He said while estimates for the first three months point to a margin weaker than the "fairly strong" first quarter last year, expectations of an improved earnings performance remain high as the group’s core subsidiaries in telecoms, banking and property have been driving growth with stable earnings contributions.
In the first quarter of 2002, Ayala Corp. earned P1.33 billion with the spill over of the one-time gain from the sale of its entire equity holdings in food processing unit Pure Foods Corp. For the full year 2002, Ayala Corp.’s net income grew by 13 percent to P2.39 billion, boosted by higher equity earnings from Globe Telecom and Manila Water and some substantial capital gains from sales of shares in their listed subsidiaries and affiliates, primarily Ayala Land.
Ayala said despite the volatility of the global and domestic environment, the company has delivered "solid operating and financial results" and has "created a stronger platform for future growth and value creation."
Moving forward this year, Ayala said they continue to maintain a fairly cautious outlook given the uncertainties in the global and domestic fronts that may affect consumer and investor sentiment. Among these concerns are the economic implications of the war in Iraq, the country’s fiscal performance and its influence on interest rates, corporate credit demand, the peace and order situation, as well as the overhang of the 2004 national elections.
One of the major thrusts this year, Ayala said, is the improvement in their debt structure, having successfuly pared down their debt from its peak of $1 billion in 2000 by nearly a third to $630 million at end-2002.
"We intend to continue with our debt reduction initiative at the parent company level and hopefuly we will be able to further reduce our obligations within the next several years," he said.
Ayala Corp. treasurer and chief finance officer Delfin Lazaro pointed out that they "intend to look for more opportunities to bring down the level of debts over the next three years," adding that all maturing debts until next year have been fully covered.
The company has retired about $120 million in debts as of March 2003 and will have to service about $120-$150 million more until next year. But its recent fully subscribed $200-million bond and P2-billion preferred share issuances and internally generated cash have brought up its funding stock to $354 million, or more than enough to "tide them over the next two years."
A huge chunk of Ayala Corp.’s total debts, at about 87 percent, are dollar-denominated, although this foreign currency exposure is substantially covered by dollar assets, cross currency swaps and forward purchases of dollars.
"As we move to reduce our debt further, asset sales will ultimately have to form an integral part of our strategy," Ayala said.
This, he stressed, will include non-core and non-strategic assets which have already been identified for disposal such as the excluded assets from the sale of Pure Foods – including the Burger King franchise – and some property assets which have been booked for a long time.
These asset sales effectively constitute an asset reallocation strategy which were pursued in order to balance the company’s portfolio and reduce their historical dependence on real estate as the main income driver, Ayala said.
He said the company will spend P30 billion this year. A big portion (P20 billion or 65 percent) will be allotted for Globe Telecom while Ayala Land will get P7.9 billion and Manila Water, P1.6 billion.