose 21 percent and 18 percent, respectively, fuelled the 18 percent-growth in Ayala Land’s real estate revenues to P93 billion. Residential revenues reached P55.9 billion, up 26 percent from a year ago on new bookings and completion of existing residential projects. Residential sales takeup remained strong, hitting an all-time high of P102 billion, 11 percent higher year-on-year. Sales from overseas Filipinos likewise improved as it now comprise 24 percent of Ayala Land’s residential bookings, which grew 13 percent to P76.7 billion. The sale of office spaces in Bonifacio Global City and Cebu likewise fuelled Ayala Land’s real estate revenues in 2014.

The opening of new gross leasable areas, full year operations of new shopping centers and offices combined with higher occupancy and average rent bolstered the 18 percent growth in Ayala Land’s commercial leasing revenues to P21 billion. This was further lifted by its growing hotels and resorts portfolio, which jumped 40 percent to P5.6 billion year-on-year. Ayala Land continued to build up its recurring income business, with malls, office, hotels and resorts and property development and construction, accounting for 38 percent of its net income in 2014.

Its capital spending in 2014 reached a record P83.3 billion, primarily spent in project completion and land acquisitions.

Telecom

Globe Telecom posted another record net income, which more than doubled to P13.4 billion year-on-year buoyed by robust revenue growth from sustained demand for data connectivity across the mobile, broadband and fixed line businesses and the tapering of depreciation charges from its network transformation initiative. The solid revenue growth, which balanced out the subsidy and operating expenses, drove the 8 percent increase in Globe’s earnings before interest taxes depreciation and amortization (EBITDA) to P39.3 billion.

Mobile revenues, which account for 79 percent of consolidated revenues, grew 7 percent to P78.1 billion, propelled by growth in the postpaid and mass market TM brands. Globe’s postpaid revenues continued to improve at P29.9 billion, up 11 percent from the previous year. Despite yield pressures on multi-SIM incidence and value-based bucket offers, its prepaid revenues improved 5 percent to P48.2 billion. Total mobile subscriber base stood at 44 million in 2014, a 14 percent-growth from its year-ago level.

Globe’s broadband business registered a 22 percent growth to P12.7 billion as it continued to launch affordable products and competitive tablet bundles. Globe’s broadband subscriber base reached 2.8 million in 2014, a 37 percent increase from the previous year. Similarly, Globe’s fixed line revenues reported improvement with data and voice segments reporting a 17 percent and 7 percent increase, respectively.

Globe believes that despite a highly competitive market, it can maintain its revenue momentum and current overall EBITDA margin level, given (1) the inroads the company has built in establishing a track record in the data space; (2) the pipeline of programs and offers, built on the back of the portfolio of partnerships with key content providers; and, (3) the additional capacities Globe has in place coming from continued investments in its data network.

Water Infrastructure

Manila Water ended 2014 at a steady pace, registering a one percent growth in consolidated net income to ?5.8 billion primarily driven by improved billed volume and higher contribution from new businesses.

Notwithstanding the absence of a tariff adjustment, the East Zone concession posted profits of ?5.1 billion on the back of a 4 percent growth in billed volume owing to a modest increase in service connections. Manila Water sustained its nonrevenue water (NRW) in the East Zone at 11.3 percent.

Manila Water’s operating units outside the East Zone concession sustained solid growth in billed volume. Laguna Water registered a 52 percent jump in profits to ?164 million following the acquisition of the water reticulation system of Laguna Technopark Inc in January 2014 and new service connections. Boracay Water and Clark Water both posted double-digit growth, expanding 32 percent and 17 percent, respectively. Manila Water’s Vietnam-based associates, Thu Duc Water, Kenh Dong Water and Saigon Water Infrastructure Corporation, contributed a total of ?357 million in earnings. Manila Water’s new businesses accounted for 11 percent of its net income in 2014.

Through a subsidiary, Manila Water delivered its first batch of water to the Metro Cebu Water District in January 2015 under the Cebu bulk water project. It provides 18 million liters per day (mld) in the first year and 35 mld of water in the succeeding years to Cebu City.

Results of the arbitration proceedings related to the rate rebasing process in the East Zone are still pending. A resolution is expected by the end of the first quarter of 2015.

International

Integrated Micro-Electronics Inc. (IMI) recorded solid growth in 2014 with net income soaring nearly threefold to $29.1 million from its year-ago level. Revenue growth was robust, up by 13 percent, to $844.5 million, outpacing the global electronics manufacturing services, which posted around 6 percent growth. Strong demand from the telecom, automotive and storage device markets helped lift IMI’s revenues in 2014.

IMI successfully completed its follow-on offering in December 2014. It listed 215 million common shares, raising ?1.6 billion in proceeds and increasing its public float level to 19 percent.

In business process outsourcing, LiveIt Investments Ltd. reported significant net income, mainly attributable to the divestment of Stream, which resulted in a P1.8 billion net gain for Ayala.

Banking

The strong performance of these businesses balanced out the decline in the net income of Bank of the Philippine Islands (BPI). BPI reported a net income of P18 billion in 2014, a 4 percent decline from the previous year. This was largely due to a 5 percent decline in non-interest income as a result of a sharp contraction in trading gains compared to the previous year as the bank reduced its reliance on securities trading.

The bank’s core lending business, however, continued to drive growth with net interest income growing 15 percent to P34.8 billion. Net loans expanded 27 percent to P800 billion year-on-year. Deposits jumped 19 percent from a year ago to P1.2 trillion. The bank registered a current and savings account ratio of 69 percent.

BPI’s operating expenses rose 12 percent attributed to the bank’s investment in infrastructure and technology as it positions itself for future growth. Cost-to-income ratio stood at 53.7 percent in 2014.

Despite the increase in its loan portfolio, the bank maintained strong asset quality and remained well capitalized in 2014 with gross 90-day non-performing loans (NPL) level dropping to 1.5 percent of total loans in the fourth quarter of 2014 from 1.78 percent the previous quarter. BPI’s reserve levels also improved to 109.3 percent of NPLs in the fourth quarter of 2014 from 107 percent the previous quarter. Equity capital stood at P144 billion, resulting in BASEL III capital adequacy ratio of 14.2 percent in 2014.

Power Generation and Transport Infrastructure

Ayala continued to ramp up its power generation and transport infrastructure units in 2014. In power, Ayala assembled 700 megawatts of attributable capacity in both conventional and renewable power generating assets. This translates to over $700 million in equity committed over the past three years in the power sector, underscoring the conglomerate’s commitment to help augment the country’s power requirements which is vital to sustaining economic growth.

In transport infrastructure, Ayala was awarded two public-private partnership projects (PPP) in 2014 together with various strategic partners. The consortium comprising the Ayala and First Pacific groups won the Automated Fare Collection System project as well as the LRT 1 Cavite Extension project together with the Metro Pacific and Macquarie groups. The conglomerate has committed around US$200 million in equity for these projects including its first PPP project, the Muntinlupa-Cavite Expressway (MCX), formerly known as Daang Hari Connector Road.

Balance Sheet and Capital Spending

Ayala parent company ended the year with a gross debt of P101 billion and cash of P48.3 billion. Its balance sheet remains comfortable with parent company net debt to equity ratio at 0.24 to 1 and consolidated net debt to equity ratio at 0.85 to 1.

Last year, Ayala raised debt and equity capital for its expected pipeline of new projects. It raised a total of $1.3 billion in proceeds through the issuance of exchangeable bonds, reissuance of preferred shares, loan drawdowns and an equity placement. This healthy balance sheet and cash position allow Ayala to pursue investments as well as cover its dividend and debt obligations comfortably.

At the parent level, Ayala has set aside P21 billion in capital spending in 2015 to fund its growing pipeline of power generation and transport infrastructure projects, among others. The Ayala group has earmarked P185 billion in combined capital expenditures this year mainly to support the massive expansion plans of its real estate and telecom units.

The above statement pertains to the disclosure submitted today, March 10, 2015, to the SEC, PSE, PDEx by Ayala’s group head for Corporate Strategy and Development Paolo F. Borromeo.