Balance Sheet of Filipino Manufacturing Business

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Balance Sheet of Filipino Manufacturing Business Powered By Docstoc
					President’s Report
to Stockholders

                                      WE ARE OPTIMISTIC ABOUT THE
                                      UPCOMING YEAR AS POSITIVE
                                      TRENDS INDICATE THE GLOBAL
                                      ECONOMY, AND THE PHILIPPINES
                                      IN PARTICULAR, ARE POISED
                                      FOR A STEADY ALBEIT GRADUAL

                                      Fellow Shareholders:
                                      Our deliberate efforts the past few years to strengthen
         BUSINESSES AND TURNAROUND    our balance sheet through value realization and
         IN AC CAPITAL                prudent debt management prepared us well for the
    •    POSITIVE SECTORAL TRENDS     economic downturn. Our healthy cash position and
         PRESENT OPPORTUNITIES FOR    comfortable gearing kept our fundamentals intact
         GROWTH AND EXPANSION         across the group even at the height of the financial
                                      crisis. This position of financial strength allowed us
                                      to maintain our focus on: (1) strengthening each of
                                      our business units in their respective industries, (2)
    •    SEEKING NEW INVESTMENT       continuing our portfolio enhancement initiatives, and
         OPPORTUNITIES                (3) seeking investment opportunities where we can lay
                                      the foundation for future growth.

                              EQUITY IN NET EARNINGS OF BUSINESS UNITS (in million pesos)

                                                                                 % CHANGE
            BUSINESS UNIT                  2009               2008                                      % TO TOTAL
                                                                                2009 VS. 2008

            ALI                            2,149              2,538                  -15%                     23%
            BPI                            2,707              2,145                  + 26%                    29%
            Globe                          3,862              3,643                  + 6%                     42%
            AC Capital                     494                (540)                     -                     6%
            TOTAL                          9,212              7,786                  + 18%                   100%

            Solid equity earnings growth from BPI and Globe offset decline in ALI; turnaround in equity earnings of
            AC Capital from loss in 2008

We are optimistic about the upcoming year as                           Positive Sectoral Trends Present
positive trends indicate the global economy, and                       Opportunities for Growth and Expansion
the Philippines in particular, are poised for a steady                 Apart from this resilient performance, we also draw
albeit gradual recovery.                                               optimism from the positive trends we are seeing in the
                                                                       different sectors that we operate in and we continue to
Strong Performance of Core Businesses and                              look for interesting new growth opportunities in other
Turnaround in AC Capital                                               sectors.
Our optimism is drawn from the strong
performance and resilience of our core businesses                      In real estate, ALI’s residential sales across all brands
as well as the improved operating results of our                       recovered beginning the second quarter of 2009.
businesses under AC Capital, even amidst a severe                      We are confident this momentum will continue. This
global economic slowdown.                                              was confirmed with two very successful launches in
                                                                       January 2010. Ayala Land is embarking on its most
Equity earnings from core businesses Ayala Land Inc.                   aggressive launch in the coming year as it expands
(ALI), Bank of the Philippine Islands (BPI), and Globe                 its presence in key cities and areas in the Philippines.
Telecom grew by 5% in 2009 and by 10% in the fourth                    The breadth of this project pipeline is underpinned by
quarter alone, from marginal growth in the first two                   a desire to broaden the customer base and develop
quarters of the year.                                                  products for consumers at lower price points.

AC Capital contributed positively. Combined equity                     ALI’s recurring income base continued to grow in
earnings from its business units reversed losses                       2009. Occupancy in shopping centers continued to
in 2008. This was driven by the strong earnings                        improve alongside the expansion in gross leasable
growth of our water distribution unit, Manila Water                    area (GLA) with the opening of MarQuee Mall in
Company Inc., and the turnaround of our electronics                    Pampanga. There are many opportunities as ALI
manufacturing business, Integrated Micro-Electronics                   expands in the Philippines. In the past six months ALI
Inc. (IMI). LiveIt Investments Ltd., our holding                       sealed several joint venture agreements with various
company for our investments in the business process                    strategic partners to develop mixed-use community
outsourcing (BPO) sector, also posted significantly                    centers in the Subic Bay Freeport Area and Cagayan
lower losses.                                                          de Oro. It will also unveil Abreeza Mall in Davao City by
                                                                       next year. Its office leasing business, mostly in BPO,
This put total equity earnings at P9.2 billion, up 18%                 also continued to expand with leased-out GLA up by
from the prior year. However, significantly lower                      117%. Average lease rates have been steady.
capital gains kept net income at par with the prior
year’s level at P8.2 billion. Excluding gains, net income              In banking, BPI registered strong business volume and
growth was actually much higher at 34% compared                        revenue growth which in turn produced solid growth
with the year before. Return on equity reached 8.2%.                   in earnings. Loans to small-medium enterprises,

                                                                                                                      2009 ANNUAL REPORT 15
 (in million pesos)

                                                         2008                   CONSOLIDATED NET INCOME
                                                                                2009 versus 2008
                                                                                (in million pesos)

                                                                                 8,109         8,154
                     263                                                                         937
                                        HOLDINGS                73               2,722

     MANILA          IMI    AYALA                              -29
     WATER                                                                       5,387         7,217
                            AUTO                            OTHERS
                                                                                                             Capital gains

                                        -361                                                                 Gains-adjusted
                 -487                                                                                        income
Significant improvement in equity                                                2008          2009
earnings from MWC and IMI offset losses                                         Gains-adjusted net income up 34%
of AG Holdings and LiveIt; LiveIt losses
substantially reduced

consumer market, and credit card customers remained                  long term. Globe’s broadband capex for 2010 includes
robust, expanding at double-digit levels. The bank’s                 investments to augment existing capacities, expand
remittance business was also strong, outpacing                       coverage, and improve the availability of 3G, WiMax, and
industry growth which resulted in BPI capturing over                 DSL broadband services.
20% of the overseas Filipino remittance business.
                                                                     In the year ahead, Globe will continue to strengthen
We are excited about the new initiatives BPI is                      its brand portfolio, drive improvements in the
undertaking to extend market reach, broaden                          sales and distribution process, improve customer
customer base, and refine its product suite. BPI                     service, and develop products and offers that deliver
pursued two joint ventures in 2009. First is BPI                     greater value to customers. Globe’s commitment
Globe BanKO, a mobile microfinance bank with Ayala                   to optimizing its capital structure and delivering
Corporation and Globe as strategic partners. This will               superior value to its shareholders has prompted it to
allow BPI to expand and deliver financial services to                increase dividend payout to a range of 75% to 90% of
lower income sectors leveraging on Globe’s technology                prior year’s earnings.
platform. Second is BPI-Philam Life Assurance
Company, a bancassurance platform with The                           There are exciting new opportunities for our water
Philippine American Life Insurance Company. These                    utilities business, Manila Water Company Inc., both
synergistic partnerships will enhance BPI’s presence in              in the Philippines and in the region. Manila Water has
non-traditional markets and allow for significant cross-             recently secured concessions in Boracay and Laguna,
selling opportunities.                                               providing venues to replicate its successful business
                                                                     model. Management contracts overseas, particularly
Globe Telecom registered strong earnings growth in                   in Ho Chi Minh and in India, are stepping stones for
2009. While the core mobile business was weighed                     larger projects in these countries and other parts
down by weak consumption and intense competition,                    of the region. With the renewal of its concession
Globe made gains in broadband, growing their                         agreement extending the concession period to
subscriber base three-fold. Broadband will continue to               2037, Manila Water’s investment plan will ensure
be a key growth area and we are confident that with                  better service and more affordable water rates for
the resources Globe is investing, it will contribute more            its customers. In view of the potential for local and
significantly to the overall business in the medium to               regional expansion, Ayala recently increased its

economic stake in Manila Water from 31.5% to 43.1%         space, including the power sector. We remain
to participate in this prospective growth.                 committed to pursuing investment opportunities
                                                           in this space and in areas where we can lay the
Our BPO businesses under LiveIt continue to build          foundation for higher growth. We recently announced
scale through mergers and acquisitions in the global       our intent to bid for the Angat Hydroelectric Power
BPO space while leveraging on the Philippines’             Plant in early 2010.
competitive advantages. One of the significant moves
we made was the merger of eTelecare Global Solutions       We regularly look for ways to refresh thinking and
with Stream Global Services in October 2009. This          leadership in our business units. We draw primarily
merger puts us among the top BPO companies globally        from the leadership bench within Ayala. In 2009
with approximately 30,000 employees based out of 50+       we successfully transitioned new leaders with the
solution centers in 22 countries supporting more than      appointment of new Chief Executive Officers for Ayala
30 languages and serving Fortune 1000 companies.           Land (Antonino Aquino), Globe Telecom (Ernest Cu),
                                                           Manila Water (Jose Rene Almendras), and AC Capital
Our other BPO units continue to build scale through        (Gerardo Ablaza, Jr.) as well as Chief Finance Officers
acquisitions as a way of accelerating the expansion        for Integrated Micro-Electronics Inc. (Sherisa Nuesa)
of their capabilities and positioning the companies as     and Manila Water (Luis Juan Oreta). We are confident
leading global providers. By year-end, LiveIt recorded     that their wealth of experience will add great value
equity revenue growth of 76% to US$226 million with        and leadership strength in each of their assigned
share of EBITDA at US$16 million, in its third full year   business units.
of operations.
                                                           We are pleased with the accomplishments this year
Reinvesting for Portfolio Enhancement                      and appreciate the awards and recognition given to
Despite somber economic conditions, the group              us by various institutions for these. In 2009, we were
continued to reinvest in its existing businesses as        awarded by Finance Asia as Best Managed Company
part of its portfolio enhancement initiatives. In 2009,    in the Philippines, Best in Corporate Governance, Best
the group capital expenditure amounted to over P50         in Corporate Social Responsibility, and Best CEO. We
billion, slightly lower than prior year’s P55 billion.     were also ranked first by Euromoney for Overall Most
Investments from the holding company included              Convincing and Coherent Strategy by a Conglomerate
those in our BPO businesses and in ARCH Captial,           in the Philippines as well as among Asia’s 200 Most
our real estate fund, which has projects in China,         Admired Companies in the Philippines by the Wall
Thailand, and India. We also pursued share buy-            Street Journal Asia.
backs of our subsidiaries’ and of our own shares. We
repurchased a total of 466,360 Ayala Corporation           No doubt, these are reflections of the collective
shares in 2009, bringing total shares bought back to       efforts of our senior management team, executives,
1.8 million by year-end and also signed an agreement       and staff. We appreciate their continued support,
to acquire United Utilities’ 11.6% economic stake          loyalty and dedication and for contributing to the
in Manila Water. This P3.5 billion transaction was         realization of our shared business and socio-civic
consummated in early 2010.                                 objectives. We also thank our members of the
                                                           Board for their guidance, our business partners for
Notwithstanding these investments, we ended the year       their shared vision, and our shareholders for their
with a healthy cash balance of P30 billion and a low net   continued trust and confidence in Ayala.
gearing of approximately 0.04 to 1. We also prepaid
a total of P7.2 billion worth of outstanding debt and
replaced these with lower-cost debt which allowed us
to generate interest savings and lower our average
cost of debt.

Seeking New Investment Opportunities
Our healthy cash balance and low gearing give us
the opportunity to make significant investments. We        FERNANDO ZOBEL DE AYALA
actively explored opportunities in the infrastructure      President and Chief Operating Officer

                                                                                                   2009 ANNUAL REPORT 17

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