Fellow Shareholders,

Over a year ago, on March 11, 2020, the WHO declared COVID-19 a global pandemic. We could not have imagined then—dire as it already was at that time—that the pandemic would stretch well beyond one year and keep going, that what began as a health crisis would stretch into a complex combination of four crises rolled into one: a health, social, economic, and even a geopolitical crisis.

Yet the pandemic’s story would be incomplete if we focused only on its devastation.

While the pandemic exposed inadequacies in our healthcare system, it also showcased the sublime courage, skill and resourcefulness of our frontliners.

Yes, the pandemic led to social dislocation as mobility restrictions cleared our highways of traffic and our malls from meet-ups. Yet technology and digital infrastructure ramped up to power industries, to multiply connections and dialogue by cutting travel time from one meeting to the next. And, for many, working from home restored connections with families we had previously seen less often than our workmates.

Yes, the pandemic led to the worst economic contraction recorded in many parts of the world. In the Philippines, our economy declined by -9.5 percent. Yet the pandemic also showcased the best of our bayanihan spirit helping those who were challenged to help themselves.

Such has been the narrative for Ayala Corporation in 2020 as well. Like many companies, our bottomline has been severely impacted. But, under the extenuating circumstances, I am pleased that the Ayala group has weathered the economic challenges well, made decisive and balanced trade-offs between short-term pivots and long-term sustainability, and that we have continued to be a force for growth and a force for good for our varied stakeholders. We have acted with agility, in consonance with our purpose and mission, and are positioned to capitalize on the new opportunities that the pandemic has presented.

“This crisis has put to the test some of the institutional foundations that we at Ayala have established throughout our 187-year history. In times of extreme adversity, we are fortunate to have been able to leverage the strength of our established principles and the distinct advantages we have as a multi-business group.”

This crisis has put to the test some of the institutional foundations that we at Ayala have established throughout our 187-year history. In times of extreme adversity, we are fortunate to have been able to leverage the strength of our established principles and the distinct advantages we have as a multi-business group.

We used established cross-functional synergies and robust corporate infrastructure to quickly mobilize. More importantly, our teams across our business units demonstrated admirable commitment and engagement, and continue to respond, adjust, and recalibrate in this dynamically changing environment.

Let me expand on this by touching on three broad themes, which I believe appropriately represent the past year and set the foundation for how our group is positioned for long-term growth.

First, let me highlight how a balanced portfolio and years of risk-resilient financial discipline served as an important foundation to help us pivot our businesses. We accelerated growth in resilient industries and business units such as Globe and AC Energy, and with products such as GCash and BPI Online. On the other hand, we minimized the impact on severely disrupted business sectors such as in our malls and tourism business verticals.

Second, I will touch on how our group, as part of an immediate and continuing response to the crisis, prioritized protecting three concentric circles of stakeholders: our employees; our broad business ecosystem, and the community-at-large—in aid of nation-building.

Third and finally, I will share my perspectives on how we are capitalizing on opportunities during this period of disruption and innovation across varied industries, while positioning ourselves for the post-pandemic recovery.

Please allow me to elaborate on each of these three themes.

First, our balanced portfolio and years of risk-resilient financial discipline served as our strategic advantage in navigating through a severely disrupted business landscape.

As with most businesses, the mobility restrictions, loss of income, dampened consumer sentiment, and the overall slowdown in economic activity weighed heavily on Ayala’s performance during the year. However, we take comfort in the fact that the diversified nature of our portfolio has positioned us well to temper the full effect of the crisis.

We have, over the years, made both strategic and opportunistic adjustments to our portfolio to counteract volatility across multiple economic cycles. And, with the clarity of hindsight, that served us well in 2020.

While the crisis affected three of our businesses —Ayala Land, BPI, and AC Industrials—the impact on our overall performance was offset by the resilience of Globe and AC Energy.

Moreover, we are reaping the fruits of the transformation initiatives we undertook a few years back as the crisis essentially catalyzed the tremendous potential of digital technologies and digital adoption. We saw unprecedented adoption of e-wallets, e-payments, e-commerce, telemedicine, and online learning, among others.

Two of the country’s top three digital finance platforms are Ayala assets. GCash and BPI Online were early entrants in the space and, supported by robust and user-friendly technology platforms, were ready to meet or adapt to the rapidly changing needs of customers.

Since the entry of Ant Financial as a strategic partner in 2017, Mynt, which operates GCash, continues to grow and create value. GCash is now the number one finance app in the country, serving over 33 million users or one in every three Filipinos. Last year, the value of transactions that passed through GCash crossed ₱1 trillion, which was double that of the combined totals for the three-year period of 2017 to 2019.

GCash recently attracted US$175 million in fresh capital, including an investment from Bow Wave, a New York-based private equity fund. With a post-money valuation of nearly US$1 billion, this investment validates GCash as a formidable player in contributing to and transforming financial services in the country.

Similarly, BPI’s foresight in embarking on a digital transformation program five years ago has paid off. Enrollments and usage surged during the pandemic across the bank’s online platforms as businesses adjusted to new ways of handling transactions during a period of limited mobility. BizLink, which offers digital solutions for corporate clients, as well as BPI Online and BPI Mobile, our channels for customers’ everyday banking needs, now constitute an average of 70 percent of the bank’s total transactions.

Moving forward, BPI intends to become the undisputed leader in digital banking in the country by broadening access to online platforms for all our customers, regardless of size, and introducing value-added services for both the corporate and retail segments. We also expect the bank to work even more closely with GCash to extract further synergies between the two leading financial mobile apps in the country.

In tandem with our balanced portfolio, our years of risk-resilient discipline with respect to financial management generated sufficient absorption capacity to protect our balance sheet. This judicious approach served us well during both the Asian crisis of 1997 and the global financial crisis of 2008. It served us well again in 2020.

Our group’s robust balance sheet enabled us to continue executing on our investment pipeline. We leveraged the favorable debt market conditions last year to raise capital that will enable us to preserve financial sustainability as well as create the capacity for opportunistic investments. Ayala Land, BPI, Globe, Manila Water, and AC Energy raised around US$3 billion in combined proceeds from various domestic and international capital raising exercises. The successful capital raising exercises executed across the group during this period of economic uncertainty is a testament to the strength of the Ayala brand.

“I believe that foresight, active portfolio
management, and an innovative mindset have
enabled us to not only survive, but flourish during this period of economic uncertainty and stress.”

I believe that foresight, active portfolio management, and an innovative mindset have enabled us to not only survive, but flourish during this period of economic uncertainty and stress.

Moving on to the second theme, we strongly believe that our ability to sustain attractive business returns—over many years and through various economic cycles—requires that our host ecosystem survives and, ideally, thrives.

Thus, in responding to the pandemic, we prioritized protecting three concentric circles of stakeholders. The first circle was our Ayala group’s over 60,000 employees, the second circle was the broader business ecosystem in which we operate, and the third circle was composed of the communities and the country we serve. Our support was necessarily proactive and generous. Over March to December 2020, the Ayala group disbursed a total of ₱13.2B for our pandemic response initiatives.

From the start of this difficult period, our top- of-mind priority was to protect our employees, ensuring their peace of mind—assuring them of financial stability and protecting their physical health and safety.

The financial assistance consisted of a mix of wages, leave conversions, loan deferments, and advance release of employee bonuses.

To help address the health and safety concerns of our employees, we set up employee-exclusive hotlines to doctors and for medicines and built a COVID-19 facility, specifically dedicated for them and their families in the event that the traditional hospitals got too full to accommodate them.

To ensure continuity of business and customer service, we implemented protocols to ensure the safety of our critical, essential frontliners who needed to physically report to the workplace. We provided tools-of-work for the majority of our employees so that they could productively work from home. Lastly, through Ayala-funded online courses, we encouraged employees to enhance or learn new skills that will help them better adapt to a digitally, technologically-wired “future of work”.

After protecting our employees, the second phase was to ensure that our business ecosystem stayed in place as we collectively tried to recover. The Ayala group has always believed that our success is intertwined with the success of the broader ecosystem in which we operate.

Ayala Land was the first to implement rent condonations to its mall merchants, while BPI was among the first financial institutions to offer a grace period for loan payments. Similarly, Globe and Manila Water provided grace periods for bill payments—all consistent with the economic stimulus package put in place during the crisis.

Within this business ecosystem, we realized that certain segments would need particular focus. We have around 250,000 SMEs and around 1 million micro-enterprises that are linked to us as clients and partners across our various businesses. The pandemic’s impact on them was more massive. It was imperative that we provide them with support and help alleviate some of the pain points they faced. Hence, we launched the Ayala Enterprise Circle as a support network for the group’s SME partners to help them navigate the crisis by providing business solutions, expert mentorship, training, and business-matching opportunities.

After our employees and our business ecosystem, the third circle of stakeholders was the community-at-large, in aid of national recovery. Even before the COVID-19 pandemic struck, the Ayala group had been working on programs around the evolving, expanded role of private institutions in society.

To ensure that our teams felt financially secure during this period of stress, we rolled out an emergency assistance package for our employees, as well as for those who provide contractual services to the Ayala group (including personnel, maintenance staff, and construction workers) who would, otherwise, have been in a “no-work, no-pay” dilemma.

I strongly believe that our expanded role is to help address the pain points of the community at large, and of the nation even—not just of our shareholders—and to be more inclusive in purpose than the singular focus on profit that the economist, Milton Friedman at the University of Chicago, espoused a little over 50 years ago. This pandemic has made it even more urgent and important for us to be inclusive in our survival and recovery efforts. This pandemic has been most democratic, sparing no one, but its effects have been much more devastating on society’s already vulnerable segments than on larger, more buffered, and diversified entities like ours.

I believe that our sustainable recovery as private institutions can happen only if the communities that support us and work with us also survive and thrive. They need us now, more than ever, to share in their adversity. And it cuts both ways, we also need them—the entire ecosystem—to recover and thrive so as to ensure our sustainable prosperity.

With this philosophy guiding our actions, the Ayala group spearheaded a number of community projects, including Project Ugnayan, a peer partnership among the private sector, that galvanized action to address the immediate food needs of the economically vulnerable families who were caught flat-footed when community quarantine was declared last year. Project Ugnayan was an unprecedented level of cooperation among private sector companies that are normally fierce competitors in the business landscape. Many of the biggest donors committed their support within 48 hours. In all, 270 companies contributed and raised ₱1.7 billion worth of emergency relief assistance and distributed this by enlisting the machinery of PDRF and the Catholic Church to over 14 million individuals.

We were steadfast in our mission to contribute towards rebuilding the nation. Among many other community-based initiatives, the Ayala group led in converting the World Trade Center into a massive quarantine facility and donated a number of molecular testing laboratories and significant quantities of medical supplies to local government units.

We continue to work in partnership with the government to help address society’s pain points. As a founding member of Project T3, a private sector-led initiative, we helped raise our national capacity for testing, treating, tracing, and isolating patients and patient-suspect cases. Presently, we are among the leading private sector firms supporting the government in planning and implementing the national vaccination program.

On this second theme, perhaps among the pandemic’s enduring lessons are the imperative for inclusive recovery and the power of unlocking greater cooperation among private companies and between the public and private sectors. It is encouraging to see this collaborative approach towards the creation of meaningful, scaled solutions in combatting COVID-19 and building back better towards inclusive recovery.

This brings me to the third and final point—how our group is capitalizing on opportunities amid the massive shifts taking place, and how we are positioned for a post-pandemic recovery.

Alongside adversity, there is opportunity.

First, while the pandemic exposed inadequacies and massive underinvestment in the country’s healthcare system, the crisis also reinforced our thesis for entering this industry over five years ago. Healthcare is an industry that is ripe for intervention and disruption.

In 2015, when we started investing in healthcare, we saw that it was increasingly becoming an important sector in the country for several reasons. Households were beginning to spend more on health and wellness, the government was increasing its healthcare investments, and health outcomes were so poor that there was significant headroom for growth. Today, COVID-19 has exponentially expanded the value of the healthcare sector. Despite the deep -9.5 percent economic contraction that the Philippines experienced last year, the healthcare sector expanded by 13.8 percent, due to increasing investments by local players and foreign partners.

AC Health is scaling up its portfolio to take advantage of the momentum in the healthcare ecosystem. Last February, AC Health completed the acquisition of a majority stake in QualiMed Health Network, which operates a chain of hospitals and clinics, expanding its service delivery network by providing healthcare at the tertiary level. The addition of QualiMed to AC Health’s portfolio complements its 85 outpatient clinics and 80 corporate clinics under the Healthway brand, as well as the country’s first specialty cancer hospital, which is set to open in 2023.

AC Health also launched a telemedicine solution that provided an alternative medical consultation solution, alongside online purchasing of medicines and scheduling of onsite clinic appointments. We are now looking at utilizing this platform for vaccination scheduling and monitoring.

Second, this crisis has accelerated the digital transformation of both the Filipino consumer, as well as the Filipino workplace.

To this end, we have seen examples of how our investments in digital infrastructure are paying forward—most specifically, how the digital platforms of both BPI and GCash have enabled individuals to make critical transactions— sending money to family far-away and making purchases and bill payments from the safety of their homes. This digital infrastructure will power many more industries—perhaps virtually all industries in the future: health, education, banking, manufacturing, commerce, travel, entertainment, and many more.

Among these is logistics, where the pandemic highlighted massive gaps in this fragmented industry. Having seen the country’s requirement for efficient and reliable logistics to complement the rise of the digital economy, we entered the industry three years ago through our last mile delivery platform, Entrego.

Entrego, leveraging its nationwide reach, has gained a foothold serving major e-commerce players in the country. The company ramped up its operations significantly over the past year, with revenues growing 10 times since 2018 and volume of packages delivered doubling since the start of the pandemic. We are looking to further develop our logistics portfolio in a more meaningful way and are looking at opportunities to expand our presence across the broader logistics supply chain, including contract logistics and freight forwarding.

A third set of opportunities—aside from healthcare and digitalization—lies in the area of sustainability and of ESG-proofing our businesses. AC Energy is a prime example in our portfolio. Global investors and pandemic realizations have triggered the demand for affordable, reliable, renewable, and sustainable power.

AC Energy intends to play a leading role in this energy transition process with a strategy that emphasizes building a low-carbon portfolio. It is working towards fully divesting its coal assets by 2030 as it aspires to be the largest listed renewables platform in Southeast Asia. With 1.9GW of renewable capacity to date, AC Energy has established a meaningful presence in Vietnam, Australia, Indonesia, and India in addition to the Philippines. It is poised to exceed its goal of 5GW of renewables capacity by 2025.

AC Energy’s rapid transition to renewables has attracted strategic partnerships from blue chip institutions such as GIC, Singapore’s sovereign wealth fund, which is acquiring a 17.5 percent stake in the company.

We are excited about these opportunities and look forward to taking part in the critical transformations happening in these industries.

Looking ahead, we will be doing our part to help spur the revitalization of the economy through continued investment spending and have allocated ₱196 billion in combined capital expenditure for 2021. The Ayala group feels positive about our medium-term trajectory and anticipates an economic revival by mid-2023, back to the levels of 2019.

This is premised on the successful execution of the country’s vaccination rollout beginning later this year, thus restoring consumer confidence, and will be powered by the Ayala group’s focused execution to secure and maintain market leadership in our core industries and significant presence in emerging industries.

Traditionally, this is the point where I would normally conclude the Chairman’s Message: after providing a look-back at 2020 and a look-ahead at 2021. But this is an unusual year so I hope you will allow me, this year, to look farther back than the past one year and look farther ahead than the current and immediate next year.

We shared with you last December 2020 that we will transition the position of Chief Executive Officer of Ayala from me to my brother, Fernando, who will then be designated President and CEO of Ayala Corporation.

I will continue as Chairman of the Ayala Board and will continue to represent Ayala as Chairman or Vice Chairman, retaining my current roles in the subsidiary boards of various Ayala group companies.

Retaining these roles as Chairman or Vice Chairman will allow me to continue providing support to our management teams across the group. Focusing on my role as Chairman of Ayala Corporation will create space for me to focus on governance, and strengthen connections with our many partners, customers, and employees across the group as we seek to broaden and deepen our stakeholder engagement going forward.

At Ayala, we have built a culture of welcoming change and encouraging transitions. I see myself as no different from the many others who have provided leadership across the group over the years.

Each leader added value in myriad ways and saw it as their responsibility to nurture talent and create paths of succession. It is through this path of deliberate renewal that organizations grow, prosper, and adapt creatively and sustainably to the changing economic, social, and environmental landscape. It is through this process of intentional succession planning that we have the luxury of a deep leadership bench positioned for continuing success.

As I look back at my 26-year tenure as CEO and 40 years as an Ayala employee, I am proud of having been part of a continuing path of progressive transformation in the company. The role of institutions continues to evolve and I like to think that we have been at the forefront of these changing paradigms.

We strongly believe that in order to build a legacy of long-term value creation, we must also remain relevant to the changing needs of our customers, our investors, and the communities we interact with. We are part of the fabric of a broader community of stakeholders and increasingly participate in a society that seeks progress in a way that sustains its well-being well into the future.

“Across these last 26 years, Ayala has developed products and services that are significantly more inclusive to broader segments of our population, has used technology and disruption to transform the way our customers experience life, and has consistently committed capital and a growing balance sheet to address the vital social and hard infrastructure bottlenecks that we face as a country.”

Across these last 26 years, Ayala has developed products and services that are significantly more inclusive to broader segments of our population, has used technology and disruption to transform the way our customers experience life, and has consistently committed capital and a growing balance sheet to address the vital social and hard infrastructure bottlenecks that we face as a country.

I believe this clarity of mission and steadfast commitment have continued to make us relevant to the changing nature of our country and that we have contributed, in our own way, to our communal desire to see a progressive evolution of our society.

Moving beyond our national shores, the world is also increasingly aligning to new global standards and we are proud to have an institution that has provided leadership on this front by aligning to the UN Sustainable Development goals and the broader initiatives that conform to the new accepted ESG frameworks.

Finally, we are proud to have developed a community of talented, driven, imaginative and problem-solving teams that relish challenges and whose values are parallel to those in leadership across the group. This difficult year has brought us closer together and built a commonality of purpose and joint engagement. I could not be prouder of having been part of this great team of progressive, driven, and enlightened executives.

As the incoming CEO, Fernando has successfully provided leadership across a variety of Ayala group companies for more than two decades and he is eminently suited to continue providing executive momentum in his new role as President and CEO of Ayala. Both Fernando and I have worked as a leadership team for over two decades now, and we intend to continue charting Ayala’s path forward in tandem. Fernando will bring his own brand of leadership to the task at hand and he will highlight his own points of emphasis in his President’s report.

It is in this light that I thank our Board of Directors for their constant guidance and foresight, they have all made themselves available to us beyond the formal structure of our meetings, our leadership teams and colleagues across the entire Ayala group for their deep commitment and engagement across many fronts, and you, my fellow stockholders, for your unwavering trust and support.

 

JAIME AUGUSTO ZOBEL DE AYALA
Chairman & CEO