Financials >> Management's Discussion and Analysis of Operations for the Year ended 31 December 2014

Management's Discussion and Analysis of Operations for the Year ended 31 December 2014

Ayala Corporation’s consolidated net income attributable to equity holders expanded 46 percent in 2014 to P18.6 billion, primarily driven by the solid performance of its real estate, telecommunications, and electronics manufacturing units and boosted by a net gain from the divestment of Stream.

On a core net income basis, or without the impact of accelerated depreciation from its telecommunications unit’s network transformation initiative in the previous year, Ayala grew 25 percent in 2014. This is the third consecutive year of above-20 percent growth for the conglomerate as its diversified portfolio of investments benefited from the country’s economic gains over the past three years.

Consolidated Sale of Goods and Services

Growth was achieved on the back of a 16 percent increase in consolidated revenues which reached P184.3 billion. Sale of goods rose 13 percent to P105.1 billion, while rendering of services grew 16 percent to P51.3 billion. This was driven by improved residential sales at Ayala Land Inc. coupled with higher revenues generated by Integrated Micro-Electronics Inc. and increased billed volume recorded by Manila Water Company Inc.

Real Estate

As positive momentum in the real estate sector continued, Ayala Land’s net income grew by 26 percent to P14.8 billion year on year. The robust performance of its property development and commercial leasing operations, which rose 21 percent and 18 percent, respectively, fuelled the 18 percent growth in Ayala Land’s real estate revenues to P93.04 billion*.Residential revenues reached P55.9 billion*, up by 26 percent from a year ago on new bookings and completion of existing residential projects. Residential sales takeup remained strong, hitting an all-time high of P102 billion, 11 percent higher year on year. Sales from overseas Filipinos likewise improved as it now comprises 24 percent of Ayala Land’s residential bookings, which grew 13 percent to P76.7 billion. The sale of office spaces in Bonifacio Global City and Cebu likewise fuelled Ayala Land’s real estate revenues in 2014.

* Includes accretion income


In electronics manufacturing, IMI recorded solid growth in 2014 with net income soaring nearly threefold to
$29.1 million from its year-ago level. Revenue growth was robust, up by 13 percent, to $844.5 million, outpacing the global electronics manufacturing services, which posted around 6 percent growth. Strong demand from the telecommunications, automotive, and storage device markets helped lift IMI’s revenues in 2014.

IMI successfully completed its follow-on offering in December 2014. It listed 215 million common shares, raising P1.6 billion in proceeds and increasing its public f loat level to 19 percent.


Manila Water ended 2014 at a steady pace, registering a one percent growth in consolidated net income to
P5.8 billion primarily driven by improved billed volume and higher contribution from new businesses.

Notwithstanding the absence of a tariff adjustment, the East Zone concession posted profits of P5.1 billion on the back of 4 percent growth in billed volume owing to an increase in service connections. Manila Water maintained its nonrevenue water in the East Zone at 11.3 percent.

Manila Water’s operating units outside the East Zone concession all sustained solid growth in billed volume. Laguna Water registered a 52 percent jump in profits to P164 million following the acquisition of the water reticulation system of Laguna Technopark Inc in January 2014 and new service connections. Boracay Water and Clark Water both posted double-digit growth, expanding 32 percent and 17 percent, respectively. Manila Water’s Vietnam-based associates, Thu Duc Water, Kenh Dong Water and Saigon Water Infrastructure Corporation, contributed a total of P357 million in earnings. Manila Water’s new businesses accounted for 11 percent of its net income in 2014.

Share of Profit of Associates and Joint Ventures

Share of profit of associates and joint ventures amounted to P13.2 billion in 2014, reflecting a 31 percent increase mainly driven by higher earnings from Globe which counterbalanced the relatively flat contribution from BPI. The increase in AC’s ownership interest in BPI in November 2013 was offset by the impact of the slight decline in its net income year on year.



Globe Telecom posted another record net income, which more than doubled to P13.4 billion year on year, buoyed by robust revenue growth from sustained demand for data connectivity across the mobile, broadband and fixed line businesses and the tapering of depreciation charges from its network transformation initiative. The solid revenue growth, which balanced out the subsidy and operating expenses, drove the 8 percent increase in Globe’s earnings before interest taxes depreciation and amortization (EBITDA) to P39.3 billion.

Mobile revenues, which account for 79 percent of consolidated revenues, grew 7 percent to P78.1 billion, propelled by growth in the postpaid and mass market TM brands. Globe’s postpaid revenues continued to improve at P29.9 billion, up 11 percent from the previous year. Despite yield pressures on multi-SIM incidence and value- based bucket offers, its prepaid revenues improved 5 percent to P48.2 billion. Total mobile subscriber base stood at 44 million in 2014, a 14 percent growth from its year-ago level.

Globe’s broadband business registered a 22 percent growth to P12.7 billion as it continued to launch affordable products and competitive tablet bundles. Similarly, Globe’s fixed line revenues reported improvement with data and voice segments reporting a 17 percent and 7 percent, respectively.

Financial Services

BPI reported a net income of P18 billion in 2014, a 4 percent decline from the previous year. This was largely due to a 5 percent decline in non-interest income as a result of a sharp contraction in trading gains compared to the previous year as the bank reduced its reliance on securities trading.

The bank’s core lending business, however, continued to drive growth with net interest income growing 15 percent to P34.8 billion. Net loans expanded 27 percent to P800 billion year on year. Deposits jumped 19 percent from a year ago to P1.2 trillion. The bank registered a current and savings account ratio of 69 percent. 

BPI’s operating expenses rose 12 percent attributed to the bank’s investment in infrastructure and technology as it positions itself for future growth. Cost-to-income ratio stood at 53.7 percent in 2014.


Interest Income

Interest income expanded 79 percent to P5.5 billion on the back of higher investible funds following the fund raising activities of the parent company and Ayala Land. This accounts for 3.5 percent of total income in 2014.

Other Income

Other income ended flat, down 1 percent to P9.2 billion mainly driven by the lower rehabilitation works of Manila Water. This was partially counterbalanced by the net gain of P1.8 billion from LiveIt’s sale of Stream Global Services.

Costs and Expenses

Consolidated cost of sales rose 17 percent to P77.8 billion attributed to higher sales of Ayala Land, IMI and Ayala Automotive Holdings Corporation, accounting for 54 percent and 52 percent of total costs and expenses in 2014 and 2013, respectively. Cost of rendering services rose 10 percent to P34.5 billion resulting from higher revenues from IMI, Manila Water, and Ayala Land.

General and administrative expenses increased by 8 percent to P15.8 billion. The increase was mainly on account of higher manpower expenses, taxes, and advertising costs related to Ayala Land, certain provisions at IMI, and start-up costs of AC Energy, AC Infra, and Ayala Education.

Interest Expense and Other Financing Charges

onsolidated interest expense and other financing charges increased by 13.5 percent to P11.9 billion mainly due to higher borrowings in the latter part of 2013 to 2014. As of end-December 2014, total debt increased by 26 percent from yearend 2013 as a result of new borrowings at the parent level to fund its investments in various power and transport infrastructure projects and increased investment in BPI through subscription in the bank’s stock rights offering. In addition, Ayala Land and Manila Water for new expansion projects and investments in operational improvements.

Total debt as of end December 2014 stood at P259 billion. Notwithstanding the higher debt levels, gearing ratios remain comfortable and well within limits. Ayala’s consolidated debt to equity ratio was at 1.39 times while parent debt to equity ratio was at 0.54 to 1 with net debt to equity at 0.24 to 1.

Balance Sheet Highlights

Consolidated cash and cash equivalents expanded by 38 percent to P90.7 billion largely attributed to the proceeds from Ayala parent’s offering of preferred shares, issuance of new common shares, loan availments and sale of exchangeable bonds. Ayala Land’s higher sales and loan availments as well as IMI’s higher collections and proceeds from its follow-on offering and sale of property also contributed to the increase.

Accounts and notes receivables (current) grew by 29 percent to P72.7 billion as a result of higher sales across all of Ayala Land’s residential brands. Significant growth in revenues from IMI and Ayala Automotive also pushed up accounts receivables.

Total noncurrent assets rose by 22 percent to P471.3 billion from P384.8 billion at the beginning of the year. This was primarily due to the increased investment of Ayala in BPI through the stock rights, investments in various power projects, Ayala Land’s increased investment in land acquisitions as well as additional investments in real properties.

On the liabilities side, long-term debt (noncurrent) reached P227 billion, up 28 percent mainly due to new borrowings made through AYC Finance’s issuance of exchangeable bonds to fund Ayala parent’s investments in power and transport infrastructure as well as its acquisition of additional stake in BPI. In addition, Ayala Land’s new loans to bankroll its expansion projects contributed to the increase.

Total stockholders’ equity reached P286.9 billion, P51.4 billion higher than the start of the year primarily resulting from higher earnings during the period, the re-issuance of 27 million AC’s Preferred B shares which generated P13.4 billion proceeds, and the top-up placement of AC’s 18.8 million common shares which generated P12.2 billion proceeds, in 4Q 2014.

Consolidated current ratio and debt to equity ratio remained healthy at 1.50x and 1.39x, respectively as of the end of December 2014. Consolidated net debt to equity ratio was at 0.85x.

In 2015, the Ayala group has earmarked P185 billion in combined capital expenditures to support the massive expansion plans of its real estate and telecom units.