Fellow Shareholders,

Please allow me to start, on behalf of our stakeholders and our board, by thanking our Chairman and CEO for his exceptional and dedicated leadership of Ayala over the past 26 years.

In the 26 years of Jaime’s tenure as CEO, Ayala Corporation delivered an outstanding track record of creating shareholder value. Since 1995, our market capitalization expanded more than sixfold and our net income similarly grew more than six times. Since 1995, we rewarded our shareholders with dependable returns that averaged at 15 percent per annum. Over that period, we cumulatively paid ₱118 billion in dividends to our common shareholders.

But, perhaps even more than the admirable financial track record over the past 26 years, we laud and thank Jaime for a five-point legacy–which is foundational and strategic—upon which Ayala will build and propel sustainable returns for generations to come.

First, our portfolio mix is stronger, expanded, more diversified, and balanced. We cemented market leadership in our established businesses in real estate and banking. We expanded the societal segments we served and consequently, broadened our set of products and services to address more and different customer needs. We invested in transformative, deep-need or high-growth business verticals such as telecommunications, water, energy, health, education, and logistics where we created meaningful disruption and continue to build scalable and sustainable market share positions either organically or with strategic partners.

Second, we have developed a culture of relevant and relentless innovation, constantly seeking to disrupt even ourselves and spark new industries. Our inspired teams leveraged our group synergies, our rich data and investments in technology, and our strong balance sheet so as to remain relevant to the dynamically changing needs of our customers.

Third, we have a rigorous financial management discipline that, time and again, has been tested and proven. This has enabled us to make decisive investments to capitalize on opportunities and provided risk-resilience in times of crisis, including the challenges of the current COVID-19 crisis.

Fourth, Jaime championed Ayala’s pioneering efforts to align our ambition and metrics with world-class standards for sustainability and Environmental, Social and Governance.

And fifth, with a clarity of purpose and constancy of action, Jaime led in placing Ayala at the forefront of the evolving role of corporations to address society’s pain points, to create inclusive and sustainable prosperity for all stakeholders, and to aid in nation-building.

Jaime, on behalf of our shareholders and management, thank you. This five-point legacy among many others you have modelled are strategic advantages that strongly position Ayala for future sustainable growth, across varied economic cycles.

2020 was a stress-test for these foundational strengths of Ayala. The crisis undeniably weighed on our financial performance, especially in areas which were severely affected by the mobility restrictions, business slowdown, and unemployment. However, the pandemic also presented opportunities for agile pivots in our established businesses with Globe, BPI, and Ayala Land, for example, launching new or enhanced digital products and bolstering servicing support for their digital channels. It also unlocked opportunities for accelerated benefits from transformative investments that we made in nascent businesses a few years ago. The crisis buoyed sectors such as health and wellness, e-commerce, online banking, and logistics. It reinforced the demand for sufficiency and dependability in the supply of essential goods such as water, food, power and—the new normal— digital connectivity.

Ayala Land was one of the most affected business units in the Ayala group during the crisis. Its net income fell 74 percent to ₱8.7 billion as mobility restrictions impeded mall and hotel operations, dampened residential demand, and slowed or halted construction activity. On the other hand, the office segment remained strong, supported by the resilience of the BPO industry.

Ayala Land launched a number of hybrid and digital channels to help meet the consumer need for contactless delivery of goods and services such as basic groceries and even the sale and turnover of real estate property. In spite of the mobility restrictions and altered purchasing priorities, residential sales of Ayala Land reached 56 percent of its 2019 or pre-COVID levels.

With protracted mobility restrictions and uncertain recovery scenarios, Ayala Land focused on preserving its value by keeping its asset base intact. It ensured strong cash flow and strengthened its balance sheet. It deferred plans to acquire new land, tempered project launches, and rationalized spending. Capital expenditure was likewise significantly reduced. I am happy to report that for 2021, Ayala Land has programmed ₱88 billion in capital expenditures and is targeting to launch ₱100 billion-worth of residential projects as it prepares for recovery in the next two to three years.

Despite a challenging period and a host of regulatory hurdles, Ayala Land successfully completed the IPO of AREIT, the first real estate investment trust in the country. This landmark capital market transaction, which raised ₱12.3 billion in proceeds, demonstrated Ayala Land’s commitment to establish a REIT sector in the Philippines and encouraged greater participation by Filipinos in the domestic capital market. This pioneering initiative has likewise led to a stronger interest from other property developers to launch their own REIT vehicles.

With the massive drop in economic activity, Bank of the Philippine Islands was likewise heavily impacted by the pandemic.

To prepare for the potential rise in non-performing loans, BPI booked total loan loss provisions of ₱28 billion in 2020, a fivefold increase from its year ago-level. This caused net income to fall 26 percent to ₱21 billion.

For the first time in almost a decade of double-digit growth, BPI’s loan book contracted 3.2 percent following a sharp decline in loan demand and deteriorating loan quality. NPLs rose from 1.7 percent a year ago to 2.7 percent in 2020. This is substantially lower than the industry average. We believe this is a reflection of the bank’s strong credit discipline.

Over the past three years, we intensified BPI’s digital transformation, investing the equivalent of eight percent of the bank’s revenues towards our ambition for BPI to be the undisputed leader in digital banking in the Philippines. The pandemic accelerated the adoption of remote and digital banking channels with thousands of enrollments. Fifty-two percent of the bank’s customers are now digitally enabled, more than half of them are active users, and an average of 70 percent of total transactions are now done online. BPI is poised to deliver on its goal of being the leading digital bank, with its BPI Online app already the leading online banking app during the pandemic.

Digital connectivity is the highway of the “new normal” and will power most, if not virtually all industries in the future. Globe Telecom is front and center of this digital revolution.

To continue fulfilling the country’s growing need for fast and reliable internet access, Globe Telecom invested ₱60 billion in capital expenditure in 2020, 18 percent higher than in 2019. Despite operating under severe mobility restrictions, Globe built nearly 1,300 new cell sites and upgraded more than 11,500 sites to 4G/LTE technology, surpassing the year ago achievements of 1,100 and 10,000, respectively. Globe also deployed 5G sites in Metro Manila and parts of Visayas and Mindanao, making it available in over 1,000 areas in the country.

However, depreciation from these aggressive network investments drove a 16 percent decline in Globe’s net profit to ₱18.6 billion.

With many Filipinos confined in their homes to conduct their work, learning, shopping, and entertainment activities, Globe experienced a shift in demand from mobile data to home broadband. We expect a significant portion of these behavioral shifts to continue this year, more so because of the recent surge in COVID-19 cases and the renewed mobility restrictions. This demand for home broadband is reflected in Globe’s capital spending earmarked for 2021 – a record ₱70 billion to execute on its network rollout strategy.

BPI and Globe’s experience in 2020 demonstrated the central role of digitalization for many industries where our Ayala group is represented and well positioned: eCommerce with Ayala Malls and Zalora, last mile logistics with Entrego, ePayments with BPI and GCash, remote or distance learning with iPeople, and telemedicine and prescription fulfillment with AC Health.

AC Energy has set a bold goal to build 5GW of renewables by 2025 and become one of the largest listed renewables platforms in Southeast Asia. In 2020, AC Energy posted a net income of ₱6.2 billion,^● a decline from its year-ago level of ₱25 billion due to the absence of significant gains from the partial divestment of its thermal assets in 2019. AC Energy’s attributable output grew 38 percent to 4,847 gigawatt hours, with 41 percent of this output coming from renewable sources. AC Energy is transitioning to a low carbon portfolio and has committed to divest all its coal assets by 2030.

AC Energy continued its aggressive geographical expansion, and now currently operates in five markets—the Philippines, Vietnam, India, Indonesia, and Australia, where we recently started construction of a wind project. Equity earnings from international assets increased 68 percent to ₱2.5 billion, supported by full-year operations of solar assets in Vietnam.

AC Energy’s rapid expansion is producing a steady rise in earnings contribution from its various platforms. Net income contribution from its listed subsidiary, AC Energy Corporation or ACEN reached ₱2.8 billion, reversing a net loss in the previous year. This was lifted by higher contracted capacity and improved plant availability. ACEN now accounts for half of AC Energy group’s net income.

Meanwhile, in our other utility business, Manila Water’s focus has been to provide ample and consistent water supply to its concession area throughout the pandemic. The Manila Water group continued to deliver the necessary infrastructure towards the fulfillment of its service obligations, spending ₱12.1 billion in capital expenditure. Of this amount, 81 percent was channeled to the East Zone Concession to carry out various projects on wastewater expansion, network reliability, and water supply.

However, the shift in customer mix towards the residential segment with a lower tariff bracket, some softness in collection efficiency, and a one-time provision for probable losses in the East Zone Concession combined with lower contribution from domestic subsidiaries, weighed down Manila Water’s profitability. Its net income fell 18 percent to ₱4.5 billion during the year.

In February 2021, we announced the execution of an agreement with Trident Water of the Razon group for the latter’s acquisition of a significant stake in Manila Water. Once the transaction is completed, Trident Water will own a 33.2 percent economic stake and a 51 percent voting interest in Manila Water, while Ayala’s economic stake will decrease to 30.4 percent and our voting interest to 31.6 percent. We are excited about this partnership. We believe that leveraging the complementary skills of both groups will allow us to manage this regulated business better and will give us more opportunities to expand locally and internationally.

At AC Industrials, we see a recovery following a spate of geopolitical and industry-specific challenges. From a loss of ₱2.4 billion in 2019, AC Industrials narrowed its losses to ₱1.8 billion in 2020 despite manufacturing disruptions during the year. More encouragingly, AC Industrials posted a net profit in the fourth quarter after restoring plant operations to full capacity, improving factory efficiency, and optimizing margins from contract negotiations. With these adjustments, AC Industrials’ array of disruptive technology is poised to ride on emerging megatrends around autonomous vehicles, more electronic components in automobiles, and green energy.

We have also been looking for opportunities to unlock and monetize value. One such opportunity came by way of the listing of IMI’s subsidiary, VIA Optronics, a leading supplier of enhanced display solutions, on the New York Stock Exchange. VIA’s IPO resulted in proceeds of US$94 million, and a valuation that implied a 34 percent gain from our acquisition price.

We entered healthcare with AC Health five years ago, knowing that Ayala could use its resources to solve one of Philippine society’s critical pain points while creating value for shareholders. Little did we know then how soon and how scaled those solutions would need to be. This pandemic has dramatically heightened government, institutional and consumer focus on healthcare, and exposed an immense need for short-term solutions as well as opportunities for long-term systemic and structural disruption and innovation.

In 2020, our AC Health completed the integration of its family, multispecialty, and corporate clinics into one Healthway brand to become the largest network of clinics in the country. This, together with the addition of the Qualimed Health Network, the development of the country’s first specialty cancer hospital and the entry into telehealth with the Healthnow app in partnership with Globe significantly expands AC Health’s participation in the different parts of overall patient care.

Investors are increasingly choosing to invest in corporations that adhere to world-class standards of sustainability and Environmental, Social, and Governance. At Ayala, we have embraced these global standards and over the last few years, have defined and committed to a Sustainability Blueprint. We measure every Ayala business unit against clear goals that are anchored on the UN Sustainable Development Goals.

As a group of companies, the actions that we took last year would not have been possible without the fiscal prudence that Ayala has cultivated throughout the years.

We entered this pandemic with a strong balance sheet, and we navigated this unpredictably long, deep, and complicated crisis with the strength of our balance sheet intact.

This strength has allowed Ayala to sustain operations and service debt and to provide generous support to our varied stakeholders at a time of crisis. It also gives us the continued capacity and flexibility to pursue potential opportunities.

For 2020, we paid ₱6.92 per share in dividends to our common shareholders. Our parent net debt-to-equity ratio remains comfortable at 80 percent and our loan to value ratio, or the ratio of our parent net debt to the total value of our assets, at a healthy 9.2 percent.

Our balance sheet, strong as it is, comes only after and because of, our strongest, most valued asset —our team of over 60,000 employees. We are incredibly proud of and grateful to them. They have been focused, dedicated, creative, and resourceful to find solutions that helped restore order to chaos, adapted to changing customer needs, and unlocked short and long-term value.

The depth of talent and synergy between our varied teams gives us confidence about the senior leadership transitions we announced last December. Aside from Jaime and I who are transitioning in our roles, three other senior leaders will take on new responsibilities.

Ayala’s CFO, TG Limcaoco, will take the helm at BPI as President and CEO upon the retirement of his predecessor, Bong Consing. Bong will continue to be engaged with and invaluable to the group as a member of the Board of Directors of BPI, Ayala, and AC Energy Corporation.

TG Limcaoco has been with the Ayala group for over 20 years, holding various positions at the parent and at the bank. He is intimately familiar with BPI, having spent many years in the bank with a deep experience in retail and investment banking. We are grateful to TG for how he transformed the CFO role at Ayala by bringing a holistic approach to our investment, capital allocation, and overall strategic and financial decision-making process. He has driven the Ayala group’s efforts to ensure our alignment with the evolving global standards for ESG, resulting in the creation of measurable targets and tangible results. The thinking and discipline he instituted around financial management, portfolio strategy, and business development have positioned us well in surviving the crisis and preparing for a post-pandemic economic recovery.

Albert De Larrazabal will succeed TG as the CFO. Albert has been with the Ayala group for 15 years, having held various senior positions at Globe as its CFO and most recently, as its Chief Commercial Officer, overseeing all customer facing units and revenue growth across all products and services groups. Albert brings a wealth of expertise in finance, treasury, risk, and commercial operations at the holding company level. Prior to joining Globe, he was CFO at another major Philippine corporation, having performed various finance functions in his 18- year stint in that company.

We have appointed Eric Francia, current President and CEO of AC Energy, to concurrently chair Ayala’s Investment Committee. Joining Eric in this committee are Albert de Larrazabal, our incoming CFO, and Paolo Borromeo, head of our Strategic Development unit. The committee’s mandate is to drive our portfolio management agenda and provide recommendations for an investment portfolio that delivers sustainable value and impact.

Over the past 10 years, Eric successfully led AC Energy from a standing start to become one of the fastest growing renewable energy platforms in the region and one of Ayala’s core businesses. Eric’s successful experience in business building, realizing value, and reinvesting for growth will be valuable for this new and expanded role.

“We will place greater emphasis on our portfolio strategy with a sharper focus on optimizing returns from existing businesses, a highly disciplined approach on capital deployment, and explore opportunities for value realization initiatives to fund future investments.”

As the incoming President and CEO, I am excited about these transitions and the opportunities ahead of us. I aim to build on the firm foundation that Jaime established, guided by our core strategy of maintaining leadership and relevance in the markets we serve. To support this, we will place greater emphasis on our portfolio strategy with a sharper focus on optimizing returns from existing businesses, a highly disciplined approach on capital deployment, and explore opportunities for value realization initiatives to fund future investments.

“We will fully support the continued expansion of our core value drivers Ayala Land, BPI, Globe, and AC Energy and scale up our emerging businesses in healthcare and logistics. We will be more proactive in recycling capital across the group to support our growth strategy and strengthen our balance sheet further.”

We will fully support the continued expansion of our core value drivers Ayala Land, BPI, Globe, and AC Energy and scale up our emerging businesses in healthcare and logistics. In addition, we will be more proactive in recycling capital across the group to support our growth strategy and strengthen our balance sheet further. We have seen recent examples of these initiatives, including the IPO of Ayala Land’s REIT platform, the entry of GIC as a strategic partner at ACEN, the upcoming entry of the Razon group in Manila Water, as well as the IPO of IMI’s VIA Optronics at the NYSE as I mentioned earlier.

We are cautiously optimistic about the business environment and will continue to prepare for a post-pandemic economic recovery. We are hoping for a successful implementation of the country’s vaccination program that would pave the way for a revival of the economy. We expect our business operations to return to the 2019 levels by 2023. With a healthy balance sheet and a set of diversified and strong franchises in our portfolio, we are confident that we will come out of this difficult period stronger.

I will continue to work closely with Jaime, our exceptional management team, and our Board of Directors. We thank all our stakeholders for the trust and support despite all the challenges that we have faced. Thank you for continuing to take this journey with us.

FERNANDO ZOBEL DE AYALA
President & COO