1Q 2021 EARNINGS RELEASE
May 14, 2021
Ayala’s net profit sustains sequential growth in the first quarter
1Q21 vs 4Q20 Highlights
- Ayala’s core net income, which excludes the significant increase in BPI’s loan loss provisions and one off items such as the retroactive effect of the CREATE law and the additional remeasurement loss taken for Manila Water, grew five percent to ₱7.2 billion in the first quarter of 2021 from the fourth quarter of 2020. This is also at par with the core net income generated in the first quarter of 2019, pre-pandemic.
- This quarter-on-quarter improvement in core net income was primarily driven by Globe from stronger contribution from its home broadband segment and AC Energy from its commercial operations.
- This cushioned the weaker performance of Ayala Land, AC Industrials, and AC Ventures. ▪ On the other hand, Ayala’s reported net income, which includes the abovementioned items, declined seven percent to ₱5.4 billion.
- On the other hand, Ayala’s reported net income, which includes the abovementioned items, declined seven percent to ₱5.4 billion.
“The challenges and prospects brought about by the pandemic is an opportune time to recalibrate Ayala’s portfolio strategy. In the next three years, we aim to sharpen the components of our portfolio to optimize returns and further strengthen our balance sheet. We will place greater emphasis on portfolio strategy with a sharper focus on optimizing returns from existing businesses and a disciplined process on capital deployment. In parallel, we will actively explore opportunities for value realization to fund future investments,” Ayala President and CEO Fernando Zobel de Ayala said.
1Q21 vs 1Q20 Highlights
- Ayala’s core net income declined nine percent to ₱7.2 billion in the first quarter from the same period last year.
- Meanwhile, Ayala’s reported net income dropped 19 percent to ₱5.4 billion:
- Ayala Land recorded a 36 percent net income decline to ₱2.8 billion as the pandemic continued to affect its business operations.
- BPI posted a net income decline of 22 percent to ₱5 billion as a result of a one-time tax adjustments in connection with previously booked loan provisions following the retroactive implementation of the CREATE law.
- On the other hand, Globe and AC Energy posted double-digit net income growth during the period:
- Globe’s net income increased 11 percent to ₱7.3 billion from the combined effect of higher gross service revenues, decline in non-operating charges, and significant upside from the retroactive implementation of the CREATE law.
- AC Energy posted a net income growth of 24 percent to ₱2.4 billion, driven by higher earnings from both international and Philippine businesses.
- Ayala Land’s consolidated revenues and net income decreased 13 percent to ₱24.6 billion and 36 percent to ₱2.8 billion, respectively in the first quarter of 2021 as it continued to weather the impact of the ongoing COVID-19 pandemic.
- Property development revenues saw a modest decline of six percent to ₱16.2 billion, cushioned by higher bookings and construction progress.
- Residential revenues were flat at ₱13.6 billion.
- Office for sale revenues surged 85 percent to ₱1.8 billion.
- Commercial and industrial lots decelerated 67 percent to ₱818 million.
- Residential sales reservations reached ₱28.5 billion, 15 percent higher than the previous year’s level, as local demand remained strong despite the quarantine.
- First quarter sales reservations were up 35 percent from the previous quarter’s ₱21.1 billion.
- Commercial leasing revenues registered a 41 percent decline to ₱5.1 billion as operations of malls, hotels, and resorts remained restricted.
- Shopping center leasing revenues went down 58 percent to ₱2 billion
- Office leasing income improved two percent to ₱2.5 billion, driven by sustained BPO and headquarter operations.
- Hotels and resorts rental revenues decreased 60 percent to ₱640 million.
- Capital expenditures reached ₱15.3 billion in the opening quarter of the year, 17 percent of full-year ₱88 billion budget.
- AREIT Inc., the country’s first Real Estate Investment Trust, recently secured the approval of its shareholders for the property-for-share swap transaction with Ayala Land. The asset infusion, composed mainly of ALI’s office leasing properties located within its prime estates, will expand AREIT’s leasing portfolio to 549,000 square meters and increase its deposited property value to ₱52 billion upon securing regulatory approvals.
- BPI posted a net income of ₱5 billion in the first quarter of 2021, 22 percent lower in the same period last year due to the net effect of one-time tax adjustments from the effectivity of the CREATE law. Net income before taxes on the other hand grew five percent to ₱8.9 billion in the same period.
- Total revenues decreased two percent to ₱24.3 billion due to lower net interest income partially offset by non-interest income growth.
- Net interest income dropped seven percent to ₱16.9 billion on the back of a 31-basis point contraction in net interest margin, which stood at 3.31 percent.
- Non-interest income increased 12 percent to ₱7.4 billion due to robust fee income that came from higher fees from bancassurance, asset management, transaction banking, and investment banking businesses.
- Total loans declined by five percent to ₱1.4 trillion because of softer demand across most loan products, except for mortgage and microfinance which registered 11 percent growth each.
- Total deposits were flat at ₱1.7 trillion with CASA growth of 12 percent being offset by the 34 percent decrease in time deposits.
- CASA ratio stood at 82.6 percent.
- Loan-to-deposit ratio ended at 81.6 percent.
- The bank recognized ₱3.6 billion in provisions, 13 percent lower in the same period last year. NPL ratio stood at 2.76 percent and NPL coverage ratio reached 123.5 percent.
- Operating expenses declined two percent to ₱11.8 billion, while cost-to-income ratio improved to 48.6 percent from 49 percent in the same period last year.
- BPI launched several new products and services since the start of the year to better address the evolving needs of its customers:
- BPI customers can now open a dollar savings account through the BPI mobile app as an addition to their existing peso account.
- BPI now uses mobile keys for select mobile transactions to enhance security and efficiency. ▪ The bank’s digital platform now allows users to transfer funds to other banks using QR codes, mobile numbers, and email addresses.
- Through a digital order taking facility, clients can now avail of select loans and credit card services purely through BPI’s digital platform.
- On the corporate side, BPI launched a fully digital auto-debit platform that shortens billers’ collection period for enrolled clients from 20 banking days to just one banking day.
- Globe’s net income increased 11 percent to ₱7.3 billion in the first quarter of 2021 as the decline in non-operating charges fully offset the rise in depreciation expenses. Additionally, the improvement in net income was a result of lower taxes from the retroactive impact of CREATE law.
- Excluding the impact of CREATE law, normalized net income decreased 27 percent to ₱5 billion.
- Total service revenues grew three percent to ₱37.8 billion driven by data revenues led by mobile data and home broadband. Total data revenues accounted for 79 percent of total service revenues, a growth of 400 basis points from the same period last year.
- Growth in data was present in all segments, most evident in the upward momentum of Globe’s mobile data and home broadband categories.
- Mobile data revenues increased four percent to ₱19.2 billion.
- Mobile data traffic climbed 60 percent to 836 petabytes.
- Home broadband revenues soared 27 percent to a record ₱7.4 billion.
- Home broadband subscriber base grew 81 percent to over 4 million customers. ▪ Corporate data increased by ₱13 million from ₱3.3 billion in the same period last year.
- EBITDA dropped 11 percent to ₱18.3 billion on the back of higher expenses across expense line items except for interconnection fees and repairs and maintenance.
- Operating expenses including subsidy grew 19 percent to ₱19.5 billion.
- EBITDA margin consequently contracted to 48 percent from 56 percent last year.
- Capital expenditures surged 79 percent to ₱19.1 billion, representing 51 percent of gross service revenues and 105 percent of EBITDA. Moreover, 91 percent of the investment went primarily to data related requirements.
- As a result of continuous modernization of its network to make 5G as well as fiber technology available to more customers nationwide, Globe improved its data infrastructure versus the same period last year:
- New cell towers ramped up to 318, an improvement of 152 percent
- Builds for sites for wireless 4G LTE and 5G reached 4,210 sites, a growth of 106 percent
- Installed over 287,000 high-speed lines, an increase of 212 percent
- The AC Energy group registered a net income growth of 24 percent to ₱2.4 billion in the first quarter of 2021, driven by higher earnings from both international and Philippine businesses. Contribution from the group’s international assets increased 61 percent to ₱952 million driven by fresh contribution from the Vietnam wind farm, and higher interest income on development loans. Net income contribution from its listed subsidiary, AC Energy Corporation or ACEN grew 24 percent to ₱628 million due to better results from its commercial operations, higher contribution from renewables, and improved thermal availability.
- The AC Energy group is in the process of transforming its listed subsidiary ACEN to become the group’s main energy platform. ACEN’s recapitalization consists of fresh capital raising of ₱27.5 billion from the recently concluded ₱5.4 billion Stock Rights Offering last January, the ₱11.9 billion private placement to GIC affiliate Arran Investment that was completed last March, and proceeds worth ₱10.3 billion from the follow-on offering which is expected to be completed with the listing of 1.58 billion primary shares on May 14.
- The transformation also includes the infusion of the AC Energy group’s international platform into ACEN, in a deal valued at ₱85.9 billion. The shareholders ratified the deal during its Annual Stockholders meeting last April 19. The transaction is currently undergoing regulatory approval process, with target completion by the end of 2021.
- Upon the completion of its transformation, ACEN will have approximately 2,500MW of attributable capacity, of which around 1,900MW or 78 percent is from renewables sources. AC Energy’s vision is to reach 5GW of renewables capacity by 2025, and it aspires to be the largest listed renewables platform in Southeast Asia.
- Manila Water’s net income declined eight percent to ₱1.3 billion in the opening quarter of 2021 from the combined effect of lower billed volume across the group and lower supervision fees, coupled with recognized net foreign exchange gains that were partially offset by lower equity share in net income of associates. Excluding one-offs, net income declined 32 percent to ₱1.3 billion.
- Revenues decreased 12 percent to ₱4.9 billion due to lower billed volume and lower supervision fees, which continue to be impacted by the COVID-19 health crisis.
- EBITDA declined five percent to ₱3.2 billion despite a decrease in cost of service and operating expenses. EBITDA margin improved 500 basis points to 67 percent.
- In March 2021, Manila Water executed a Revised Concession Agreement with government for the operation of the waterworks and sewerage services in the East Zone. The revised agreement confirms the continuation of the concession until July 31, 2037. Largely adopting the New Clark City Joint Venture Agreement framework, the agreement has several key features such as the setting of a fixed, nominal rate of return, the removal of corporate income taxes from tariff collection, discontinuation of the foreign currency differential adjustment, and the setting of tariff caps for rate adjustment. The Revised Concession Agreement will be covered by an Undertaking Letter and service obligations will be adjusted in line with the new standards defined under the agreement. To help alleviate customers’ plight amid the challenges brought by COVID-19, the Revised Concession Agreement includes a tariff freeze until December 31, 2022.
- AC Industrials narrowed its net loss to ₱200 million in the first quarter of the year on the back of improved contributions across its global manufacturing businesses and local automotive operations.
- From a net loss in same period last year, IMI recorded a net income of US$2.2 million in the first quarter amid tight supply levels in the electronics component market.
- Revenues increased 28 percent to US$328 million from improved demand compared to the same period last year, which was heavily impacted by the first stages of the global health crisis.
- Similarly, top line from its wholly owned businesses grew 22 percent to US$255 million with the continued recovery of mobility and industrial end-markets.
- IMI’s non-wholly owned subsidiaries posted a revenue growth of 55 percent to US$73 million as it transitions towards high growth automotive and industrials customers.
- AC Motors significantly reduced its net loss to ₱39 million as demand in the Philippine automotive market continues to improve. Sales across its automobile portfolio, which includes Honda, Isuzu, Volkswagen, Kia, and Maxus exhibited quarter-on-quarter growth during the period.
Balance Sheet Highlights
- Parent level cash stood at ₱20.6 billion.
- Net debt stood at ₱104.5 billion.
- Parent net debt-to-equity ratio stood at 80 percent.
- Consolidated net debt-to-equity stood at 62 percent.
- Loan-to-value ratio, the ratio of its parent net debt (excluding the fixed-for-life perpetuals which have no maturity) to the total value of its assets, was at 10.7 percent.
- Parent-only CAPEX stood at ₱2.6 billion, bulk of which went to the newer businesses of Ayala.
- On May 11, 2021, Ayala Corporation priced the first tranche of its ₱30 billion Debt Securities Program and is currently applying for a Certificate of Permit to Offer Securities for Sale of the first tranche under the said program. The first tranche has an aggregate principal amount of up to ₱10 billion, with a base offer of up to ₱6 billion and an oversubscription option of up to an additional ₱4 billion. The first tranche consists of 3.0260% Series A Bonds due 2024 and 3.7874% Series B Bonds due 2026. The indicative offer period will run from May 17 to 21, 2021 and the Bonds are intended to be issued and listed at the Philippine Dealing & Exchange Corporation on May 28, 2021, subject to market conditions and receipt of regulatory approvals.