Ayala Corp nets P26B in 2016, eyes power and digital for the future

ALL SMILES. The Zobel de Ayala brothers at the helm of Ayala Corporation, COO Fernando (left) and CEO Jaime Augusto. File photo by Rappler

ALL SMILES. The Zobel de Ayala brothers at the helm of Ayala Corporation, COO Fernando (left) and CEO Jaime Augusto.

File photo by Rappler

MANILA, Philippines – Ayala Corporation (AC), the holding firm of the country's oldest conglomerate, is setting its sights on energy and the digital world in 2017, after having closed 2016 with its emerging sectors growing more influential.

AC ended 2016 with a net income of P26 billion, up 17% from the P22.3 billion in 2015, the firm disclosed on Monday, March 13.

The growth was driven by equity earnings from subsidiaries, which hit P32 billion for a growth of 14% compared to 2015. Most of the earnings came from its traditional banking and real estate sectors, which contributed 19% and 18%, respectively.

But the conglomerate's newer businesses have begun to come to the fore, with earnings from power through AC Energy Holdings jumping by 27%, while earnings from manufacturing and automotive through AC Industrial Technology Holdings (AC Industrials) grew 51%.

"Ayala capped its 5-year strategic target in 2016 with net income expanding nearly threefold and a 23% compounded annual growth rate since we put the plan in place in 2011. We believe this was achieved through our disciplined execution and a strong domestic environment," said AC chief finance officer Jose Teodoro Limcaoco.

He added that business units outside of banking, telecommunications, utilities, and real estate now account for 12.4% of total equity contributions, which AC plans to grow to 20% by 2020.

"We're on track for that target. We know it won't be a straight line as we're building the business that will contribute the 20% in 2020 and we're looking at AC Energy and AC Industrials to deliver the bulk of that," he said.

The firm's 2016 net income growth, however, represents its slowest since 2012, which Limcaoco attributed to base effects. "If you have high income, it's very hard to grow another 20% because the absolute is getting bigger," he explained.

Power

AC Energy expanded its net income by 25% in 2016 to hit P2.7 billion, fueled by strong equity earnings which were boosted by gains from its partial sale of shares in South Luzon Thermal Energy Corporation (SLTEC).

Equity earnings from AC Energy's investee companies climbed 67% to P1.8 billion on higher operating efficiencies of GNPower Mariveles and the successful start of operations of SLTEC's 2nd unit.

Limcaoco said AC Energy now has close to 1,300 megawatts (MW) in operating capacity and is targeting 2,000 MW by 2020, with a focus on renewables. The firm also plans to double its expenditure of around $800 million so far toward that goal.

Last December, AC Energy, as part of a consortium, signed an agreement with Chevron Global Energy and the Union Oil Company of California for the acquisition of Chevron's geothermal operations in Indonesia and the Philippines.

It also signed an investment agreement earlier this year with UPC Renewables Indonesia for the development, construction, and operation of a 75-MW wind farm project in Sidrap, South Sulawesi, Indonesia.

Automotive, manufacturing

AC set up AC Industrials last August to house its investments in industrial technologies – Integrated Micro-Electronics Incorporated (IMI) and AC Automotive.

The industrial technologies portfolio reached a net income of P1.8 billion in 2016, 29% higher than in 2015, boosted by strong automotive sales and distribution.

The firm maintains stakes across dealerships distributing Volkswagen, Honda, and Isuzu vehicles. It is also the official distributor of KTM motorcycles in the country through Adventure Cycles Philippines Incorporated.

In electronics manufacturing, IMI posted a net income of P1.3 billion in 2016, down 2% from 2015 due to transaction and financing costs related to strategic acquisitions and foreign exchange headwinds from the Chinese Renminbi.

IMI's revenues, meanwhile, improved 4% to P40 billion, lifted by VIA Optronics and its Europe and Mexico operations, which contributed a combined $308 million representing 15% growth year-on-year.

SETTING DIRECTION. Ayala Corp CFO Jose Teodoro Limcaoco outlines the firm's 2016 financial results and plans for the future at a briefing held at Ayala Tower One on March 13. Photo by Chris Schnabel/Rappler

SETTING DIRECTION. Ayala Corp CFO Jose Teodoro Limcaoco outlines the firm's 2016 financial results and plans for the future at a briefing held at Ayala Tower One on March 13.

Photo by Chris Schnabel/Rappler

Betting on the cutting-edge

AC has started 2017 with a slew of investments into the digital space, headlined by its partnership through Globe Telecom with Ant Financial, part of Jack Ma's giant Alibaba group.

AC also entered e-commerce by taking a 49% stake, along with its subsidiaries, in Zalora Philippines, and venturing into online pharmacies with its Ayala Healthcare Holdings investing in MedGrocer.

Limcaoco also said they recently invested in a Silicon Valley-based solar firm startup that optimizes solar photovoltaic (PV) panel technology.

AC's CFO added that they have so far invested around $50 million or P2.55 billion in digital or cutting-edge ventures, and are eyeing more.

"Our approach to these cutting-edge investments is to look for synergies within our existing portfolio. It's got to bring something disruptive or innovative to an industry that we are in," he said.

Banking, real estate, telco, utilities

Of the conglomerate's traditional business arms, banking unit Bank of the Philippine Islands (BPI) led the field with its net income up 21% to P22.1 billion.

This was driven by gains from the bank's core banking, transactional, and bancassurance businesses, boosted by significant securities trading gains. Total revenues grew 12% to P66.6 billion as net interest income rose 10% to P42.4 billion, while non-interest income climbed 17% to P24.2 billion.

In 2016, BPI's loan portfolio also breached the P1-trillion mark.

Real estate arm Ayala Land Incorporated (ALI) recorded a net income of P20.9 billion in 2016, growing 19% from 2015, driven mainly by its property development and commercial leasing businesses.

Property development revenues hit P79.2 billion, 17% higher year-on-year, while residential revenues rose 12% to P65.1 billion on higher bookings and newly-completed projects.

Office for sale revenues surged 27% to P8.8 billion, mainly supported by Alveo Park Triangle Towers. Meanwhile, commercial and industrial lot revenues doubled to P5.9 billion.

On the other hand, AC's telco subsidiary Globe Telecom saw its net income decline by 4% due to depreciation charges from asset build-up in the 4th quarter of 2016 and the full consolidation of BayanTel.

Other non-operating charges included costs related to the purchase of San Miguel Corporation's telco assets, consisting of interest expenses for the additional debt incurred for the acquisition, and Globe's share in the net losses of Vega Telecom and amortization of the intangible assets acquired.

Meanwhile, Manila Water's net income reached P6.1 billion, up 2% on the improved performance of the Manila concession combined with higher contributions from its businesses outside Metro Manila.

The Ayala Group is increasing its capital expenditures this year by 13% to P185 billion, primarily to support the growth strategies of its real estate, telco, and water units, as well as ramp up its emerging businesses in power, industrial technologies, healthcare, and education.

AC itself has earmarked P21 billion in capital spending this year, largely to fund the investment program of its power business. – Rappler.com