1. business and industrial
2. company
3. annual report

COVER SHEET
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Foreign
SEC No. 34218
File No. _____
AYALA CORPORATION
(Company’s Full Name)
Tower One, Ayala Triangle
Ayala Avenue, Makati City
(Company’s Address)
908-30-00
(Telephone Number)
March 31, 2012
(Quarter Ending)
(Month & Day)
SEC Form 17- Q Quarterly Report
(Form Type)
SECURITIES AND EXCHANGE COMMISSION
SEC FORM 17-Q
QUARTERLY REPORT PURSUANT TO SECTION 17 OF THE SECURITIES REGULATION
CODE (SRC) AND SRC RULE 17(2)(b) THEREUNDER
1.
For the semi-annual period ended: Marh 31, 2012
2.
SEC Identification No.: 34218
3.
BIR Tax Identification No. 000-153-610-000
4.
Exact name of the registrant as specified in its charter: AYALA CORPORATION
5.
Province, country or other jurisdiction of incorporation or organization: Makati City,
Philippines
6.
Industry Classification Code: _______ (SEC Use Only)
7.
Address of principal office: 34th Floor, Tower One, Ayala Triangle, Ayala Avenue, Makati
City
Postal Code: 1226
8.
Registrant’s telephone number: (632) 908 3000
9.
Former name, former address, former fiscal year: Not applicable
10.
Securities registered pursuant to Sections 8 and 12 of the Code, or Sections 4 and 8 of the
RSA:
Title of each class
Preferred A
Voting Preferred
Common*
*Net of 15,384,975 treasury shares
Number of shares outstanding
12,000,000
200,000,00
577,257,114
Amount of debt outstanding as of March 31, 2012: P96.3 billion
11.
Are any of these securities listed on the Philippine Stock Exchange? Yes [x] No [ ]
A total of 592,642,089Common shares, 12,000,000 Preferred “A” shares shares are listed
with the Philippine Stock Exchange as of March 31, 2012.
12.
Check whether the registrant:
(a) has filed all reports required to be filed by Section 17 of the Code and SRC Rule 17
thereunder or Sections 11 of the RSA and RSA Rule 11 (a)-1 thereunder, and Sections 26
and 141 of the Corporation Code of the Philippines, during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports): Yes [x] No [ ]
(b) has been subject to such filing requirements for the past 90 days: Yes [x] No [ ]
TABLE OF CONTENTS
PART – I FINANCIAL INFORMATION
Item 1
Item 2
Financial Statements
Consolidated Balance Sheets as of March 31, 2012
and December 31, 2011
1
Unaudited Consolidated Statements of Income For the
Periods Ended March 31, 2012 and 2011
2
Unaudited Consolidated Statements of Comprehensive Income
For the Periods Ended March 31, 2012 and 2011
3
Unaudited Consolidated Statements of Changes in Stockholders’
Equity For the Periods Ended March 31, 2012 and 2011
4
Unaudited Consolidated Statements of Cash Flow for the Periods
Ended March 31, 2012 and 2011
5
Notes to Consolidated Financial Statements
6
Management’s Discussion and Analysis of Financial
Condition and Results of Operations
23
PART II – OTHER INFORMATION
SIGNATURES
29
PART I - FINANCIAL INFORMATION
Item I - Financial Statements
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in Thousands)
March 31, 2012
December 31, 2011
(Unaudited)
(Audited)
ASSETS
Current Assets
Cash and cash equivalents (Note 4)
Short-term investments (Note 5)
47,067,971
53,577,252
868,893
1,613,058
Accounts and notes receivable - net (Note 6)
34,740,355
31,319,696
Inventories (Note 8)
26,419,041
27,765,842
Other current assets
12,785,104
9,288,682
121,881,363
123,564,531
Total Current Assets
Noncurrent Assets
Noncurrent accounts and notes receivable
8,520,284
8,251,363
Land and improvements
21,931,330
18,530,915
Investments in associates and jointly controlled entities - net (Note 9)
78,801,318
79,659,081
Investments in bonds and other securities (Note 7)
3,583,996
3,745,168
Investment properties - net
34,282,183
33,134,958
Property, plant and equipment - net
14,701,831
13,850,956
Service concession assets
67,256,340
66,247,192
Intangible assets - net
4,317,689
4,312,162
Deferred tax assets - net
3,098,358
3,080,584
Pension assets
97,943
189,287
3,552,540
3,060,399
Total Noncurrent Assets
240,143,810
234,062,065
Total Assets
362,025,173
357,626,596
50,636,636
51,013,700
8,143,544
6,665,841
882,217
483,265
Long-term debt (Note 11)
3,441,961
7,459,658
Service concession obligation
1,155,387
980,620
Other current liabilities (Note 12)
3,356,411
2,704,719
67,616,156
69,307,803
Other noncurrent assets
LIABILITIES AND EQUITY
Current Liabilities
Accounts payable and accrued expenses (Note 10)
Short-term debt (Note 11)
Income tax payable
Current portion of:
Total Current Liabilities
Noncurrent Liabilities
Long-term debt - net of current portion (Note 11)
92,888,547
92,592,368
Service concession obligation - net of current portion
6,767,547
6,916,998
Deferred tax liabilities
6,041,127
6,118,857
Pension liabilities
319,770
413,709
12,730,437
11,038,827
Total Noncurrent Liabilities
118,747,428
117,080,759
Total Liabilities
186,363,584
186,388,562
43,145,402
42,832,819
Other noncurrent liabilities (Note 12)
Equity
Equity attributable to equity holders of Ayala Corporation
Paid-up capital (Note 13)
Share-based payments
581,108
553,743
Retained earnings
79,368,817
75,885,783
Cumulative translation adjustments
(2,309,011)
(2,311,051)
1,017,442
1,725,394
Net unrealized gain on available-for-sale-financial assets
Parent Company preferred shares held by subsidiaries
Equity reserve
Treasury stock
Noncontrolling interests
(250,000)
1,023,504
(250,000)
1,016,259
(12,408,886)
(12,408,886)
110,168,377
107,044,062
65,493,212
64,193,972
Total Equity
175,661,589
171,238,034
Total Liabilities and Equity
362,025,173
357,626,596
1
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Amounts in Thousands)
Periods Ended March 31
2012
2011
INCOME
Sales and services
Equity in net earnings of associates and
jointly controlled entities
Interest Income
Investment and other income
COSTS AND EXPENSES
Costs of sales and services
General and administrative
Interest expense and other financing charges
Other charges
INCOME BEFORE INCOME TAX
PROVISION FOR INCOME TAX
NET INCOME
ATTRIBUTABLE TO:
Equity holders of Ayala Corporation
Noncontrolling interests
EARNINGS PER SHARE (Note 14)
Basic
Diluted
25,426,090
21,935,602
3,071,332
443,904
197,177
29,138,502
1,848,983
586,451
611,214
24,982,250
18,494,123
2,626,502
1,415,504
118,921
22,655,051
6,483,451
1,082,410
5,401,041
16,245,297
2,425,924
1,361,670
143,179
20,176,071
4,806,179
904,571
3,901,609
3,483,034
1,918,007
5,401,041
2,450,495
1,451,114
3,901,609
5.81
5.77
3.74
3.71
2
AYALA CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (Unaudited)
For the Periods Ended March 31, 2012 and 2011
(Amounts in thousands)
March 2012
NET INCOME FOR THE PERIOD
Other comprehensive income:
Exchange differences arising from translations of foreign investments
Changes in fair value of available-for-sale invesment in equity securities
Share of other comprehensive income of associates:
Exchange differences arising from translations of foreign investments
Changes in fair value of available-for-sale invesment in equity securities
Other comprehensive income for the period
TOTAL COMPREHENSIVE INCOME FOR THE PERIOD
Total comprehensive income attributable to:
Equity holders of Ayala Corporation
Noncontrolling interests
5,401,041
March 2011
3,901,609
(142,050)
216,188
(102,596)
34,001
13,138
(796,678)
(709,401)
76,581
(739,962)
(731,976)
4,691,639
3,169,633
2,777,122
1,914,518
4,691,639
1,747,362
1,422,271
3,169,633
3
AYALA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
As of March 31, 2012 and 2011
(Amounts in thousands)
Paid-up
Capital
ShareCumulative
based
Translation
Payments Adjusments
Retained
Earnings
(2,311,051) 75,885,783
3,483,034
2,040
2,040
3,483,034
Net Unrealized
gain on
Available for
Sale-Financial
Assets
As at January 1, 2012 as previously reported
Net Income
Other comprehensive income
Total comprehensive income
Issuance of shares
Cost of share-based payments
Acquisition of treasury stocks
Changes in non-controlling interests
Effect of change in ownership interests
in subsidiaries
Balances of March 31, 2012
42,832,819
553,743
1,725,394
312,583
-
43,145,402
581,108
(2,309,011) 79,368,817
1,017,442
As at January 1, 2011 as previously reported
Net Income
Other comprehensive income
Total comprehensive income
Issuance of shares
Cost of share-based payments of Parent
Cost of share-based payments of investees
Acquisition of treasury stocks
Increase in non-controlling interests
Effect of change in ownership interests
in subsidiaries
Balances of March 31, 2011
37,855,466
38,688
1,243,055
(1,763,471) 74,011,144
2,450,495
1,402
1,402
2,450,495
1,128,734
(704,535)
(704,535)
(707,952)
(707,952)
Parent
Company
Preferred
Shares Held by
Subsidiaries
Equity
Reserve
1,016,259
-
Noncontrolling
Interests
Treasury
Stock
(250,000) (12,408,886)
-
-
27,365
64,193,972
1,918,007
(3,489)
1,914,518
7,517
(622,794)
-
7,246
1,023,504
148,302
-
(250,000) (12,408,886)
65,493,212
(250,000)
-
59,244,915
1,451,114
(28,843)
1,422,271
(4,832,262)
-
23,984
(2,667)
(311,022)
(548,056)
37,894,154
1,264,372
(1,762,069) 76,461,639
424,199
28,907
177,209
(250,000)
(5,143,284)
60,119,130
4
Total Equity
171,238,034
5,401,041
(709,401)
4,691,639
312,583
34,882
(622,794)
7,246
175,661,590
166,785,883
3,901,609
(731,976)
3,169,633
38,688
23,984
(2,667)
(311,022)
(548,056)
28,907
169,185,350
AYALA CORPORATION AND SUBSIDIARIES
UNAUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Three Months Ended March 31, 2012 and 2011
(In Thousand Pesos)
March 31, 2012
CASH FLOWS FROM OPERATING ACTIVITIES
Income before income tax
Adjustments for:
Interest and other financing charges
Depreciation and amortization
Cost of share-based payments
Equity in net earnings of associates and joint ventures
Other investment income
Gain on sale of assets
Interest income
Operating income before changes in working capital
Decrease (increase) in:
Accounts and notes receivable
Inventories
Other current assets
Increase (decrease) in:
Accounts payable and accrued expenses
Net pension liabilities
Net Service concession obligation
Other current liabilities
Cash generated from operations
Interest received
Interest paid
Income tax paid
Total cash provided by (used in) operating activities
March 31, 2011
6,483,451
4,806,180
1,415,504
1,397,310
27,365
(3,071,332)
15,126
(6,478)
(443,904)
5,817,042
1,361,670
1,162,482
21,318
(1,848,983)
(131,911)
(433,142)
(586,450)
4,351,165
(3,678,818)
1,346,802
(3,496,421)
(1,012,513)
(987,234)
(4,321,520)
(7,586,692)
(2,595)
(1,187,512)
651,691
(8,136,503)
433,142
7,081,838
(726,105)
(1,347,629)
256,667
17,665
(1,367,758)
(293,043)
(3,356,572)
640,509
(1,415,127)
(648,667)
(4,779,857)
1,746,349
35,206
744,165
1,271,902
(156,339)
2,299,433
(6,086,767)
(2,141,482)
3,588,331
(867,881)
(2,982,079)
(3,044,322)
(545,439)
1,834,465
434,973
2,094,672
4,788,689
(0)
312,583
(7,073,220)
(1,956,873)
(0)
7,246
13,886,417
7,628
31,061
(647,246)
(1,320,691)
(311,022)
28,906
1,691,610
50,393
(2,179,574)
1,200,368
(497,913)
12,377,508
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALEN
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR
(6,509,281)
53,577,252
9,692,323
53,142,777
CASH AND CASH EQUIVALENTS AT END OF PERIOD
47,067,971
62,835,100
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from:
Sale of investments
Disposal of property, plant and equipment
Maturities of (additions to) short-term investments
Additions to:
Investments
Property, plant and equipment
Dividends received from associates and jointly controlled entities
Decrease (increase) in other noncurrent assets
Net cash provided by (used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from:
Short-term and long-term debt
Issuance of common shares
Collections of (additions to) subscription receivable
Payment of short-term and long-term debt
Dividends paid
Acquisition of treasury shares
Dilution reserves
Increase (decrease) in:
Other noncurrent liabilities
Minority interest in consolidated subsidiaries
Net cash provided by (used in) financing activities
5
AYALA CORPORATION AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Financial Statement Preparation
The accompanying unaudited condensed consolidated financial statements have been prepared
in accordance with Philippine Accounting Standard (PAS) 34, Interim Financial Reporting.
Accordingly, the unaudited condensed consolidated financial statements do not include all of the
information and disclosures required in the December 31, 2011 annual audited consolidated
financial statements, and should be read in conjunction with the Group’s annual consolidated
financial statements as of and for the year ended December 31, 2011.
The preparation of the financial statements in compliance with Philippine Financial Reporting
Standards (PFRS) requires management to make estimates and assumptions that affect the
amounts reported in the financial statements and accompanying notes. The estimates and
assumptions used in the accompanying unaudited condensed consolidated financial statements
are based upon management’s evaluation of relevant facts and circumstances as of the date of
the unaudited condensed consolidated financial statements. Actual results could differ from such
estimates.
The unaudited condensed consolidated financial statements include the accounts of Ayala
Corporation (herein referred to as “the Company) and its subsidiaries collectively referred to as
“Group.”
The unaudited condensed consolidated financial statements are presented in Philippine peso
(Php), and all values are rounded to the nearest thousands except when otherwise indicated.
On 11 May 2012, the Audit Committee approved and authorized the release of the accompanying
unaudited condensed financial statements of Ayala Corporation and Subsidiaries.
2. Significant Accounting Policies
Changes in Accounting Policies
The accounting policies adopted are consistent with those of the previous financial year except
for the adoption of the new and amended Philippine Financial Reporting Standards (PFRS) and
the Philippine Interpretations of International Financial Reporting Interpretation Committee (IFRIC)
which became effective beginning January 1, 2011. The Group will also adopt several amended
and revised standards and interpretations in 2012.
Effective 2012
PAS 12 (Amendment), Income Taxes - Deferred Tax: Recovery of Underlying Assets
This Amendment is effective for annual periods beginning on or after January 1, 2012. It clarified
the determination of deferred tax on investment property measured at fair value. The Amendment
introduces a rebuttable presumption that deferred tax on investment property measured using the
fair value model in PAS 40, Investment Property, should be determined on the basis that its
carrying amount will be recovered through sale. Furthermore, it introduces the requirement that
deferred tax on non-depreciable assets that are measured using the revaluation model in PAS
16, Property, Plant and Equipment, always be measured on a sale basis of the asset.
PFRS 7 (Amendment), Financial Instruments: Disclosures - Enhanced Derecognition Disclosure
Requirements
This Amendment is effective for annual periods beginning on or after July 1, 2011. The
Amendment requires additional disclosure about financial assets that have been transferred but
not derecognized to enable the user of the entity’s financial statements to understand the
relationship with those assets that have not been derecognized and their associated liabilities. In
addition, the Amendment requires disclosures about continuing involvement in derecognized
assets to enable the user to evaluate the nature of, and risks associated with, the entity’s
continuing involvement in those derecognized assets.
6
Future Changes in Accounting Policies
The Group will adopt the following new and amended Standards and Philippine Interpretations
enumerated below when these become effective. Except as otherwise indicated, the Group
does not expect the adoption of these new and amended PFRS and Philippine Interpretations to
have significant impact on the consolidated financial statements.
Effective 2013
PAS 1 (Amendment), Financial Statement Presentation, Presentation of Items of Other
Comprehensive Income
This Amendment is effective for annual periods beginning on or after July 1, 2012. It changed
the grouping of items presented in OCI. Items that could be reclassified (or‘recycled’) to profit or
loss at a future point in time (for example, upon derecognition or settlement) would be presented
separately from items that will never be reclassified. The amendment affects presentation only
and will have no impact on the Group’s financial position or performance.
PAS 19 (Amendments), Employee Benefits
The Amendments to PAS 19 range from fundamental changes such as removing the corridor
mechanism and the concept of expected returns on plan assets to simple clarifications and rewording. The Group is currently assessing the impact of the amendment to PAS 19.
PAS 27, Separate Financial Statements (as revised in 2011)
As a consequence of the new PFRS 10, Consolidated Financial Statements and PFRS 12,
Disclosure of Interests in Other Entities, what remains of PAS 27 is limited to accounting for
subsidiaries, jointly controlled entities, and associates in separate financial statements.
PAS 28, Investments in Associates and Joint Ventures (as revised in 2011)
As a consequence of the new PFRS 11, Joint Arrangements and PFRS 12, PAS 28 has been
renamed PAS 28, Investments in Associates and Joint Ventures, and describes the application
of the equity method to investments in joint ventures in addition to associates.
PFRS 7 (Amendments), Financial instruments: Disclosures - Offsetting Financial Assets and
Financial Liabilities
These Amendments require an entity to disclose information about rights of set-off and related
arrangements (such as collateral agreements). The new disclosures are required for all
recognized financial instruments that are set off in accordance with PAS 32. These disclosures
also apply to recognized financial instruments that are subject to an enforceable master netting
arrangement or ‘similar agreement’, irrespective of whether they are set-off in accordance with
PAS 32. The Amendments require entities to disclose, in a tabular format unless another format
is more appropriate, the following minimum quantitative information.
This is presented separately for financial assets and financial liabilities recognized at the end of
the reporting period:
a) The gross amounts of those recognized financial assets and recognized financial liabilities;
b) The amounts that are set off in accordance with the criteria in PAS 32 when determining the
net amounts presented in the statement of financial position;
c) The net amounts presented in the statement of financial position;
d) The amounts subject to an enforceable master netting arrangement or similar agreement
that are not otherwise included in (b) above, including:
i. Amounts related to recognized financial instruments that do not meet some or all of the
offsetting criteria in PAS 32; and
ii. Amounts related to financial collateral (including cash collateral); and
e) The net amount after deducting the amounts in (d) from the amounts in (c) above.
The Amendments are to be applied retrospectively. The Amendments affect disclosures only
and has no impact on the Group’s financial position or performance.
7
PFRS 10, Consolidated Financial Statements
PFRS 10 replaces the portion of PAS 27, Consolidated and Separate Financial Statements that
addresses the accounting for consolidated financial statements. It also includes the issues
raised in SIC-12, Consolidation - Special Purpose Entities. PFRS 10 establishes a single control
model that applies to all entities including special purpose entities. The changes introduced by
PFRS 10 will require management to exercise significant judgment to determine which entities
are controlled, and therefore, are required to be consolidated by a parent, compared with the
requirements that were in PAS 27. The Group is currently assessing the full impact that this
Standard will have on the Group’s financial position and performance.
PFRS 11, Joint Arrangements
PFRS 11 replaces PAS 31, Interests in Joint Ventures and SIC-13, Jointly-controlled Entities Non-monetary Contributions by Venturers. PFRS 11 removes the option to account for jointly
controlled entities (JCEs) using proportionate consolidation. Instead, JCEs that meet the
definition of a joint venture must be accounted for using the equity method.
PFRS 12, Disclosure of Interests with Other Entities
PFRS 12 includes all of the disclosures that were previously in PAS 27 related to consolidated
financial statements, as well as all of the disclosures that were previously included in PAS 31
and PAS 28. These disclosures relate to an entity’s interests in subsidiaries, joint arrangements,
associates and structured entities. A number of new disclosures are also required.
PFRS 13, Fair Value Measurement
PFRS 13 establishes a single source of guidance under PFRS for all fair value measurements.
PFRS 13 does not change when an entity is required to use fair value, but rather provides
guidance on how to measure fair value under PFRS when fair value is required or permitted.
The Group is currently assessing the impact that this standard will have on the Group’s financial
position and performance.
Effective 2014
PAS 32 (Amendments), Financial Instruments: Presentation - Offsetting Financial Assets and
Financial Liabilities
These Amendments are to be retrospectively applied for annual periods beginning on or after
January 1, 2014. These amendments to PAS 32 clarify the meaning of “currently has a legally
enforceable right to set-off” and also clarify the application of the PAS 32 offsetting criteria to
settlement systems (such as central clearing house systems) which apply gross settlement
mechanisms that are not simultaneous. The Group is currently assessing the impact of the
amendments to PAS 32.
Effective 2015
PFRS 9, Financial Instruments: Classification and Measurement
PFRS 9, as issued in 2010, reflects the first phase of the work on the replacement of PAS 39
and applies to classification and measurement of financial assets and financial liabilities as
defined in PAS 39. In subsequent phases, hedge accounting and impairment of financial assets
will be addressed with the completion of this project expected on the first half of 2012. The
adoption of the first phase of PFRS 9 will have an effect on the classification and measurement
of the Group’s financial assets, but will potentially have no impact on classification and
measurements of financial liabilities. The Group will quantify the effect in conjunction with the
other phases, when issued, to present a more comprehensive picture.
Philippine Interpretation IFRIC 15, Agreements for the Construction of Real Estate
This Interpretation covers accounting for revenue and associated expenses by entities that
undertake the construction of real estate directly or through subcontractors. The Interpretation
requires that revenue on construction of real estate be recognized only upon completion, except
when such contract qualifies as construction contract to be accounted for under PAS 11,
Construction Contracts, or involves rendering of services in which case revenue is recognized
based on stage of completion. Contracts involving provision of services with the construction
materials and where the risks and reward of ownership are transferred to the buyer on a
continuous basis will also be accounted for based on stage of completion. The Securities and
8
Exchange Commission (SEC) and the Financial Reporting Standards Council (FRSC) have
deferred the effectivity of this interpretation until the final Revenue standard is issued by
International Accounting Standards Board (IASB) and an evaluation of the requirements of the
final Revenue standard against the practices of the Philippine real estate industry is completed.
The adoption of this Philippine Interpretation may significantly affect the determination of the
revenue from real estate sales and the corresponding costs, and the related trade receivables,
deferred tax liabilities and retained earnings accounts. The Group is in the process of
quantifying the adoption of this Interpretation.
3. Principles of Consolidation
The unaudited condensed consolidated financial statements included the financial statements of
the Company and the following wholly and majority owned domestic and foreign subsidiaries:
Effective Percentages of Ownership
March 2012 December 2011
Real Estate and Hotels:
Ayala Land, Inc. (ALI) and subsidiaries *
Ayala Hotels, Inc. (AHI) and subsidiaries
Technopark Land, Inc.
Electronics, Information Technology and Business
Process Outsourcing Services:
Azalea Technology Investments, Inc. and
subsidiaries (Azalea Technology)
Azalea International Venture Partners, Limited
(AIVPL) (British Virgin Islands Company)
Integrated Microelectronics, Inc. (IMI) and
subsidiaries**
LiveIT Solutions, Inc.
Automotive:
Ayala Automotive Holdings Corporation (AAHC)
and subsidiaries
Water Utilities:
Manila Water Company, Inc. (MWCI) and
subsidiaries
Philwater Holdings Company, Inc.
Water Capital Works, Inc.
International and Others:
AC International Finance Limited (ACIFL) and
subsidiary (Cayman Island Company)
Ayala Aviation Corporation
AG Counselors Corporation
AYC Finance Ltd. (AYC) (Cayman Island Company)
Bestfull Holdings Limited (incorporated in HongKong)
and subsidiaries (BHL Group)
Darong Agricultural and Development Corporation
Michigan Holdings, Inc. and subsidiary
AC Energy Holdings, Inc.
MPM Noodles Corporation
Purefoods International Ltd.
53.2
76.6
78.8
53.2
76.6
78.8
100.0
100.0
100.0
100.0
67.4
100.0
67.4
100.0
100.0
100.0
43
100.0
100.0
43.1
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
100.0
*The Company owns 75.17% of the total common and preferred shares of ALI.
** a subsidiary of ACIFL through AYC Holdings, Ltd.
9
On January 4, 2012, MWC received a letter from JMWD stating that JMWD requires infusion
of additional funding of INR5 million for meeting its existing liabilities. It was agreed that the
further funding requirement shall be met through infusion of additional equity of Php 2.5
million each by MWC and JITF Water. On January 6 and 18, 2012, MWC infused additional
equity to JMWD amounting to P2.04 million and P0.98 million, respectively.
On February 3, 2012, the Provincial Government of Cebu has awarded to Manila
Consortium (composed of MWC, Vicsal Development Corporation and Stateland, Inc.) the
development, operation, and maintenance of a bulk water system (“Project”) in the Province
of Cebu.
With the issuance of the award, the Provincial Government of Cebu and Manila Water
Consortium shall negotiate and execute a joint investment agreement with 49% - 51% equity
participation, respectively. The Project shall supply 35 million liters per day of potable bulk
water sourced from the Luyang River in the Municipality of Carmen. The Project will partly
provide for the water demands in the northern and central portions of the province.
The Project is not more than 10% of the total assets of the MWC.
On February 20, 2012, the ALI’s BOD approved the following restructuring exercise in order
to comply with the regulatory requirement on Filipino-ownership following the Supreme
Court’s ruling that nonvoting shares do not count as equity when computing for a company’s
Filipino-ownership level:
i.
ii.
iii.
4.
Redemption and retirement of the 13.0 billion outstanding preferred shares.
Reclassification of the 1.97 billion unissued preferred shares to voting preferred
shares through an amendment of Article Seventh of the Articles of Incorporation.
Increase in unauthorized capital stock by P
= 1.3 billion through additional voting
preferred shares and stock rights offer of 13.0 billion voting preferred share from the
increase in the authorized capital stock.
Cash and Cash Equivalents (in Thousand Pesos):
Cash on hand and in banks
Cash equivalents
March 2012
December 2011
14,076,038
8,784,740
32,991,933
44,792,512
47,067,971
53,577,252
Cash in bank earns interest at the prevailing bank deposit rates. Cash equivalents are shortterm investments that are made for varying periods of up to three months depending on the
immediate cash requirements of the Group and earn interest at the respective short-term
investment rates.
5.
Short-term Investments (in Thousand Pesos):
Money market placements
March 2012
December 2011
868,893
1,613,058
Money market placements are short-term investments made for varying periods of more than
three months and up to six months and earn interest at the respective short-term investment
rates.
10
6.
Accounts and Notes Receivable (in Thousand Pesos):
March 2012
December 2011
21,541,976
18,921,685
Electronics manufacturing
5,379,556
5,628,560
Water utilities
1,108,650
1,086,389
Automotive
827,932
534,975
Information technology & business process (BPO)
115,894
117,305
International and others
180,557
2,493
Related parties
5,481,310
3,439,314
Advances to contractors and suppliers
4,005,007
4,493,325
200,000
200,000
5,643,602
6,289,050
44,484,484
40,713,096
1,223,845
1,142,037
43,260,639
39,571,059
Trade:
Real estate
Investment in bonds classified as loans and receivables
Advances and others
Less allowance for doubtful accounts
Less noncurrent portion
7.
8,251,363
31,319,696
Investments in Bonds and Other Securities (in Thousand Pesos):
Quoted/unquoted equity/debt investments
8.
8,520,284
34,740,355
March 2012
3,583,996
December 2011
3,745,168
March 2012
December 2011
Inventories (in Thousand Pesos):
Real estate inventories:
Subdivision for sale
Condominium and commercial units for sale
Materials, supplies and others - at NRV (cost of
P2,842,735 in 2012 and P3,046,208 in 2011)
Vehicles - at cost
Work in process - at NRV (cost of P479,495 in 2012
and P363,037 in 2011)
Finished Goods - at NRV (cost of P503,724 in 2012
and P465,936 in 2011)
Parts and accessories - at NRV (cost of P231,255 in
2012 and P224,255 in 2011)
10,067,352
11,966,396
10,148,211
13,316,731
2,701,613
556,951
2,863,871
472,230
477,552
359,679
502,370
464,659
146,806
26,419,040
140,460
27,765,841
9. Investments in Associates and Jointly Controlled Entities
Investments in associates and joint ventures are accounted for under the equity method of
accounting. Major associates and joint ventures and the related percentages of ownership as of
March 31, 2012 are as follows:
11
Percentage of Ownership
March 2012
Carrying Amounts
December 2011
March 2012
December 2011
(In Millions)
Domestic:
Bank of the Philippine Islands and Subsidiaries (BPI)
Globe Telecom, Inc. and Subsidiaries (Globe) *
Ayala DBS Holdings, Inc. (ADHI) *
Emerging City Holdings, Inc. (ECHI) *
Cebu Holdings, Inc. and Subsidiaries (CHI)
North Triangle Depot Commercial Corporation
Berkshire Holdings, Inc. (BHI) *
South Luzon Thermal Energy Corp. (SLTEC)*
Bonifacio Land Corporation (BLC)
Asiacom Philippines, Inc. (Asiacom) *
Alabang Commercial Corporation (ACC) *
Northwind Power Development Corp.*
BG West Properties, Inc. (BGW)
BG South Properties, Inc. (BGS)
Foreign:
Stream Global Services, Inc. (Stream)
Integreon, Inc. (Integreon) *
Arch Asian Partners L.P.
Thu Duc Water B.O.O. Corporation (TDW)
Tianjin Eco-City Ayala Land Development Co., Ltd.*
Others
23.9
30.5
45.5
50.0
47.0
49.3
50.0
50.0
10.0
60.0
50.0
50.0
50.0
50.0
23.9
30.5
45.5
50.0
47.0
49.3
50.0
50.0
10.1
60.0
50.0
50.0
50.0
50.0
25.8
56.4
23.0
49.0
40.0
Various
25.8
56.4
23.0
49.0
40.0
Various
P
26,237 P
16,904
10,761
3,770
2,216
1,379
1,616
1,627
1,247
1,016
656
476
248
197
26,573
17,353
10,743
3,682
2,265
1,336
1,578
1,489
1,161
994
617
458
247
195
2,890
1,343
2,449
1,816
718
1,235
78,801
2,978
1,515
2,403
1,788
729
1,555
79,659
* Jointly controlled entities.
12
Below is BPI’s balance sheet information (in Million Pesos):
March
2012
Unaudited
December
2011
Audited
Total Resources
807,717
842,616
Total Liabilities
Capital Funds for Equity Holders
Noncontrolling interest
713,638
92,639
1,440
752,086
89,152
1,378
Total Liabilities and Capital Funds
807,717
842,616
Below is BPI’s income statement information (in Million Pesos Except EPS Figures):
March
2012
Unaudited
December
2011
Audited
Interest income
Other Income
Total revenues
9,814
6,804
16,619
38,689
15,892
54,581
Operating expenses
Interest expense
Impairment losses
Provision for income tax
Total Expenses
6,215
3,007
970
593
10,785
23,465
12,823
2,150
3,130
41,568
Net income for the period
5,834
13,013
5,788
46
5,834
12,822
191
13,013
1.62
3.61
Attributable to:
Equity holders of BPI
Noncontrolling interest
EPS:
Based on 3,556M common shares as of
March 31, 2012 and 3,556M common shares
as of December 31, 2011
13
Below is Globe’s balance sheet information (in Million Pesos):
March
2012
Unaudited
December
2011
Audited
Total Current Assets
Non-current Assets
26,067
106,514
23,564
107,275
Total Assets
132,581
130,839
35,821
49,864
46,895
38,987
43,424
48,428
132,581
130,839
Current Liabilities
Non-current Liabilities
Stockholders' Equity
Total Liabilities & Stockholders' Equity
Below is Globe’s income statement information (in Million Pesos Except EPS Figures):
March
2012
Unaudited
December
2011
Audited
Net Operating Revenues
Other Income
Total Revenues
21,456
288
21,744
72,437
319
72,756
Costs and Expenses
Provision for Income Tax
Total Expenses
17,956
1,087
19,043
58,659
4,265
62,924
2,701
9,832
Net Income
EPS:
Basic
Diluted
20.34
20.27
74.02
73.77
As of March 31, 2012
Basic based on 132,390K common shares
Diluted based on 133,237K common shares
As of December 31, 2011
Basic based on 132,349K common shares
Diluted based on 133,271K common shares
14
Below is Stream’s balance sheet information (in Million Dollars and Pesos):
March 2012
Unaudited
In US $
In Php
December 2011
Audited
In US $
In Php
Total Current Assets
Total Non-current Assets
208
391
8,908
16,766
218
400
9,573
17,521
Total Assets
598
25,675
618
27,094
Current Liabilities
Non-current Liabilities
Equity Holders
119
261
218
5,119
11,192
9,364
122
283
213
5,345
12,392
9,358
Total Liabilities & Stockholders' Equity
598
25,675
618
27,094
Below is Stream’s income statement information (in Million Dollars and Pesos Except EPS
Figures):
March 2012
Unaudited
In US $
In Php
December 2011
Audited
In US $
In Php
Total Revenues
216
9,243
847
36,675
Costs and expenses
Provision for income tax
216
1
217
9,243
28
9,271
832
39
871
36,020
1,679
37,699
Net Income
EPS:
Basic
Diluted
(1)
(28)
(24)
(1,024)
(0.01)
(0.01)
(0.43)
(4.43)
(0.30)
(0.30)
(13.15)
(13.15)
Basic and diluted based on 75,955K
common shares as of March 31, 2012
and 78,493K common shares as of
December 31, 2011
15
10.
Accounts Payable and Accrued Expenses (in Thousand Pesos):
Accounts payable
Accrued expenses
Dividends payable
Accrued personnel costs
Interest payable
Taxes payable
Retention payable
March 2012
33,279,563
13,941,992
503,473
803,664
887,116
145,289
1,075,541
50,636,636
December 2011
30,659,414
12,794,711
1,831,318
814,432
1,139,681
2,599,384
1,174,760
51,013,700
Accounts payable and accrued expenses are noninterest-bearing and are normally settled on
15-to-60-day terms. Other payables are noninterest-bearing and are normally settled within one
year.
11.
Short-term Debt and Long-term Debt (in Thousand Pesos):
March 2012
December 2011
Philippine Peso with various interest rates
2,808,310
3,318,500
Foreign Currency with various interest rates
5,335,234
3,347,341
8,143,544
6,665,841
Bank loans with various interest rates
6,465,205
6,464,991
Fixed Rate Corporate Notes (FXCNs)
Bonds, due 2017
5,361,603
9,320,169
9,915,628
9,914,149
Bonds, due 2021
9,907,155
9,907,987
Syndicated term loan
1,484,365
1,485,929
33,133,956
37,093,225
Foreign currency with various interest rates
20,256,839
20,191,382
Philippine Peso with various interest rates
14,540,841
14,419,831
Due 2012
351,080
325,390
Due 2013
4,386,045
4,327,900
Short-term debt:
Long-term debt:
Company:
Subsidiaries:
Loans fr banks & other financial institutions:
Bonds:
Due 2014
Floating Rate Corporate Notes (FRCNs)
FXCNs
Less current portion
237,205
173,715
1,000,000
1,000,000
22,424,543
22,520,583
63,196,553
62,958,801
96,330,509
100,052,026
3,441,961
7,459,658
92,888,547
92,592,368
16
12.
Other Current/Noncurrent Liabilities
Other Liabilities consists of deposits from commercial center tenants and sale of
condominium/subdivision lots and long-term retention payables and deferred credits. A
detailed breakdown is unavailable since the Company’s consolidation process is based only
on the various group companies’ financial statements and not on their trial balances.
Obtaining said details would involve an unreasonable effort and/or expense since the
accounts’ changes since the end of the most recent calendar year are not significant.
13.
Equity
Details of the Company's paid-up capital (in Thousand Pesos):
As of January 31, 2012
Issuance of shares
As of March 31, 2012
Preferred
Stock- A
1,200,000
1,200,000
As of January 31, 2011
Issuance of shares
As of March 31, 2011
1,200,000
1,200,000
14.
Preferred
Preferred
Stock- B
Stock-Voting
5,800,000
200,000
5,800,000
200,000
5,800,000
5,800,000
200,000
200,000
Common
Stock
Subscribed
29,655,833
216,209
29,655,833
216,209
24,784,980
5,693
24,790,673
231,114
1,935
233,049
Additional
Paid-in
Subscriptions Total Paid-up
Capital
Receivable
Capital
6,339,593
(578,816)
42,832,819
179,962
132,621
312,583
6,519,555
(446,195)
43,145,402
6,243,383
30,408
6,273,791
(604,011)
652
(603,359)
37,855,466
38,688
37,894,154
The following table presents information necessary to calculate EPS:
Three months ended March 31
2012
2011
(In thousands except EPS figures)
Net income applicable to common
Less Dividends on Preferred stocks
Net Income Applicable to Common
Less Dilutive effect of options issued by subsidiaries,
associates and jointly controlled entities
3,483,034
(113,200)
3,369,834
2,450,495
(270,338)
2,180,157
7,523
3,362,311
8,920
2,171,237
Weighted average number of common shares
Dilutive shares arising from stock options
Adjusted wieghted average number of common shares
for diluted EPS
Basic EPS
Diluted EPS
579,965
2,618
582,403
2,539
582,582
5.80
5.77
584,942
3.73
3.71
15. Segment Information
Business segment information is reported on the basis that is used internally for evaluating
segment performance and deciding how to allocate resources among operating segments.
Accordingly, the primary segment reporting format is by business segment.
For management purposes, the Group is organized into the following business units:
17
•
Real estate and hotels - planning and development of large-scale fully integrated residential
and commercial communities; development and sale of residential, leisure and commercial
lots and the development and leasing of retail and office space and land in these
communities; construction and sale of residential condominiums and office buildings;
development of industrial and business parks; development and sale of upper middleincome and affordable housing; strategic land bank management; hotel, cinema and theater
operations; and construction and property management.
•
Financial services and bancassurance - universal banking operations, including savings and
time deposits in local and foreign currencies; commercial, consumer, mortgage and
agribusiness loans; leasing; payment services, including card products, fund transfers,
international trade settlement and remittances from overseas workers; trust and investment
services including portfolio management, unit funds, trust administration and estate
planning; fully integrated bancassurance operations, including life, non-life, pre-need and
reinsurance services; internet banking; on-line stock trading; corporate finance and
consulting services; foreign exchange and securities dealing; and safety deposit facilities.
•
Telecommunications - provider of digital wireless communications services, wireline voice
communication services, consumer broadband services, other wireline communication
services, domestic and international long distance communication or carrier services and
mobile commerce services.
• Electronics - electronics manufacturing services provider for original equipment
manufacturers in the computing, communications, consumer, automotive, industrial and
medical electronics markets, service provider for test development and systems integration
and distribution of related products and services.
• Information technology and BPO services - venture capital for technology businesses and
emerging markets; provision of value-added content for wireless services, on-line businessto-business and business-to-consumer services; electronic commerce; technology
infrastructure hardware and software sales and technology services; and onshore and
offshore outsourcing services in the research, analytics, legal, electronic discovery,
document management, finance and accounting, IT support,
graphics, advertising
production, marketing and communications, human resources, sales, retention, technical
support and customer care areas.
• Water utilities - contractor to manage, operate, repair, decommission, and refurbish all fixed
and movable assets (except certain retained assets) required to provide water delivery
services and sewerage services in the East Zone Service Area.
• Automotive - manufacture and sale of passenger cars and commercial vehicles.
• International - investments in overseas property companies and projects.
• Others - power and infrastructure, air-charter services, agri-business and others.
Management monitors the operating results of its business units separately for the purpose of
making decisions about resource allocation and performance assessment.
Segment
performance is evaluated based on operating profit or loss and is measured consistently with
operating profit or loss in the consolidated financial statements.
Intersegment transfers or transactions are entered into under the normal commercial terms and
conditions that would also be available to unrelated third parties. Segment revenue, segment
expense and segment results include transfers between operating segments. Those transfers
are eliminated in consolidation.
The Group generally accounts for inter-segment sales and transfers as if the sales or transfers
were to third parties at current market prices.
18
The following tables present revenue and net income information regarding business segments for
the three months ended March 31, 2012 and 2011 and total assets and total liabilities for the
business segments as of March 31, 2012 and December 31, 2011 :
March 2012
(in thousands)
Parent
Company
INCOME
Sales to external customers
Intersegment
Equity in net earnings of associates
and jointly controlled entities
Interest income
Other income
Total income
Operating Expenses
Operating profit
Interest expense and other financing chgs
Other charges
Provision for income tax
Net income
Other information
Segment Assets
Investments in associates and jointly
controlled entities
Deferred tax assets
Total Assets
Segment liabilities
Deferred tax liabilities
Total Liabilities
Real Estate
and Hotels
9,905
22,831
11,538,736
225,473
131,975
151,020
(9,411)
306,321
384,191
(77,871)
601,154
39,299
24,602
(742,925)
355,806
210,112
56,494
12,386,622
8,186,121
4,200,502
402,145
74,363
749,201
2,974,793
Financial
Services and
Telecom
Bancassurance munications
1,854,265
1,854,265
1,854,265
1,854,265
870,090
870,090
870,090
870,090
Water
Utilities
Electronics
Information
Technology
and BPO
Automotive Intersegment
Services International and Others Eliminations Consolidated
4,848,216
27,312
6,556,102
-
282,882
3,308
2,406
-
2,187,842
28,521
(307,445)
25,426,090
-
25,911
57,753
79,601
5,038,792
3,138,465
1,900,327
363,532
263,601
1,273,194
5,370
32,210
6,593,682
6,547,634
46,048
35,456
2,012
22,673
(14,093)
(149,731)
13,051
(9,292)
140,219
328,510
(188,291)
7,097
954
(196,342)
4,139
5,331
18,263
30,140
48,284
(18,144)
2,166
332
231
(20,873)
(21,124)
3,508
60,141
2,258,887
2,179,709
79,178
1,712
2,912
12,582
61,972
(2,241)
(30,829)
(340,516)
(307,712)
(32,803)
2,241
8,565
(43,610)
3,071,332
443,904
197,177
29,138,502
21,120,627
8,017,875
1,415,504
118,918
1,082,410
5,401,043
280,125,498
78,801,318
3,098,358
362,025,173
102,464,147
147,517,559
-
-
80,726,725
18,909,773
3,332,112
4,738,796
3,246,044
(80,809,658)
54,673,224
157,137,372
13,035,215
2,262,508
162,815,281
-
-
1,816,401
772,407
83,315,533
23,843
18,933,616
5,668,531
9,000,643
2,291,388
7,030,184
261,440
39,599
3,547,083
1,055,118
(79,754,539)
(41,928,898)
(41,928,898)
(87,617,534)
(602,818)
(88,220,352)
-
-
Parent
Company
Financial
Real Estate
Services and
Telecom
and Hotels Bancassurance munications
(38,128,995) (10,400,146)
(5,230,359)
(12)
(43,359,355) (10,400,158)
(276,271)
(4,102)
(280,373)
(559,619)
(7,354)
(566,973)
(1,410,825)
(4,937)
(1,415,762)
(191,715) (180,514,002)
(5,849,583)
(191,715) (186,363,585)
March 2011
(in thousands)
INCOME
Sales to external customers
Intersegment
Equity in net earnings of associates
and jointly controlled entities
Interest income
Other income
Total income
Operating Expenses
Operating profit
Interest expense and other financing char
Other charges
Provision for income tax
Net income
7,233
35,861
9,723,571
320,873
(1,713)
270,983
72,916
385,280
379,147
6,133
571,765
13,140
47,926
(626,698)
185,977
240,363
119,065
10,589,849
7,516,917
3,072,932
484,343
123,856
592,095
1,872,638
958,100
958,100
958,100
958,100
950,604
950,604
950,604
950,604
Water
Utilities
Electronics
Information
Technology
and BPO
Automotive Intersegment
Services International and Others Eliminations Consolidated
4,044,367
27,312
5,393,054
-
224,134
6,108
1,822
-
2,541,422
12,391
(1,024)
58,250
(44,106)
2,624,542
2,839,883
1,244,916
289,831
233,591
721,494
3,795
75,734
5,472,583
5,424,269
48,314
9,695
2,136
31,628
4,855
(229,027)
12,491
33,534
47,240
274,221
(226,981)
2,504
4,959
(234,444)
(5,806)
4,553
307,264
307,833
49,153
258,680
5,524
728
(6,587)
259,015
(8,128)
535
46,807
2,593,027
2,558,186
34,841
2,528
3,319
12,214
16,780
(402,545)
(4,520)
(407,065)
(370,555)
(36,510)
(4,520)
(11,255)
(20,735)
19
20,475,346
1,848,983
586,450
611,214
23,521,993
17,210,964
6,311,029
1,361,670
143,179
904,571
3,901,609
December 2011
(in thousands)
Other information
Segment Assets
Investments in associates and jointly
controlled entities
Deferred tax assets
Total Assets
Segment liabilities
Deferred tax liabilities
Total Liabilities
Parent
Company
Financial
Real Estate Services and
and Hotels Bancassurance Telecommun
105,118,650
142,211,846
-
-
79,995,712
19,389,986
3,287,465 4,905,148
2,963,620
(82,985,496) 274,886,931
56,666,582
161,785,232
56,095,200
12,626,231
1,948,633
156,786,710
81,755,089
744,234
82,499,323
-
-
-
-
1,788,002
759,751
82,543,465
39,151,261
5,108,729
44,259,990
24,354
19,414,340
10,922,801
204,083
11,126,884
5,943,205 2,352,497
9,230,670 7,257,645
329,582
968,421
8,538
43,271
338,120 1,011,692
282,564
46,019
3,292,203
1,318,373
10,002
1,328,375
79,659,081
301,827
3,080,584
(82,683,669) 357,626,596
(10,281,586) 180,259,141
6,118,857
(10,281,586) 186,377,998
56,095,200
Water
Utilities
Information
Automotive Intersegment
Technology
Electronics and BPO Internation and Others Eliminations Consolidated
16. Financial Instruments
The following methods and assumptions are used to estimate the fair value of each class of
financial instrument for which it is practicable to estimate such value:
Cash and cash equivalents, short-term investments and current receivables - Carrying amounts
approximate fair values due to the relative short-term maturities of these investments.
Financial assets at FVPL - These are investments in government securities. Fair value is based
on quoted prices.
Noncurrent trade and nontrade receivables - The fair values are based on the discounted value
of future cash flows using the applicable rates for similar types of instruments.
AFS quoted equity shares - Fair values are based on quoted prices published in markets.
AFS unquoted shares - The fair value of unquoted shares are not reasonably determinable due
to the unpredictable nature or future cash flows and the lack of suitable methods of arriving at a
reliable fair value.
HTM investments - The fair value of bonds is based on quoted market prices.
Liabilities - The fair values of accounts payable and accrued expenses and short-term debt
approximate the carrying amounts due to the short-term nature of these transactions.
The fair value of noncurrent other financial liabilities (fixed rate and variable rate loans repriced
on a semi-annual/annual basis and deposits) are estimated using the discounted cash flow
methodology using the current incremental borrowing rates for similar borrowings with maturities
consistent with those remaining for the liability being valued.
For variable rate loans that reprice every three months, the carrying value approximates the fair
value because of recent and regular repricing based on current market rates.
Risk Management and Financial Instruments
In line with its corporate governance infrastructure, Ayala adopted a group-wide enterprise risk
management framework in 2002. The Audit and Risk Committee approved the Enterprise Risk
Management Policy in 2003 and regularly reviews and updates it. The policy enhances the risk
management process and institutionalizes a focused and disciplined approach to managing the
company’s business risks. The risk management policy was updated in 2008 following the
framework and standards recommended by the Committee of Sponsoring Organization.
20
The risk management framework covers the following:
• Identification and assessment of business risks;
• Development of risk management strategies;
• Assessment, design, and implementation of risk management capabilities;
• Monitoring and evaluation of risk mitigation strategies and management performance; and
• Identification of areas and opportunities for improvement in the risk management process.
The Audit and Risk Committee provides oversight of the risk management function.
In 2008, a more focused enterprise risk management framework was rolled out with the help of an
external consultant. This included a formal risk-awareness session and self-assessment workshops
with the functional units of the company. The Audit and Risk Committee has initiated efforts to
institutionalize an enterprise risk management function across all the subsidiaries and affiliates.
In May 2010, the Chief Finance Officer was appointed as the Chief Risk Officer (CRO) in concurrent
capacity.
The CRO oversees the risk management function and provides periodic reports on risk management
initiatives and mitigation efforts to the Audit and Risk Committee.
At present, the policy, procedures and processes are under study for further enhancement and a
review of the assessment done in 2008 will be undertaken in 2012. The work is in progress and the
company shall continue to engage external technical support as it deems necessary to strengthen its
Enterprise Risk Management expertise and capabilities.
Ayala’s internal auditors monitor the compliance with risk management policies to ensure that an
effective control environment exists within the entire Ayala group.
Financial Risk Management Objectives and Policies
The Group’s principal financial instruments comprise of financial assets at FVPL, AFS financial
assets, HTM investments, bank loans, corporate notes and bonds. The financial debt instruments
were issued primarily to raise financing for the Group’s operations. The Group has various
financial assets such as cash and cash equivalents, accounts and notes receivables and accounts
payable and accrued expenses which arise directly from its operations.
The main purpose of the Group’s financial instruments is to fund its operational and capital
expenditures. The main risks arising from the use of financial instruments are interest rate risk,
foreign exchange risk, liquidity risk and credit risk. The Group also enters into derivative
transactions, the purpose of which is to manage the currency and interest rate risk arising from its
financial instruments.
The Group’s risk management policies are summarized below:
Interest Rate Risk
The Group’s exposure to market risk for changes in Interest rates relates primarily to the
Company’s and its subsidiaries’ long-term debt obligations. The Group’s policy is to manage its
interest cost using a mix of fixed and variable rate debt.
Foreign Exchange Risk
The Group’s foreign exchange risk results primarily from movements of the Philippine Peso
(PHP) against various foreign currencies. The Company may enter into foreign currency forwards
and foreign currency swap contracts in order to hedge its foreign currency obligations.
The second and third columns of the table below summarizes the Group’s exposure to foreign
exchange risk as of March 31, 2012.
The fourth and fifth columns of the table demonstrates the sensitivity to a reasonably possible
change in the peso exchange rate, with all variables held constant, of the Group’s profit before tax
(due to changes in the fair value of monetary assets and liabilities) and the Group’s equity (in
thousands).
21
Foreign currency
United States Dollar (USD)
Net asset
(liabilities)
Increase
(decrease) in
Peso per foreign
currency
PHP
equivalent
(236,057)
(10,160,540)
(9,489,631)
(4,960,736)
Singapore Dollar (SGD)
(2,809)
(87,600)
Hongkong Dollar (HKD)
88,665
479,585
154,081
1,050,380
2
3
11,740
69,073
Euro (EUR)
(45,100)
(2,749,103)
Czech Koruna (CZK)
(31,765)
(68,373)
(3,140)
(27,379)
Japanese Yen (JPY)
Chinese RMB (RMB)
Thai Baht (THB)
Malaysian Rupee (MYR)
FRF
AUD
Sterling Pound (GBP)
CNY
2
89
(1)
(36)
8
56
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
1.00
(1.00)
Increase
(decrease) in
profit before
tax
(236,057)
236,057
(9,489,631)
9,489,631
(2,809)
2,809
88,665
(88,665)
154,081
(154,081)
2
(2)
11,740
(11,740)
(45,100)
45,100
(31,765)
31,765
(3,140)
3,140
2
(2)
(1)
1
8
(8)
There is no other impact on the Group’s equity other than those already affecting the net income.
Liquidity Risk
The Group seeks to manage its liquidity profile to be able to service its maturing debts and to finance
capital requirements. The Group maintains a level of cash and cash equivalents deemed sufficient
to finance operations. As part of its liquidity risk management, the Company regularly evaluates its
projected and actual cash flows. It also continuously assesses conditions in the financial markets for
opportunities to pursue fund-raising activities. Fund-raising activities may include bank loans and
capital market issues both on-shore and off-shore.
Credit Risk
The Group’s holding of cash and short-term investments exposes the Group to credit risk of the
counterparty. Credit risk management involves dealing only with institutions for which credit limits
have been established. The treasury policy sets credit limits for each counter party. Given the
Group’s diverse base of counterparties, it is not exposed to large concentration of credit risk.
22
Item 2 - MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Consolidated Sales and Services in the first quarter of 2012 increased by 16% year-on-year to P25.4
billion. This was mainly driven by Ayala Land, Inc. which reported strong revenue growth across all
its business segments. The strong revenue growth of Integrated Microelectronics, Inc.’s (IMI) with
the inclusion of IMI Europe and increased revenues from Manila Water Co. as a result of higher
billed volume and the impact of the tariff increase implemented last January also drove sales and
services higher. Attributable consolidated net income rose by 42% in the first quarter of the year to
P3.5 billion from P2.4 billion in the same period last year.
Ayala Land maintained solid growth posting a 31% increase in net income to P2.1 billion. This was
underpinned by strong revenues and net income margin improvement. Revenues grew by 17% to
P12.4 billion with double-digit increases across all business segments. Residential and property
development revenues grew by 18% on the back of strong take-up of Ayala Land Premier, Alveo
and Avida residential products, which combined, nearly doubled versus the first quarter of last year.
Revenues from its commercial leasing and hotels and resorts businesses also grew by 21% and
16%, respectively, as it continued to expand gross leasable area. Ayala Land remains on track with
its 37-billion peso capital expenditure program this year for project completion and land acquisitions.
IMI posted a 128% growth in net income year-on-year as revenues grew by 24%. This was attributed
to the company’s business expansion in Europe and Mexico and reduced operating expenses.
Manila Water Co., Inc. posted a net income of P1.3 billion, 64% higher than the same period last
year. This was a result of higher revenues due to strong sales in the East Zone and the impact of the
tariff increase implemented at the start of this year. Revenues grew by 28% with new businesses in
Laguna, Boracay and Clark contributing nearly 5% of total. Operating expenses, however, increased
by 23% due to higher power and overhead costs as the company continued to expand its water and
wastewater network coverage and pursued new business initiatives. Manila Water was recently
awarded the bulk water supply project in Cebu and was also recently awarded the right to purchase
a 49% stake in Kenh Dong Water Supply which owns and operates major water infrastructure in Ho
Chi Minh City in Vietnam.
Equity in Net Earnings
Equity in Net Earnings amounted to P3.1 billion in the first quarter, 66% higher than the P1.8 billion
in the first quarter of 2011. The increase was mainly due to banking unit, Bank of the Philippine
Islands (BPI), as well as Ayala Land’s associates. Lower equity losses from LiveIt also contributed to
the growth. Equity earnings from Globe Telecom, however, was slightly lower at P846 million, from
P899 million in the same period last year.
BPI registered a net income of P5.8 billion, significantly ahead of the previous year’s P2.8 billion.
This was fuelled by its core banking business as well as securities trading gains. Loans grew by 20%
as lending remained brisk across all customer segments, while the bank’s 30-day non-performing
loan ratio improved further to 2.0%. BPI’s deposits grew by 7%, putting total assets under
management to P716 billion, up 15% year-on-year. Net interest income grew by 8% aided by a 14
basis point improvement in net interest margin. The bank’s earnings were further enhanced by
trading gains amounting to P3.7 billion as the bank sold some of its securities in inventory. BPI is set
to pay a special cash dividend of P0.50 per share in addition to its regular cash dividend of P0.90
per share for the first half of the year.
Telecom unit, Globe Telecom, continued to build on the momentum it achieved over the past six
quarters. Consolidated revenues in the first quarter reached a new all-time high of P20.2 billion, 6%
higher year-on-year. Its mobile business performed strongly driven by robust demand for its postpaid
and prepaid services. Globe’s broadband business also continued to grow with revenues up 13%
year-on-year. Its new mobile and broadband services attracted subscribers which resulted in higher
net adds during the period, pushing mobile subscriber base to 31 million, up 14% versus last year,
and broadband subscribers to 1.5 million, 26% higher versus the same period last year. Operating
expenses and subsidy were higher driven by the growth in postpaid customers and expenses related
to the Company’s network modernization program. This, coupled with higher financing and other
non-operating charges, resulted in a 10% decline in reported net income. Core net income, which
23
excludes foreign exchange and mark-to-market charges and one-off items, was 7% lower at P2.7
billion.
Interest and Other Income
Interest income declined by 24% to P444 million mainly due to lower funds invested by the parent
company and Ayala Land. Other income also decreased by 67% year-on-year to P197 million as the
prior year included a gain realized from Ayala’s exchange of ownership in Arch Capital Management
with the Rohatyn Group.
Costs and Expenses
Consolidated costs and expenses increased by 14% to P18.5 billion, lower than the rate of growth of
sales and services. This reflects the impact of cost containment measures implemented particularly
by MWC. Consolidated general and administrative expenses increased by 8% to P2.6 billion, mainly
due to compensation-related expenses.
Interest and Other Charges
Consolidated interest and other charges increased by 4% to P1.4 billion mainly due to higher interest
expense at the parent level as well as Manila Water and IMI. This was partly offset by lower interest
expense at Ayala Land.
Balance Sheet Highlights
Consolidated cash and short-term investments declined by 13% during the quarter to P47.9 billion
from P55.1 billion at the beginning of the year. The decline was mainly due to the pre-payment of
loans at the parent company level and capital expenditure for new projects particularly at Ayala Land
as it remained aggressive in expanding its product offerings.
Consolidated debt remained relatively flat at P104 billion as of the end of the first quarter from P107
billion at the start of the year. Consolidated current ratio and debt to equity ratio remain healthy at
1.8x and 0.95x, respectively as of the end of the quarter.
Key Performance indicators:
For the balance sheet items (current ratio and debt to equity ratios), the company aims to maintain
for its current ratio not to be lower than 0.5:1 and for its debt to equity ratio not to exceed 3:1. The
company and its subsidiaries' ratios are considered better than these levels as a result of prudent
debt management policies.
The key performance indicators (consolidated figures) that the Company monitors are the following:
Revenue
Net income
Basic earnings per share 1/
YTD March 31, 2012
29,139 million
3,483 million
5.81
YTD March 31, 2011
24,982 million
2,450 million
4.49
Current Ratio 2/
Debt-to-Equity Ratio 3/
As of March 31, 2012
1.80
0.95
As of March 31, 2011
2.15
0.88
1/ Net income applicable to common shareholders / weighted average number
of common shares
2/ Current assets / current liabilities
3/ Short-term debt, current & non-current long-term debt
/ equity attributable to equity holders of the parent
24
2.1
Any known trends or any known demands, commitments, events or uncertainties that will
result in or that are reasonably likely to result in the registrant’s liquidity increasing or
decreasing in any material way. The following conditions shall be indicated: whether or not
the registrant is having or anticipates having within the next twelve (12) months any cash
flow or liquidity problems; whether or not the registrant is in default or breach of any note,
loan, lease or other indebtedness or financing arrangement requiring it to make
payments; whether or not a significant amount of the registrant’s trade payables have not
been paid within the stated trade terms.
The company does not expect any liquidity problems and is not in default of any
financial obligations.
2.2
Any events that will trigger direct or contingent financial obligation that is material to the
company, including any default or acceleration of an obligation:
None
2.3
Any material off-balance sheet transactions, arrangements, obligations (including contingent
obligations), and other relationships of the company with unconsolidated entities or other
persons created during the reporting period:
None
2.4
Any material commitments for capital expenditures, the general purpose of such
commitments, and the expected sources of funds for such expenditures.
For year 2012, Ayala Land‘s consolidated budget for project and capital expenditures
amount to P37.0 billion. About 42% is earmarked for residential developments, 24% for
land acquisition, 12% for hotels and resorts, 11% for shopping centers, and the balance
for offices, commercial and industrial lot development, and other land development
activities in the Company’s strategic landbank areas. This will be financed through a
combination of internally-generated funds, borrowings and pre-selling.
For the first three months of 2012, consolidated project and capital expenditures
amounted to P8.0 billion, about 21% of the P37.0 billion budget for the whole year.
About 39% was spent for residential projects, 38% for land acquisition, 13% for
shopping centers, 6% for hotels and resorts, and the balance spent on offices,
commercial and industrial lot development and other land development activities in the
Company’s strategic landbank areas.
MWCI expects P14 billion capital expenditures in 2012 for the rehabilitation and
construction of facilities to improve water and sewer services in the East Zone Service
Area. These will be funded from the current cash reserves, internal funds generation
and proceeds of available loan facilities.
At the parent Company level, projected capital expenditure will be at P7 billion to
complement allotment by its major subsidiaries, all to address opportunities in the
existing market and certain new sectors.
2.5
Any known trends, events or uncertainties that have had or that are reasonably expected to
have a material favorable or unfavorable impact on net sales or revenues or income from
continuing operations should be described.
The Company’s and its subsidiaries’ performance will continue to hinge on the overall
economic performance of the Philippines and other countries where its subsidiaries
operate. Interest rate movements may affect the performance of the real estate,
banking and automotive groups, including the Company.
2.6
Any significant elements of income or loss that did not arise from the registrant's continuing
operations
None
25
2.7
Causes for any material changes
(Increase or decrease of 5% or more in the financial statements)
Balance Sheet Items
(March 31, 2012 Vs. December 31, 2011)
Cash and cash equivalent – 12% decrease from P53,577mln to P47,067mln
Decrease due to payment of loans of AC parent and the real estate group; plus payments of various
payables and launching of new projects by the real estate group. This account is at 13% and 15% of
the total assets as of March 31, 2012 and December 31, 2011, respectively.
Short-term investments – 46% decrease from P1,613mln to P869mln
Decrease due to liquidation of short-term investments to pay loans of AC parent and the real estate
group; fund property acquisition and launching of new projects by the real estate. This account is
less than 1% of the total assets as of March 31, 2012 and December 31, 2011.
Accounts receivable (current) – 11% increase from P31,320mln to P34,740mln
Increase due to the higher sales of the real estate group. This account is at 10% and 9% of the total
assets as of March 31, 2012 and December 31, 2011, respectively.
Inventories – 5% decrease from P27,766mln to P26,419mln
Decline primarily due to higher sales of real estate group. This account is at 8% of the total assets
as of March 31, 2012 and December 31, 2011.
Other current assets – 38% increase from P9,289mln to P12,785mln
Increase due to the higher prepaid expenses for property acquisition and prepayment of construction
materials of the real estate group. This account is at 34% and 35% of the total assets as of March
31, 2012 and December 31, 2011, respectively.
Land and improvements – 18% increase from P18,531mln to P21,931mln
Increase due primarily to the higher land banking and new projects of real estate group. This
account is at 6% and 5% of the total assets as of March 31, 2012 and December 31, 2011,
respectively.
Property and equipment – 6% increase from P13,851mln to P14,702mln
Increase is traceable to capital expenditures of the real estate group. This account is at 4% of the
total assets as of March 31, 2012 and December 31, 2011.
Pension asset – 48% decrease from P189mln to P98mln
Mainly due to lower balances of real estate and electronics manufaccturing groups. As of March 31,
2012 and December 31, 2011, this account is less than 1% of the total assets.
Other non-current assets – 16% increase from P3,060mln to P3,553mln
Mainly caused by higher development cost of energy group. As of March 31, 2012 and December
31, 2011, this account is at 1% of the total assets.
Short-term debt – 22% increase from P6,666mln to P8,144mln
Mainly due to by new loan availments of the real estate group to support property acquisitions.
Short-term debt remained at 4% of the total assets as of March 31, 2012 and December 31, 2011.
Income tax payable – 83% increase from P483mln to P882mln
Higher taxable income of the real estate and water utilities groups. As a percentage to total
liabilities, this account is less than 1% as of March 31, 2012 and December 31, 2011.
Current portion of long-term debt – 54% decrease from P7,460mln to P3,442mln
Largely due to payment of matured loans of AC parent and water utilities group. As of March 31,
2012 and December 31, 2011, current portion of long-term debt is at 2% and 4% of the total
liabilities, respectively.
26
Service concession obligation – current portion – 18% increase from P981mln to P1,155mlnIncrease
was mainly due to higher computed and actual obligation due within one year. This account is at 1%
of the total liabilities as of March 31, 2012 and December 31, 2011.
Other current liabilities – 24% increase from P2,705mln to P3,356mln
Largely on account of increase in real estate group offset partially by lower liabilities of electronics
manufacturing group. This account stood at 2% and 1% of the total liabilities as of March 31, 2012
and December 30, 2011, respectively
Pension liabilities – 23% decrease from P414mln to P320mln
Largely on account of decrease in water utilities and real estate groups. This account stood at 0.2%
of the total liabilities as of March 31, 2012 and December 30, 2011.
Other non-current liabilities – 15% increase from P11,039mln to P12,730mln
Largely on account of increase in customer’s and tenant’s deposit of the real estate and water
utilities groups. This account stood at 7% and 6% of the total liabilities as of March 31, 2012 and
December 30, 2011, respectively.
Share-based payments - 5% increase from P554mln to P581mln
Mainly due to reclassification of share in the share-based payments of AC parent.
Retained earnings – 5% increase from P75,886mln to P79,369mln
Mainly due to higher net earnings of most of the subsidiaries and associates of AC parent.
Net unrealized gain on available-for-sale financial assets – 41% decrease from P1,725mln to
P1,017mln
Mainly due to decrease in the market value of securities held by the financial services group.
Income Statement items
(YTD March 31, 2012 Vs YTD March 31, 2011)
Sales and services – 16% increase from P21,936mln to P25,426mln
Improved sales performance of real estate and electronics groups; offset by lower sales
performance of the automotive and others group mainly due to shortage of vehicle supply. As a
percentage to total income, sales and services is at 88% to 87% in 2011 and 2012, respectively.
Equity in net earnings of associates and jointly ventures – 66% increase from P1,849mln to
P3,071mln
Increase mainly due to earnings of financial services; coupled with lower net loss registered by
investees of international and information technology and BPO Services groups. As a percentage to
total income, this account is 7% to 11% in 2011 and 2012, respectively.
Interest income – 24% decrease from P586mln to P444mln
Decline arising from lower investible funds by AC parent and the real estate group. This account is
2% of the total income in 2011 and 2012.
Other income – 68% decrease from P611mln to P197mln
Decline was due to 2011 gains resulting from investment transactions of the international group.
This account is at 2% and 1% of the total income in 2011 and in 2012, respectively.
Cost of sales and services – 14% increase from P16,245mln to P18,494mln
Increase attributable to higher sales of the real estate, water utilities and electronics manufacturing
groups; offset partially by lower costs of automotive and others group. As a percentage to total costs
and expenses, sale of goods is at 77% to 78% in 2011 and 2012, respectively.
General and administrative expenses – 8% increase from P2,425mln to P2,627mln
Increase mainly on account of higher manpower costs and other expenses across the groups. This
expense classification accounts for 12% and 11% of costs and expenses in 2011 and 2010.
Other charges – 17% decrease from P143mln to P119mln
Decrease mainly on due to lower other financing expense of AC parent. This expense classification
accounts for 1% of costs and expenses in 2011 and 2012, respectively.
27
Provision for income tax – 20% increase from P905mln to P1,082mln
Primarily due to higher taxable income of the several subsidiaries significant part of which comes
from real estate, electronics and water utilities groups on account of better sales and other operating
results.
Noncontrolling interests – 32% increase from P1,451mln to P1,918mln
Attributable to the favorable performance of the real estate and water utilities groups in 2011.
2.8
Any seasonal aspects that had a material effect on the financial condition or results of
operations.
Ayala Corporation being a holding company has no seasonal aspects that will have any
material effect on its financial condition or operational results.
ALI’s leasing portfolio generates a fairly stable stream of revenues throughout the year,
with higher sales experienced in the fourth quarter from shopping centers due to holiday
spending.
ALI’s development operations do not show any seasonality. Projects are launched
anytime of the year depending on several factors such as completion of plans and
permits and appropriate timing in terms of market conditions and strategy.
Development and construction work follow target completion dates committed at the
time of project launch.
In the case of MWCI, except for the usually higher demand during summer months of
April and May, it does not have seasonality of operation.
For the other subsidiaries, there is no significant seasonality that would materially affect
their operations.
2.9
Any material events subsequent to the end of the interim period that have not been reflected
in the financial statements for the interim period.
ALI’s Issuance of P15 billion bonds in two tranches of seven and ten years, with
coupon rates of 5.625% and 6.0%, respectively.
ALI’s Shareholder approval of the redemption of 13 billion in outstanding non-voting
preferred shares and the issuance of the same number of voting preferred shares to be
done through a stock rights offering.
Listing at the Philippine Dealing and Exchange Corporation of ALI’s P15 billion fixed
rate callable bonds due 2019 and 2022.
3.0
Other material events or transactions during the interim period.
ALI’s Board approval for the following: (a) amendment of Article Seventh of the Company’s
Articles of Incorporation to make the preferred shares redeemable, and to decrease the
authorized capital stock by P1.3 billion through the retirement and elimination, subsequent
to their redemption, of the outstanding preferred shares with a total par value of P1.3 billion,
(b) reclassification of the 1.965 billion unissued preferred shares to voting preferred shares
through an amendment of the Article Seventh of the Company’s Articles of Incorporation,
and (c) increase in the authorized capital stock by P1.3 billion through additional voting
preferred shares and stock rights offer of 13.043 billion voting preferred share from the
increase in the authorized capital stock.
ALI’s Board approval for the issuance of bonds in the amount of P15 billion, with tenors of
seven and 10 years.
ALI’s Declaration of cash dividend of P0.109488 per share to all shareholders as of record
date March 7, 2012, payable on March 27, 2012.
28
PART II – OTHER INFORMATION
1.
Ayala Corporation submitted the certificate of Board Attendance of directors in board meetings
and the certification of compliance with the Revised Manual of Corporate Governance for the
year 2011.
2.
Ayala Corporation constantly monitors opportunities in the infrastructure sector and confirm the
expansion or operation of the Metro Rail Transit (MRT) Line 3 as well as the Light Railway
Transit (LRT) Lines 1 and 2 are included in those opportunities that the company is actively
monitoring and considering for potential investment.
3.
Ayala Corporation filed on February 8, 2012 the Definitive Information Statement. The annual
meeting of stockholders of Ayala Corporation was held at the grand Ballroom of the Hotel
InterContinental Manila on April 20, 2012.
4.
Ayala Corporation sets P90B capex plan for this year. P200B for infrastructure projects (water,
power, road, rail, airport) where the Ayala Group can potentially participate in for the next five
years.
5.
Ayala Corporation consolidated net income reached P9.4B in 2011.
6.
At its regular meeting held 14 March 2012, the Board of Directors of Ayala Corporation
approved the offer and issuance of the Ayala Fixed Rate Bonds (the Bonds) in the principal
amount of P8B up to P10B subject to the registration requirements of the securities and
Exchange Commission (SEC), and the appointment of BPI Capital Corporation as the Issue
Manager.
7.
Ayala Corporation reported various purchases of common shares pursuant to the share
buyback program approved by the Board of Directors on 10 September 2007, 02 June 2010
and 10 December 2010.
29
AYALA CORPORTION AND SUBSIDIARIES
AGING OF RECEIVABLES (Based on Unaudited Figures)
As of March 31, 2012
(In Thousand Pesos)
Up to
6 months
Over 6 Mos.
to One year
Over One
Year
Past
Due
TOTAL
Trade Receivables
13,166,631
6,083,623
8,029,622
650,843
27,930,720
Non-Trade Receivables
13,897,277
797,597
614,639
20,406
15,329,920
Total
27,063,908
6,881,221
8,644,261
671,249
43,260,639
31