Ayala 1H 2020 Net Income Down 79% to P7.9B
Ayala Corp.’s (PSE: AC) net income in the first-half of the year declined by 79% to P7.9 billion mainly as a combined effect of Bank of the Philippine Islands’ (PSE: BPI) aggressive loan loss provisions in the second quarter; Ayala Land Inc.’s (PSE: ALI) limited construction activities and mall operations since the start of the quarantine period in mid-March; and the base effect of divestment gains in power and education booked in the same period last year.
Ayala’s core businesses recorded lower net profits in the first semester. Ayala Land’s net income dropped by 70% to P4.5 billion owing to lower project bookings, suspended construction activity, restricted mall operations, and the closure of resorts. BPI’s net profits declined 15% to P11.7 billion in the first-half of year as it booked P15.0 billion in provisions for the potential adverse impact of COVID-19 to non-performing loans.
Globe Telecom Inc.’s (PSE: GLO) net income dipped 5% to P11.5 billion because of higher depreciation expenses from continued network investments. AC Energy posted a net income of P4.5 billion, a decline from its year-ago level of P23.2 billion, which included gains from the partial divestment of its thermal assets.
The Ayala group has actively tapped the domestic and international capital markets during the crisis. Ayala Land and BPI raised a total of $1.2 billion in the first-half of the year. Since then, the group has accessed an additional $1.8 billion from various capital raising activities including Ayala Land’s REIT, BPI’s CARE bonds, Globe’s bonds, and Manila Water’s sustainability bonds.
“Our group has taken advantage of the favorable debt market conditions to further solidify our balance sheet in these challenging times. Ayala Land, BPI, Globe, and Manila Water are expected to raise US$3 billion in combined proceeds from various domestic and international capital raising exercises,” Ayala Chairman and CEO Jaime Augusto Zobel de Ayala noted. “It is encouraging to see the strength of the Ayala brand translate to its continued ability to attract sizeable capital under the current environment.”
“While the health crisis has stifled the momentum of some of our businesses, we have started to see positive trends in the operations of BPI, Globe, and Ayala Land since the easing of quarantine restrictions in June,” Ayala President and COO Fernando Zobel de Ayala said. “In addition, the crisis has accelerated the country’s digital adoption, particularly in financial services. We are excited about the trajectory of our digital channels BPI Online and GCash, which have both experienced unprecedented growth over the past five months,” Zobel added.
Real Estate
Ayala Land’s total revenues declined 50% to P41.2 billion and net income fell 70% to P4.5 billion in the first-half of 2020 due to the impact of COVID-19 on its business operations.
Property development revenues were down 58% to P24.9 billion mainly due to lower project bookings and suspended construction activity. Residential revenues dropped by 54% to P20.5 billion; office for sale revenues declined by 86% to P1.4 billion; and commercial and industrial lots sales decreased by 31% to P3.0 billion.
Commercial leasing revenues declined 31% to P12.9 billion because of restricted mall and hotel operations and the closure of resorts. This was partially offset by rental revenues from office tenants mainly comprised of BPO clients, which continued to operate throughout the quarantine period. Shopping center leasing revenues went down by 43% to P5.8 billion; office leasing income increased by 7% to P4.9 billion; and hotels and resorts revenues decreased by 43% to P2.1 billion.
CAPEX spending reached P34.8 billion in the first six months of the year, tracking 50% of the revised full year budget of P69.8 billion.
▪ 49% was spent on residential projects.
▪ 24% was spent on commercial projects.
▪ 14% was spent on estate development.
▪ 13% was spent on land acquisition.
Ayala Land’s balance sheet remains healthy amidst the pandemic and is able to support its financial and operational requirements. Cash and cash equivalents stood at P17.4 billion as of end June 2020. Total borrowings ended at P228.0 billion and stockholder’s equity stood at P243.0 billion.
In July, Ayala Land’s AREIT secured approvals from the Securities and Exchange Commission and the Philippine Stock Exchange for the initial public offering of the first Real Estate Investment Trust in the Philippines. AREIT’s portfolio includes three Grade A properties in Makati City covering a total gross leasable area of 152,755.80 square meters and is expected to expand with new acquisitions in the future.
Banking
BPI’s net income decreased 15% to P11.7 billion in the first-half of year as it booked P15 billion in provisions for the potential adverse impact of COVID-19 to non-performing loans. The provision is 4.3x higher than the P3.5 billion allocated in the same period last year.
Total revenues increased 15% to P52.7 billion on the back of net interest income and non-interest income growth. Net interest income was up by 13% to P36.4 billion because of a 5.9% expansion in average asset base supported by an 18-basis point expansion in net interest margin to 3.55%. Non-interest income rose 20% to P16.3 billion due to higher securities trading gains. And total loans grew 6% to P1.43 trillion with modest growth across all segments supporting the bank’s loan book.
BPI successfully completed the offering of its COVID Action Response Bonds (CARE), with a tenor of 1.75 years and a coupon rate of 3.05% p.a. paid quarterly. The BPI CARE Bonds were issued and listed on the Philippine Dealing & Exchange Corp. on August 7, 2020. Proceeds from the CARE Bonds will be used to finance and refinance eligible micro, small, and medium enterprises under the BPI’s Sustainable Funding Framework.
Telco
Globe’s net income was down 5% to P11.5 billion in the first six months of the year due to higher depreciation from continued network investments. Similarly, core net income declined 8% to P11.1 billion.
Total service revenues dipped 1% to P72.4 billion. Total data revenues, which improved from 70% to 75% of total service revenues in the period, was the top contributor given the surge in consumption in light of the stay-at-home lifestyle and shift to online activities.
Data demand continued to grow in the mobile and home categories while corporate data decreased due to the prevailing work-from-home setup amidst the health crisis. Mobile data revenues rose by 5% to P35.8 billion, and mobile data traffic surged by 45% to 1,106 petabytes. Home broadband revenues increased by 19% to P12.5 billion, while corporate data revenue declined by 3% to P6.2 billion.
GCash maintained its status as the country’s number one finance app with top use cases being P2P transfers, load purchases, and bank transfers. It also aided the national government’s Social Amelioration Program by serving as a channel where people received financial assistance from the Department of Social Welfare and Development during the disbursement period.
Globe’s investments in its network grew 10% to P20.9 billion, representing 29% of gross service revenues and 54% of EBITDA. Bulk of the spending went towards data-related requirements, which comprised 76% of total for the period. To support the roll-out of 5G technology and further expand the LTE network coverage nationwide, the revised capex guidance for 2020 is estimated to be P50.3 billion, lower than the original guidance of P63.0 billion given the delays in the rollout during the ECQ/MECQ period.
Globe returned to the international debt capital markets for the first time since 2004 with the launch of a US$300 million 10-year senior note with a coupon rate of 2.5% and US$300 million 15-year senior note with a coupon rate of 3%. Proceeds will be used to finance capital expenditures, maturing and/or existing obligations, and general corporate requirements.
Power
AC Energy booked net income of P4.5 billion for the first-half of the year, a decline from the P23.2 billion in the same period last year which included gains from its partial divestment in AA Thermal. Net income was driven by improved thermal availability, better wind regime, contribution from Vietnam solar projects which started operations in the second quarter of 2019, and pre-operating income from GN Power Kauswagan. This also includes the income contribution of AC Energy Philippines, which was consolidated starting July 2019.
AC Energy has completed the infusion of Philippine assets into ACEPH, which will be renamed as AC Energy Corp. AC Energy continues to expand its portfolio to reach its goal of 5,000 MW of renewables capacity by 2025. The company is expanding its partnership with UPC Renewables with the development of two wind projects in Vietnam, with aggregate capacity at 60MW.
In partnership with AMI Renewables, the company is building a 210MW wind farm in Vietnam that will be the largest in the country. AC Energy has also started the construction of the 140MW Sitara Solar plant in India through UPC-AC Energy Solar, the company’s joint venture with UPC Solar Asia Pacific, marking its first major investment in India.
On July 3, an explosion on Power Barge 102 of AC Energy caused an oil spill off the coast of Iloilo City, triggering an immediate clean-up campaign that included the local government unit of the city, the Bureau of Fire Protection, Department of Energy, Department of Environment and Natural Resources, and other public and private entities. The spill was contained and within eight days, offshore oil recovery effort in collaboration with Philippine Coast Guard was completed. AC Energy Philippines continues to work with the local government to address livelihood concerns, spearhead community programs, and rehabilitate marine and coastal ecosystems.
Water
Manila Water’s first-half net profits declined 15% to P2.5 billion as higher contributions from the East Zone Concession were weighed down by lower earnings from non-East Zone businesses.
The parent company, which houses the East Zone Concession, saw net profits increase 24% to P3.0 billion driven by higher billed volume and the impact of one-offs recognized last year, notable among these are the P534 million MWSS penalty and P353 million bill waiver from the raw water shortage last year.
Revenues increased 3% to P10.9 billion driven by higher billed volume in the East Zone, but was offset by lower contribution from the domestic subsidiaries. EBITDA increased 6% to P6.3 billion as lower overhead expenses and premises costs helped shore up profitability. EBITDA margin stood at 58%.
In July, Manila Water issued US$500 million in sustainability bonds with a coupon rate of 4.375%, the largest green bond issued by a listed private water company in Asia. The issuance will be used to finance water and wastewater infrastructure projects, refinance maturing obligations, and diversify funding sources.
Industrial Technologies
AC Industrials posted a net loss of P1.8 billion as its main businesses in the global manufacturing industry and Philippine automotive space were significantly impacted by the global health crisis.
IMI recorded a net loss of US$21.5 million as revenues dropped 25% to US$476 million mainly because of plant shutdowns in various operating regions including the Philippines, China, and Mexico where government mandated quarantine protocols were implemented. Its wholly owned businesses’ revenues declined 28% to US$367 million due to aforementioned plant shutdowns and lower manufacturing activity caused by the pandemic.
IMI has been granted the license to locally produce the UK-based Ventura CPAP device, which is a non-invasive ventilator system that has been able to render a 60 to 70% success rate in sustaining patients needing intubation.
Meanwhile, Via Optronics and STI Ltd posted combined revenues of US$109 million. While the former saw an uptick in global laptop demand in the second quarter, the latter was hampered by challenged demand as governments’ health response programs took priority over aerospace and defense projects.
AC Motors incurred a net loss of P575 million on the back of overall low demand in the local automotive industry because of the health crisis, which limited the transportation sector throughout the period.