Ayala Announces First-Quarter Results

First Quarter Highlights

• Ayala Corporation’s net income in the first quarter declined 17 percent to PhP6.7 billion as the COVID-19 health crisis affected the performance of most of its business units.
• Isolating the estimated impact of the health crisis, Ayala’s net income was flat from its year-ago level, which included the PhP1 billion divestment gains from the merger of AC Education with iPeople.
• Ayala’s core businesses Ayala Land and Bank of the Philippine Islands recorded weak results on the impact of government-mandated Enhanced Community Quarantine protocols, which took effect last March 16.
• Other core pillars Globe and AC Energy held steady during the period as telco and power generation continued to operate during the quarantine albeit on skeleton staffing.
• AC Industrials registered a net loss on the impact of government-mandated shutdown of its facilities in China and market disruptions in the global supply chain in manufacturing.

“This unprecedented health crisis has resulted in a radical transformation of societies, economies, and businesses, including the Ayala group. At the onset of the crisis, the Ayala group has prioritized the welfare of our workforce and our many stakeholders across our ecosystem. We have likewise continuously done our part in assisting the government, healthcare sector, and economically vulnerable Filipinos who have been most affected by the crisis,” Ayala President and COO Fernando Zobel de Ayala said.

“While the outlook for the business environment has fundamentally changed as a result of this crisis, we take comfort in the fact that we have always maintained a strong balance sheet that provides us with flexibility as we navigate the uncertainties,” Mr. Zobel added.

“As we anticipate the reopening of business operations, it is imperative that we strike a balance between productivity and the health of our employees. With this in mind, we have put in place a health protocol to ensure the re-entry of our workforce in a safe and productive way. Our AC Health and HR teams have developed a protocol for workplace COVID-19 testing to help assess and protect our employees based on their individual risk profiles. We believe this is a critical step as our businesses readjust to this new environment,” Ayala Chairman and CEO Jaime Augusto Zobel de Ayala noted.

Real Estate

• Ayala Land’s total revenues and net income contracted 28 percent to PhP28.4 billion and 41 percent to PhP4.3 billion, respectively in the first quarter of 2020 as the COVID-19 ECQ impacted its business operations.
• Property development revenues were down 38 percent to PhP17.2 billion due to lower bookings, the impact of the Taal volcano eruption, and halted construction activities.
  • Residential revenues declined 39 percent to PhP13.8 billion.
  • Office for sale revenues dropped 68 percent to PhP962 million.
  • Commercial and industrial lots sales went up 8 percent to PhP2.5 billion.
• Commercial leasing revenues registered a five percent dip to PhP8.7 billion attributed to limited operations of shopping centers, lower hotel bookings, and closure of resorts, while continued operations of BPOs supported office leasing income.
  • Shopping center leasing revenues went down nine percent to PhP4.6 billion.
  • Office leasing income grew 15 percent to PhP2.5 billion.
  • Hotels and resorts rental revenues decreased 17 percent to PhP1.6 billion.
• The capital expenditure budget for the full year was revised to PhP69.8 billion from the original PhP110 billion estimate. CAPEX reached PhP21.6 billion in the opening quarter of the year.
  • 45 percent was spent on residential projects.
  • 23 percent was spent on rental assets.
  • 14 percent was spent on land acquisition.
  • 18 percent balance went towards estate development and other uses.
• Ayala Land’s balance sheet remains health to support its financial and operational requirements during the period.
  • Cash and Cash Equivalents stood at PhP23.2 billion as of end March 2020.
  • Total debt increased nine percent to PhP230.7 billion and stockholder’s equity stood at PhP242.9 billion.
  • Current ratio stood at 1.37 in the first quarter of 2020.
  • Debt-to-equity ratio tallied at 0.95 in the period.
  • Net debt-to-equity ratio reached 0.85 in the period.

Banking

• BPI booked PhP4.2 billion in loan loss provisions in the first quarter of 2020 as it considered the potential rise in non-performing loans from the impact of the COVID-19 health crisis. The provision is 2.4x higher than the PhP1.8 billion allocated in the same period last year.
• Net earnings declined five percent to PhP6.4 billion in the period as a result of the bank’s aggressive stance in provisioning.
• Total revenues increased 11 percent to PhP25.3 billion in the first three months of 2020 as robust net interest income provided uplift to topline while non-interest income exhibited modest growth.
• Net interest income was up 13 percent to PhP18.1 billion in the opening quarter of the year. The increase was driven by net interest margin expanding 24 basis points to 3.63 percent as lower asset yields were offset by lower cost of funds.
• Non-interest income rose six percent to PhP7.1 billion on the back of higher securities trading gains in the period.
• Total loans went up seven percent to PhP1.45 trillion in the first quarter of the year. The increase was supported by growth across all segments in the bank’s loan book.
  • Microfinance loans grew 67 percent.
  • SME loans was up 14 percent.
  • Consumer loans increased 10 percent.
  • Corporate loan appreciated seven percent.
• Total deposits rose four percent to PhP1.68 trillion in the period ending March 2020.
  • CASA ratio stood at 73.5 percent.
  • Loan-to-deposit ratio ended at 86.3 percent.
• Indicative NPL coverage ratio increased 16.47 percentage points to 109.02 percent in March 2020. NPL ratio stood at 1.82 percent in the period.
• Operating expenses was slightly up four percent to PhP12.5 billion in the first three months of the year.
  • Cost-to-income ratio declined 340 basis points to 49.6 percent.
• Total assets grew five percent to PhP2.19 trillion in the first quarter of 2020. Total equity stood at PhP272.7 billion in the period.
  • Indicative common equity tier 1 ratio was at 15.19 percent.
  • Indicative capital adequacy ratio stood at 16.08 percent.
  • Return on asset was 1.21 percent.
  • Return on equity was 9.38 percent.
• BPI successfully raised PhP15.3 billion in 2-year peso bonds in January 2020. The bank raised another PhP33.9 billion via a 1.5-year peso bond issuance in March 2020. Both debt capital market transactions further enhanced the bank’s liquidity position.

Telco

• Globe’s net income ended at PhP6.6 billion, down 2 percent due to an increase in depreciation from network investments made and non-operating charges likewise increasing.
• Total service revenues grew 2 percent to PhP36.9 billion driven by data revenues, which comprised 75 percent of the figure versus 69 percent last year.
• Growth in data demand was evident across all sectors.
  • Mobile data revenues rose 12 percent to PhP18.5 billion.
  • Mobile data traffic jumped 41 percent to 522 petabytes.
  • Home broadband subscriber base increased 32 percent to over 2.2 million customers.
  • Corporate data revenues improved 4 percent to PhP3.2 billion.
• EBITDA ended at PhP20.5 billion, growing by 3 percent driven by the growth in service revenues.
  • Operating expenses including subsidy grew 2 percent to PhP16.4 billion.
  • EBITDA margin expanded to 56 percent from 55 percent last year.
• Capital expenditures amounted to PhP10.7 billion, up 22 percent. Of this, 68 percent went to data-related requirements to ensure stable data connection and provide enhanced internet services.

Power

• AC Energy’s net profits turned around during the period to PhP1.96 billion from PhP2 million a year ago, largely driven by its PhP1.3 billion pre-operating revenue from GN Power Kauswagan and recovery of costs incurred from adjustments in the construction and operations of its power plants.
• Higher generation from various wind platforms in the Philippines and Vietnam owing to strong wind regime likewise boosted AC Energy’s net profits.
• AC Energy rendered 1,205 GWh of attributable net generation capacity in the first quarter of the 2020.
• In April, Ayala announced that it is consolidating its energy, water, and transport and logistics businesses under a holding company to create a sizeable and agile platform that would boost its foothold within the country’s physical infrastructure space. The integrated infrastructure platform will house the company’s stake in two listed companies, AC Energy Philippines Inc., and Manila Water Company Inc., and its unlisted unit AC Infrastructure Holdings Corporation. Ayala will use its wholly owned subsidiary AC Energy Inc. as the vehicle for the consolidated entity, which will be renamed to AC Energy and Infrastructure Corporation. The consolidation of Ayala’s various infrastructure interests creates a formidable platform with a strong balance sheet and allows Ayala to participate in the many opportunities in infrastructure development in a more significant way. Ayala expects to complete the restructuring by the third quarter of the year.

Water

• Manila Water’s first quarter 2020 net profits grew 4 percent year on year to PhP1.3 billion mainly due to the impact of the PhP534 million MWSS penalty and PhP353 million bill waiver from the water crisis last year.
  • Excluding these items, NIAT would be 12 percent lower due to higher depreciation (+26 percent) and interest expenses (+24 percent).
• Revenues increased by 9 percent driven by higher billed volumes and the PhP0.35 billion gross bill waiver incurred last year.
• EBITDA amounted to PhP3.1 billion, 10 percent higher, mainly due to lower overhead, premises and personnel costs. EBITDA margin for the period stood at 57 percent versus 56 percent last year.
• Non-revenue water improved to 12.3 percent, better than last year by 0.3 percentage points.
• The entry of a strategic investor into Manila Water is undergoing review from the involved parties. At the same time, the company is in negotiations with the government to form a new water contract with target to finalize by mid-2020.

Industrial Technologies

• AC Industrials registered a net loss of PhP564 million owing to the softer performance of the global economy and the Philippine automotive sector in the first quarter of the year.
• IMI posted a net loss of PhP235 million (US$4.6 million) as revenues dropped 21 percent to PhP12.8 billion (US$256 million), hampered by government-mandated shutdowns of its China facilities in February and the Enhanced Community Quarantine protocols in the Philippines that began in mid-March.
• While operating sites in Europe and North America remained fully operational throughout the first quarter, revenues in these markets declined 15 percent owing to market disruptions in the global supply chain.
• While the overall market environment is challenging, IMI is pursuing additional business opportunities, particularly in the medical and telecommunications segments.
• AC Motors recorded a net loss of PhP204 million, primarily driven by the closure of Honda Car Philippines’ Laguna facility combined with a plunge in the group’s total sales. The lower unit sales was caused by the impact of the Taal eruption in the year and the COVID-19 pandemic lockdown towards the end of the first quarter.
• Merlin Solar posted a lower net loss on higher revenues from metal roof installations for commercial and industrial customers. Meanwhile, MT Technologies registered a higher net loss as it continued to face headwinds from the slowdown in global automotive and manufacturing.

Balance Sheet Highlights

• Parent level cash stood at PhP17.6 billion.
• Net debt stood at PhP93.0 billion.
• Parent net debt-to-equity ratio stood at 71 percent.
• Group net debt-to-equity stood at 64 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 10.3 percent.
• Parent-only CAPEX stood at PhP6.9 billion, which went mostly to the newer businesses of Ayala.