Jaime Augusto Zobel De Ayala Ayala Corporation 2018 Annual Stockholders' Meeting Chairman's Message

Good morning to everyone.

As we do every year, we have divided our presentations into two parts. I will present our broader strategic initiatives, while our President and COO will follow with a more detailed discussion on the operating achievements of the Ayala group.

Let me start with a broad overview of the external economic environment to put our review of the past year into perspective.

The improving trajectory for the global economy continued in 2017, with a recovery in trade, investment, and manufacturing recorded in a majority of economies across the world. However, economists cited the need for productivity-enhancing structural reforms in both advanced and developing economies to sustain this level of growth.

Aging populations, most evident in advanced economies, are expected to depress the expansion of employment.

In the case of developing economies, the challenge lies in improving
physical infrastructure and human capital, aggravated by the fast pace at which disruptive technologies are changing the business landscape.

In ASEAN, despite worries of a slowdown brought about by protectionist initiatives in the US and geopolitical tensions in the Asia-Pacific and the Middle East nations, the region continued to perform strongly in 2017, bolstered by strong private consumption and exports.

Here at home, we continue to be optimistic about the Philippine economic environment. Even with the absence of election-driven economic growth from the previous year, our economy continued to perform strongly, recording a 6.7 percent expansion in 2017. The Philippines remains a top performer in ASEAN, trailing Vietnam, which registered 6.8 percent economic growth.

Many anticipate the momentum to continue this year as the government's aggressive infrastructure spending plans move to an execution phase and disposable incomes rise as a result of tax reforms.

However, concerns around inflation have emerged as a result of rising commodity prices arising from higher global energy prices and a weaker peso.

Ayala has been a beneficiary of the country's significant economic growth. This has served as a catalyst for us to unlock many opportunities to push us to develop new ideas, to incubate new businesses, and to explore prospects for disruptive innovation.

We took advantage of this encouraging domestic environment to create a portfolio that creates some hedges against specific macroeconomic and socio-political trends and balances our two major pillars-our publicly-listed industry leaders in real estate, banking, telecom, and water; and our wholly-owned emerging businesses in power, industrial technologies, infrastructure, healthcare, and education.

We are happy to report that our portfolio has sustained its robust growth trajectory in the last six years despite some economic volatility and political changes.

Our profitability has seen consistent double-digit growth since 2012, translating to a compounded annual growth rate and total shareholder return both at 22 percent.

In parallel, our market capitalization reached 630.5 billion pesos at the end of 2017, reflecting a compounded annual growth rate of 23 percent.

Overall, the steady improvement in our financial performance puts us on track to achieve our strategic aspirations for 2020 of improving our profitability and shareholder return while diversifying our earnings stream.

As you know, in 2016, we set out a target to double our net income to 50 billion pesos by 2020 with a return on common equity of 15 percent, as well as generate earnings contribution of 20 percent from our emerging businesses and 10 percent from our international portfolio.

We are pleased to report the significant progress we have made in our diversification strategy by establishing new pillars of growth and moving into new geographies.

In particular, the investments we made to develop a significant presence in the energy sector have started to bear fruit. Over the past five years, AC Energy has grown rapidly-starting with only 80 megawatts of attributable generating capacity from its inception in 2011 to achieving 1,600 megawatts in its pipeline in 2017.

With its sizeable portfolio of reliable and affordable thermal and renewable energy platforms, AC Energy is becoming a meaningful driver of our earnings stream and value creation.

Furthermore, across the Ayala group, we have made significant progress in expanding our international presence in new economies where we have the ability to bring our expertise and capital to address opportunities. In recent years, we have made it a strategic imperative to search for opportunities beyond our shores, particularly across Southeast Asia.

In our country, our businesses are recognized leaders that have established important presence in their respective industries with advanced skills and capabilities that can be deployed globally. AC Industrials, Manila Water, AC Energy, and Ayala Land are natural players on this front and have all started to develop regional and global businesses.

AC Industrials is our most global business in the Ayala group and now counts Germany, the UK, Serbia, and Thailand as new markets in addition to its existing operations in China, Singapore, the US, Mexico, Bulgaria, and the Czech Republic.

Since its formation in 2016, the team has made progress in taking advantage of opportunities around disruptive trends in global manufacturing by assembling a portfolio of complementary assets in emerging technologies to deepen its presence in the automotive industry.

Already the largest foreign investor in Vietnam's water sector, Manila Water now services half of the consumer and industrial demand in Ho Chi Minh and has expanded to other parts of the country. As part of its ongoing expansion in Southeast Asia, Manila Water has entered the Thai market with the acquisition of an 18 percent stake in East Water, a publicly-listed water supply and distribution company. Moreover, it is establishing a footprint in Indonesia with the purchase of a 20 percent stake in PT Sarana Tirta Ungaran, a bulk water supply company.
In support of its diversification strategy, AC Energy is laying the foundation to be a regional player following its first overseas investment in acquiring a stake in Salak and Darajat Geothermal, which was part of Chevron's energy assets in Indonesia. Since then, AC Energy has been exploring other opportunities in the region. It has recently completed the construction of a wind farm also in Indonesia, and is currently developing solar projects in Vietnam.

Finally, Ayala Land is leveraging its widely recognized leadership in large-scale, masterplanned estate development in Malaysia through MCT Berhad, a real estate company it acquired in 2015. Ayala Land has over time increased its stake in MCT and in early 2018, raised its interest to hold a majority ownership of the company. This investment allows Ayala Land to participate in the growth prospects of Malaysia's real estate market and affirm its role as a growing investor in Southeast Asia.

In summary, we are proud to say that our businesses have been able to enter an increasing number of geographies, and we have been able to bring our homegrown expertise, governance, and high level of engagement across the globe.

We are equally proud to say that the Ayala group also continues to expand its already-strong nationwide presence. When in the past we were traditionally focused in major cities, Globe, BPI, Manila Water, Ayala Land, and AC Energy are serving the needs of even more communities across the archipelago.

Moving forward, we remain optimistic about our growth trajectory as we adjust to monitor major global, domestic, and industry trends that affect our businesses and open new opportunities.

More importantly, beyond our financial metrics and aspirations, we measure ourselves against the broader progressive contributions that we make to society through our businesses. In the Philippines, economic inclusivity remains a challenge. We have made great improvements on this front and have, over time, readjusted our business models to cater to underserved Filipinos.

Our business lines in real estate, banking, telecom, water, power, industrial technologies, infrastructure, healthcare, and education have all developed new, innovative ways to provide products and services that bridge gaps in capacity, quality, accessibility, and affordability.

As an example, both our banking and telecom businesses have made financial inclusion a priority in their business plans. Bank of the Philippine Islands and Globe Telecom have created ancillary businesses focused on servicing unbanked Filipinos, which today account for 50 percent of our adult population.

Our bank runs BPI Direct BanKo, focused on delivering affordable financing solutions to self-employed micro-entrepreneurs. Meanwhile, Globe operates Mynt, a financial technology joint venture with Ant Financial, that leverages mobile technology to provide payments and lending solutions to the underserved.

The investments we have made across our group are all in support of the country's development agenda. We have deployed ₱898 billion in combined capital expenditure over the last six years, which is equivalent to approximately 50 percent of the Philippines' foreign direct investments over the same period.

We will continue to put the resources, knowledge, expertise, and talent that we have across our group to harness our sustainable business practices and find new and improved ways to broaden economic inclusivity and remain relevant to our specific markets.

This is an unprecedented time for the Ayala group. Never in our history have we been so engaged and aligned with the world's development goals, while also having a broad-based impact on the Philippines. From contributing to 'Decent Work and Economic Growth,' to 'Affordable and Clean Energy,' to 'Clean Water and Sanitation,' we are helping to change the developmental landscape of the Philippines.

I want to thank you all for sharing this commitment we have to align our business strategies to broader sustainability imperatives as defined by the United Nations Sustainable Development Goals framework.

As a final note, I thank our Board of Directors for providing active management oversight and engagement as we address challenges and market opportunities. With diversity in thinking and a useful combination of knowledge, business experience, and expertise, our Board encourages a culture of trust, openness, and constructive dissent. In particular, with their breadth of business experience and focus on our long-term interests, they have all provided guidance to many of our major strategic decisions.

I also thank our management team and staff for their spirit of corporate engagement and creativity to serve our communities in progressive and sustainable ways.

Finally, I thank our business partners, shareholders, and all our stakeholders for their continued trust and support to the Ayala group.

I now call our President and COO, Mr. Fernando Zobel de Ayala, to deliver his report.

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Ayala Corporation published this content on 20 April 2018 and is solely responsible for the information contained herein. Distributed by Public, unedited and unaltered, on 20 April 2018 04:36:03 UTC