Ayala Corporation | 1H 2022 Earnings Release
1H22 vs 1H21 Highlight
Ayala’s net income grew 56 percent to ₱16.3 billion in the first semester of 2022 mainly due to BPI’s higher revenues, reduced provisioning, and gain from a property sale, Ayala Land’s strong leasing revenues from shopping centers and hotels and resorts, and Globe’s higher revenues and partial sale of its data center business.
- BPI’s net income expanded 73 percent to ₱20.4 billion in the first semester due to robust loan growth, higher net interest margins, and lower loan loss provisions, boosted by a gain from a sale of a property.
- Ayala Land’s net income jumped 34 percent to ₱8.1 billion in the first half due to improved operations of its various business segments in the second quarter as local economic activity progressed.
- Globe’s net income increased 51 percent to ₱19.7 billion in the first half due to higher revenues from data services and growth from non-telco revenues as well as a net gain from the partial sale of its data center business.
These mitigated softer results from AC Energy:
- The net income of Ayala’s wholly-owned subsidiary, AC Energy & Infrastructure Corp., decreased 23 percent to ₱2.7 billion in the first semester of 2022 as a combined effect of Ayala’s consolidation of its reduced ownership in ACEN, various one-offs incurred in the first quarter of the year, and impact of its divestment in GNPK in 2021.
- Adjusting for one-offs and Ayala’s lower economic stake in ACEN, ACEIC’s net income would have declined two percent to ₱3.4 billion year-on-year.
- Ayala’s economic interest in ACEN went from 71.8 percent in June 2021 to 62.5 percent in the same month this year following the series of corporate actions including investments of GIC, the company’s follow-on offering, the infusion of international assets into ACEN, and the issuance of primary shares to Northwind and UPC.
- ACEN’s net income decline softened to 19 percent in the first half against the 68 percent decrease in the first quarter. It recorded ₱2.2 billion in the first half of 2022.
- In the second quarter alone, ACEN’s net income jumped 25 percent to ₱1.8 billion year-on-year on the back of higher revenues from new operating plants and its reversal to a net seller position.
“Our group’s performance in the first half reflects the momentum of the country’s reopening. This is particularly evident in our cyclical units, Ayala Land and BPI, which significantly rebounded in the second quarter amid revitalized mobility and consumer confidence,” Ayala President and CEO Fernando Zobel de Ayala said. “However, Ayala is cognizant of the current macroeconomic headwinds that have impacted our businesses in varying degrees. While this is the case, we believe that there is still growth to be realized for the rest of the year with what we are seeing on the ground,” Mr. Zobel added.
2Q22 vs 1Q22
Quarter-on-quarter, Ayala’s net income grew eight percent to ₱8.5 billion as BPI exhibited healthy growth in its lending business, Ayala Land benefitted from improved mobility, and ACEN partially recovered from headwinds in the previous quarter.
- Excluding BPI’s gain from the sale of property in 2Q22 and Globe’s gain from the partial sale of its data center business in 1Q22, Ayala’s core net income in the second quarter rose 26 percent to ₱7.4 billion.
BPI posted a net income of ₱20.4 billion in the first half, expanding 73 percent from a year ago on higher revenues, lower loan loss provisions, the impact of a gain on sale of property, and tax adjustments due to the CREATE law.
- Excluding the impact of the asset sale, BPI’s net income would have been up 52 percent for the period.
Total revenues increased 20 percent to ₱57.6 billion in the first six months, resulting from healthy growth in net interest income and non-interest income.
- Net interest income grew 16 percent to ₱39.3 billion on the back of a 15-basis point expansion in net interest margin, which stood at 3.46 percent.
- Non-interest income was up 28 percent to ₱18.3 billion due to higher fee-income that grew 42 percent in the period because of the gain on sale of property.
Total loans expanded 14 percent to ₱1.6 trillion in the first two quarters on the back of growth in all segments, led by corporate, credit card, and autos that increased 16 percent, 16 percent, and six percent, respectively.
Total deposits increased 18 percent to ₱2 trillion in the first half, with CASA increasing 13 percent to ₱1.6 trillion.
- CASA to deposit ratio was down to 79 percent in June from 83 percent in the same month last year.
- Loan-to-deposit ratio ended at 78.1 percent in June from 80.8 percent in the same month last year.
Provisions dropped 23 percent to ₱5 billion in the first semester. NPL ratio improved by 95 basis-points to 1.99 percent in June from the same month last year. NPL coverage ratio rose to 170.7 percent in June from 120.3 percent in the same month last year.
Operating expenses increased seven percent to ₱25.8 billion in the first semester mainly because of technology investments to bolster its on-going digital initiatives.
- Cost-to-income ratio excluding the gain from the asset sale was 49.1 percent, an improvement from 50.1 percent in the same period last year.
Total assets climbed 13 percent to ₱2.5 trillion in the first half. Total equity rose six percent to ₱304.1 billion in the same period.
- Common equity tier 1 ratio decreased to 15.9 percent in June from 17 percent in the same month last year.
- Capital adequacy ratio was down to 16.8 percent in June from 17.9 percent in the same month last year.
- Return on equity expanded to 14 percent in the same semester from eight percent in the same period last year.
In May 2022, BPI announced a new dividend policy based on a dividend payout ratio of 35 percent to 50 percent of previous year’s earnings and the distribution of ₱1.06 dividend per share for the first semester of 2022, up ₱0.16 or 17.8 percent from the same period last year. This dividend policy replaces the fixed ₱0.90 dividend per share per semester in prior years.
Ayala Land’s consolidated revenues grew nine percent to ₱53.3 billion in the first half due to improved operations of its various business segments in the second quarter as local economic activity progressed under the alert Level 1 quarantine. This supported net income, which grew 34 percent to ₱8.1 billion in the first half.
Property development revenues were flat at ₱34.1 billion in the first semester as a result of strong take-up for commercial lots which cushioned lower residential and office for sale bookings.
- Residential revenues were down nine percent to ₱27.4 billion because of slower revenue recognition due to stretched payment terms.
- Office for sale revenues dropped 28 percent to ₱1.5 billion due to limited inventory.
- Commercial and industrial lots more than doubled to ₱5.3 billion on higher sales in Arca South, Nuvali, and Vermosa.
On the other hand, sales reservations for its residential offerings marked its fourth consecutive quarter of growth, expanding two percent to ₱49.3 billion in the first half.
- Ayala Land launched 12 new projects in the first half worth to ₱34.9 billion.
Commercial leasing revenues registered a 54 percent growth to ₱14.6 billion in the first semester as it benefitted from improved mobility and the country’s reopening.
- Shopping center leasing revenues doubled to ₱6.9 billion due to higher rent and tenant sales.
- Office leasing income improved 12 percent to ₱5.4 billion on the back of contributions from newly completed offices.
- Hotels and resorts revenues increased 91 percent to ₱2.3 billion because of increased guest patronage and higher room rates from the resurgence of domestic tourism.
Capital expenditures reached ₱30.2 billion, majority of which went to residential, estate development, land acquisition, and leasing assets.
Globe’s net income increased 51 percent to ₱19.7 billion in the first half of 2022 due to higher service revenues from its data services, improving contributions from its non-telco services, and the ₱8.5 billion net gain from the partial sale of its data center business in the first quarter.
- Excluding the impact of the one-time gain and CREATE, normalized net income grew four percent to ₱11.2 billion.
Total service revenues grew five percent to an all-time high ₱78.9 billion in the first semester, led by data-related services that were augmented by increased contributions from its non-telco services.
- Total data revenues accounted for 81 percent of total service revenues, a growth of 2 percentage points from the same period last year.
- Globe’s strategic shift towards a digital service platform saw revenues from its non-telco services growing more than two times to ₱1.9 billion.
Growth in data in the first half was led by Globe’s mobile and corporate data categories.
- Mobile data revenues increased eight percent to ₱41.8 billion.
- Mobile data traffic climbed 24 percent to 2,177 petabytes.
- Corporate data increased by 21 percent to a new record high ₱8.2 billion on the back of higher demand for its ICT business and international leased line services.
Globe’s strong commitment to deliver fiber technology to more homes in the country resulted to fiber revenues to increase 135 percent and fiber subscribers to grow 102 percent in the first half of the year.
- On the other hand, fixed wireless segment continues to normalize following the migration of its subscribers to wired solutions
- Home broadband revenues dipped five percent to ₱13.8 billion, which was still better than pre-pandemic levels.
- Home broadband subscribers declined 26 percent to 3.1 million customers.
EBITDA increased eight percent to ₱40.5 billion in the first six months on the back of topline improvement vis-à-vis a slight increase in operating expenses and subsidy.
- Operating expenses stood at ₱38.3 billion.
- EBITDA margin slightly increased to 51 percent from 50 percent in the same period last year.
Capital expenditures increased 17 percent to ₱50.5 billion in the first semester, representing 64 percent of gross service revenues and 125 percent of EBITDA. Moreover, 84 percent of the investment went to data-related requirements.
In July, Globe, Salud Interactiva S.A DE C.V., and AC Health announced a reorganization that combines three market-leading telehealth applications, KonsultaMD, HealthNow, and AIDE, in one superapp with a vision to uplift the healthcare journey of every Filipino and create the country’s largest healthtech play. Teleconsultation services in KonsultaMD, medicine deliveries in HealthNow, and laboratory testing and home care services from AIDE will be rolled into the new KonsultaMD. The full service superapp aims to leverage the companies’ existing user base of over two million patron and targets to go live by the first quarter of 2023.
In August, Globe’s Board of Directors approved its milestone initiative to sell over 7,000 towers, which have been grouped into three unique portfolios. Globe has entered into Exclusivity Agreements with three tower companies, each of which have been assigned a unique portfolio. Upon completion, this transaction will represent the largest ever tower sale and leaseback deal in the country.
- Globe signed a sale and leaseback agreement with MIESCOR Infrastructure Development Corporation for the first portfolio consisting of 2,180 telecom towers and related passive telecom infrastructure for over ₱26 billion.
- The second portfolio consisting of 3,529 towers will be sold to Frontier Tower Associates Philippines, Inc for ₱45 billion.
- For the third portfolio, Globe is in advanced discussions with another tower company for the potential sale of an additional ~1,350 telecom towers and related passive telecom infrastructure.
ACEN’s net income decreased 19 percent to ₱2.2 billion in the first semester of 2022. Strong results in the second quarter softened the impact of the events in the previous period, which reflected higher cost of purchased power during a major preventive maintenance outage at SLTEC, curtailment related to Typhoon Odette, and a one-time buyout expense related to a customer contract.
- ACEN’s net income jumped 25 percent to ₱1.8 billion in the second quarter as its Philippine operations returned to profitability due to fresh contributions coming from its new operating plants, easing of typhoon-related curtailment in the Visayas, and excess capacity that allowed the company to take advantage of spot market prices in the period.
Consolidated revenues grew 19 percent to ₱16 billion on the back of new operating capacity as well as excess capacity that benefitted from high WESM prices.
Total attributable output increased 11 percent to 2,482 gigawatt-hours due to increased operating capacity from wind farms in Vietnam and solar projects in India, which offset the impact of thermal outages in the first quarter.
- Output from international plants rose 48 percent year-on-year in the first half to 1,268 gigawatt-hours.
- Output from renewables increased 52 percent year-on-year in the first half to 1,692 gigawatt-hours.
ACEN currently has close to 4 GW of attributable capacity (pro forma) across five countries in the Asia-Pacific region, of which 87 percent is renewable. The company announced in August that its Board of Directors, through its Executive Committee, approved its corporate vision and strategy targeting 20 GW of attributable renewables capacity by 2030. This represents six times growth from 3.4 GW of renewables capacity today, or a 25 percent compounded annual growth rate at the end of the decade. ACEN currently has 18 GW of projects across the region in its pipeline, which will help with the achievement of its 2030 goal.
In July, ACEN approved the divestment of all its shares in its wholly-owned subsidiary, South Luzon Thermal Energy Corporation, through a pioneering energy transition mechanism transaction in the Philippines. Subject to regulatory approvals, shares of SLTEC will be acquired by ETM Philippines Holdings, Inc. and The Insular Life Assurance Company for an aggregate value of ₱3.7 billion, which will be reinvested by ACEN in renewable energy projects. This is the second tranche of the energy transaction mechanism, which follows an earlier ₱3.5 billion return of capital to ACEN, following the refinancing of SLTEC’s loan. EPHI is a special purpose vehicle that allows financial investors to invest in energy transition by accelerating the retirement of coal-fired power plants, and to fund the development of new clean energy technologies. The transaction solidifies ACEN’s path towards transitioning the 244MW SLTEC to cleaner technology by 2024, which is 15 years earlier than the end of the plant’s technical life.
Balance Sheet Highlights
- Parent level cash stood at ₱18.8 billion.
- Parent net debt stood at ₱123.1 billion.
- Parent net debt-to-equity stood at 94 percent.
- Consolidated net debt-to-equity stood at 71 percent.
Loan-to-value ratio, the ratio of its parent net debt (excluding the fixed-for-life perpetuals which have no maturity) to the total value of its assets, was at 9.2 percent.
On May 26, 2022, Ayala successfully issued its ₱10 billion fixed rate bonds with an oversubscription option of up to ₱5 billion. The bonds constitute the second tranche of Ayala’s ₱30 Billion shelf registered debt securities program, which was rendered effective by the SEC in May 2021. The second tranche consists of 4.4542% Series C Bonds due 2025, 5.6239% Series D Bonds due 2027, and 6.1351% Series E Bonds due 2029. Earlier the same month, Ayala redeemed its ₱10 billion 6.875 percent Fixed-Rated Bonds due 2027.