Financials >> Management's Discussion and Analysis of Financial Condition and Results Operations

Management's Discussion and Analysis of Financial Condition and Results Operations

For the year ended December 31, 2013
Ayala Corporation’s consolidated net income attributable to equity holders for the year ended December 31, 2013 amounted to P12.8 billion, 22% higher than 2012. Core net income reached P14.8 billion, 28% higher than prior year. This excludes the impact of the accelerated depreciation of Globe Telecom as a result of its network modernization program.


Ayala’s consolidated sale of goods and services for the year reached P136.9 billion, a 24% increase from 2012 primarily driven by new projects and improved sales performance of real estate, electronics, automotive and water utilities groups. This accounts for 86% of total income in 2013.

Real Estate
Ayala Land Inc.’s (ALI) net income rose by 30% to a record P11.7 billion on the back of double-digit revenue growth and stable margins across its business segments. ALI recorded P81.5 billion in total revenues, a 36% jump from its year-ago level as its property development, commercial leasing and construction businesses continued to post gains. Revenues from property development expanded by 51% to P52 billion driven by strong gains from its residential segment as well as the sale of commercial lots in NUVALI and Arca South, which is the Food Terminal Inc. property ALI acquired in 2012. Revenues from commercial leasing grew 21% to P18 billion on a combination of higher average lease rates and occupied gross leasable area in shopping centers and offices coupled with the opening of new malls. This was boosted by higher revenues from hotels and resorts, which rose 64% to P4 billion, as new hotels and resorts begin to contribute. Revenues from construction and property management generated combined revenues of P26.3 billion, 29% higher than the previous year. ALI spent P66 billion in capital expenditures in 2013, the bulk of which was used to fund projects in residential development and land acquisition. ALI has earmarked P70 billion in capital expenditures for 2014 as it continues to pursue its growth initiatives. 

Water and Wastewater Services
Manila Water Company’s (MWC) net income expanded by 5% in 2013 to P5.8 billion, driven by higher billed volume in the East Zone and increased contribution from new businesses. New businesses, which include operations in Laguna, Boracay, Clark and Vietnam, accounted for 10% of MWC’s earnings in 2013. Additional income from the liquidation of connection fees in the East Zone was also recognized, boosting net income. Total revenues grew by 6% to P15.3 billion with total billed volume up 5% versus prior year. Revenues from its Vietnam operations, which consist of a leakage reduction project and two bulk water companies, Thu Duc Water B.O.O Corporation and Kenh Dong Water Supply Joint Stock Company, grew by 42% from the previous year to P294 million.

MWC recently took over as exclusive water provider within the Laguna Technopark through its subsidiary, Laguna Water Company. It is also constructing a bulk water project in Cebu, which is expected to start operations in June.

Ayala’s electronics business, Integrated Micro-Electronics Inc. (IMI), nearly doubled its net income in 2013 to US$10.5 million due mainly to business expansion in Europe and the Philippines. Despite a contraction in the electronics sector, IMI continued to register higher revenues in 2013, reaching US$745 million, a 12.6% growth from a year ago. This resilient performance was primarily driven by IMI’s diversification strategy. This includes the company’s move to higher-growth, higher margin niche markets in automotive, industrial, medical, and telecommunications segments.

Consolidated sales of Ayala Automotive Holdings Corporation grew by 7% to P10.7 billion. Vehicle unit sales grew by 9%. Consolidated net income, which includes its equity share and dividend income from Honda Cars Philippines Inc. and Isuzu Philippines Corporation, was 81% lower than the previous year mainly on start-up costs of Volkswagen operations.In 2012, Volkswagen AG appointed Ayala Automotive as the Philippine importer for Volkswagen passenger vehicles. This partnership will enhance Ayala Automotive’s existing portfolio of product offerings along with the Honda and Isuzu brands.

Share of earnings from associates and joint venture equities increased by 31% to P10.1 billion. The increase was primarily driven by higher equity earnings from the Bank of the Philippine Islands, partly offset by lower net income registered by Globe Telecom.

Financial Services
BPI registered a 15% year-on-year growth in net income to P18.8 billion, primarily driven by higher interest income on the back of a 21% growth in the bank's loan portfolio. Higher fee-based income and foreign exchange.

Interest income declined 26% to P3.4 billion owing to lower placements and interest rates of the real estate group and Ayala parent in 2013. This accounts for 2% of the total income in 2013.

Consolidated cost of goods grew 20% to P66.5 billion while cost of rendering services expanded 37% to P31.5 billion. The increase was driven by higher sales of the real estate, electronics, automotive, water utilities and business process outsourcing (BPO) groups. The cost of goods accounts for 52%, while the cost of rendering services makes up for 24% of total costs and expenses in 2013.

Consolidated general and administrative expenses expanded 14% to P14.6 billion on the back of higher operating expenses of the real estate group coming from newly consolidated subsidiaries. General and administrative expenses accounts for 11% of total costs and expenses in 2013.

Consolidated interest expenses and other financing charges rose 29% to P10.5 billion as a result of higher loan balance from fundraising activities in late 2012. These include borrowings at the Ayala parent level that were used to fund new initiatives in the power and transport infrastructure sectors. Similarly, ALI secured new loans in 2013 to fund its landbanking and expansion of various mixed use developments. This year’s consolidated interest expenses and financing charges account for 8% of the total cost and expenses for the year.


Consolidated cash and short term investments declined by 18% to P65.7 billion as of the end of 2013 compared to P80.3 billion in 2012. Decline was due mainly to placements of funds from short term cash equivalents to other form of financial instruments, and use of funds for operations and loan payments.

Accounts receivable rose by 32% to P56.3 billion on the back of higher sales from residential brands, new project launches and existing project sales of the real estate group. The significant growth in revenues of the electronics group particularly in Europe and the Philippines coupled with higher receivables of the BPO group also contributed to the increase. This account makes up for 9% of total assets in 2013.

Noncurrent asset held for sale represents the carrying value of our investment that will be disposed within Y2014.

Overall, total current assets increased by 18% to P211.5 billion. Total noncurrent assets rose to P384.8 billion from P331.9 billion in 2012. This was primarily due to an increase in investments in our banking sector coupled with higher earnings from investee companies, additional investments in real properties, land and improvements and higher receivables by ALI arising from ramp up on revenues.

On the liabilities side, total current and noncurrent liabilities reached P364.2 billion, 20% higher than its level in 2012.

Total consolidated stockholders’ equity reached P235.5 billion, 14% higher than in 2012 mainly as a result of additional paid up capital from re-issuance of treasury shares and higher earnings during the period, net of dividends.

On a consolidated basis, gearing remained comfortable with consolidated debt-to-equity ratio at 1.43 to 1 and consolidated net debt-to-equity ratio at 0.98 to 1. Gearing at the parent company level also remained comfortable with debt-to-equity ratio at 0.49 to 1 and net debt-to-equity ratio at 0.32 to 1.

In 2014, the Ayala group earmarked nearly P187 billion in capital expenditures to continue its investment programs in its real estate, banking, telecommunications, and water businesses as well as to ramp up its new businesses.