Message of the Chairman

Fellow Shareholders,

More than two years since the global health and economic crisis instigated severe and unrelenting disruption to the world, we have seen how people and institutions have swiftly adjusted, recalibrated, and collaborated more openly as the world transitions into the endemic phase.

Encouraging economic indicators signal a path to recovery

The global economy saw a recovery in 2021 from a sharp contraction in 2020. Similarly, in the Philippines, multi-sector inoculation efforts and the ability of both enterprises and consumers to pivot against the disruption mitigated the impact of the lockdowns. The gradually improving economic indicators have been encouraging with imports, a barometer of domestic demand, has started to recover. The private sector is resuming its investments and our government is continuing a policy of aggressive spending. Overseas remittances remained resilient, while employment recovered significantly since the pandemic began. With these developments, we saw the domestic economy gradually recovering, expanding 5.6 percent in 2021 from a 9.6 percent contraction in 2020.

For 2022, while the upward trajectory for the domestic environment is expected to continue, we are mindful of the impact of the ongoing geopolitical conflict in Eastern Europe on the country’s overall recovery.

Beyond responding to the crisis and navigating through the economic disruption, the Ayala group has overweighted its attention on existing assets and capabilities that have thrived during the pandemic and renewed its efforts on new and emerging opportunities that can drive transformative, sustainable, and long-term growth.

From reacting to the crisis to galvanizing our competitive advantage

The fundamental shifts taking place since the pandemic have created a need for economic adjustment. The Ayala group has had to realign its strategic focus and develop new opportunities to galvanize our competitive advantage and adjust to the changing economic landscape.

Beyond responding to the crisis and navigating through the economic disruption, the Ayala group has overweighted its attention on existing assets and capabilities that have thrived during the pandemic and renewed its efforts on new and emerging opportunities that can drive transformative, sustainable, and long-term growth.

Over the past two years, we have seen five structural changes define consumer behavior and the overall business environment. These, in turn, have created shifting expectations from stakeholder groups, which have redefined our strategic initiatives across our businesses:

The exit from hard lockdowns will boost consumer confidence and pave the way for a cyclical recovery.

The massive acceleration of digital adoption across different touchpoints has become ingrained in many Filipino consumers and will continue to change consumer behavior.

The systemic and global nature of climate change, inequality, and health issues have bolstered a heightened focus on businesses to adapt to green growth and a sustainable development strategy.

Experiences from the pandemic provided the impetus to build a robust and resilient healthcare system.

The surge in e-commerce during the pandemic disrupted supply chain models, unleashing a need for capacity expansion in logistics as a piece of critical infrastructure needed to support economic recovery.

Let me expand on each of these points.

The exit from hard lockdowns will boost consumer confidence and pave the way for a cyclical recovery.

The declining infection rate of COVID-19 and the easing of mobility to the least restrictive status combined with significant vaccination coverage have led us to expect a rebound in consumer spending. This will, in turn, drive businesses to resume investment spending to address pent-up demand.

While Ayala Land and BPI are vulnerable to economic cycles, they are well positioned for a strong rebound as economic activity accelerates. Real estate and banking are expected to benefit from reignited consumer confidence and the resumption of discretionary and big-ticket purchases. Ayala Land and BPI are prepared for this resurgence and have planned for higher capital and investment spending for 2021 to capture the cyclical recovery.

The massive acceleration of digital adoption across different touchpoints has become ingrained in many Filipinos and will continue to change consumer behavior.

Connectivity became the lifeblood of Filipino consumers since the start of the pandemic. Many of them have adjusted to digital living and have quickly transitioned how they work, study, play, and access basic services such as financial services and healthcare.

The pioneering efforts of Globe and BPI in digital transformation have cemented their competitive advantage as the pandemic catapulted digital finance to ubiquity almost overnight. Globe has been able to build up GCash to reach significant scale and financial sustainability. At the same time, Globe is transforming itself into a digital solutions platform by providing products and services beyond traditional telecom services to address the evolving needs of consumers and enterprises.

Meanwhile, BPI is building on its significant lead in its digital channels and wider reach from open banking. With the robust digital engagement it has achieved over the past two years, BPI is accelerating its technology investments for 2022.

The systemic and global nature of climate change, inequality, and health issues have bolstered a heightened focus on businesses to adapt to green growth and a sustainable development strategy.

The pandemic has provided us with a preview of how a systemic occurrence can disrupt an interconnected world. This has reinforced the urgency of tackling risks that are systemic and global in nature, particularly the need to prepare for the effects of climate change, inequality, and health issues. In particular, COP26 has pushed the energy transition agenda from fossil fuels to renewable technologies and made it front and center of the corporate agenda. This has prompted a stronger demand for governments and businesses to adapt to green growth and develop sincere sustainable development strategies.

In response, governments, including ASEAN economies like Vietnam, the Philippines, and Indonesia are making a big push towards renewables with enabling policies and regulations.

This structural shift, coupled with the advent of new technologies around energy conversion and storage from renewable sources, provided the enabling environment for ACEN to accelerate its renewable investments and be at the forefront of energy transition in the region. Since its inception in 2011, ACEN has become one of the fastest growing renewable energy platforms in Southeast Asia and a core driver of Ayala’s earnings and value.

The pandemic has provided us with a preview of how a systemic occurrence can disrupt an interconnected world. This has reinforced the urgency of tackling risks that are systemic and global in nature, particularly the need to prepare for the effects of climate change, inequality, and health issues.

AC Health set up COVIDShield in support of the government’s pandemic response. The vaccination program administered 649,000 doses by the end of 2021.

Experiences from the pandemic provided the impetus to build a robust and resilient healthcare system.

Notwithstanding the recovery we have started to see, the country will still have to continue to manage the effects of the health crisis and prime itself to develop post-pandemic healthcare systems. The unprecedented level of health awareness from the pandemic is expected to boost healthcare expenditures in the country. We see this as an opportunity for greater private sector participation to help augment the capacity and efficiencies of our health system.

Since the beginning of the pandemic, AC Health has been able to pivot and provide significant assistance to government in implementing its COVID response. It has helped provide isolation, testing, and treatment facilities, and has actively participated in the national vaccination program. In addition, with its presence in key components of the healthcare ecosystem, AC Health is helping fill the gaps to uplift the quality and access to healthcare for Filipinos.

The surge in e-commerce during the pandemic disrupted supply chain models, unleashing a need for capacity expansion in logistics as a piece of critical infrastructure needed to support economic recovery.

The rise of the digital economy, taking place at a time of mobility restrictions, exposed challenges across supply chain models. Even with the lifting of hard lockdowns, e-commerce has sustained its strong momentum, driving greater demand for efficient and reliable logistics solutions.

The country’s logistics sector is historically fragmented, with challenges around efficiencies and cost that put a strain on both enterprises and consumers. Now, more than ever, transportation connectivity and the efficient flow of goods and services have become vital to the country’s economic recovery and long-term sustainable growth. As critical infrastructure, it is imperative that the country builds a strong logistics network that is at par with our ASEAN peers.

We are excited to participate in the development of this industry through AC Logistics, which is building a portfolio of end-to-end logistics solutions to serve a growing demand across a variety of sectors.

ACEN is at the forefront of just energy transition towards a low-carbon economy.

We promote the pursuit of delicate balance between growth and sustainability

As we continue to grow our businesses in today’s fast-changing environment, Ayala remains keenly aware of the need to embed sustainability and shared value creation into our strategy. Being present across multiple sectors of society, Ayala’s growth during these past years has also put into focus the progressive impact we need to make on our communities. It is in this light that we remain committed to our sustainability blueprint, anchored on the objectives of the United Nations Sustainable Development Goals. Recognizing that this push should begin within the company, we aspire to inculcate a culture of accountability, transparency, and responsibility at Ayala to promote the pursuit of this delicate balance between growth and sustainability.

In addition, we remain committed to supporting the UN Global Compact and its 10 Principles on human rights, labor, environment, and anti-corruption. Further, we support the 10-in-10 Business Ambition spearheaded by the Global Compact Network Philippines, which provides a framework focused on SME recovery and resilience in time for the conclusion of the Global Goals by 2030.

Greater diversity with evolving board composition

We always strive to achieve sufficient diversity of thinking across our board representation and have worked to create a proper combination of knowledge, experience, and expertise to guide management. With an increasing demand for companies to adhere to new ESG standards, we understand the need to always focus on revisiting our board composition and allowing transitions to take place at appropriate moments.

I would like to make a special mention of our outgoing members of the Board, Mr. Antonio Jose Periquet and Mr. Keiichi Matsunaga. Mr. Periquet has served on the board as an independent director since 2010 and was a member of our Finance and Audit Committees. He also served as chairman of our Risk Management and Related Party Transactions as well as Corporate Governance and Nomination Committees. I would like to take this opportunity to thank Mr. Periquet during this period of transition for his strong engagement and invaluable insights across the many discussions and decision-making processes we have had on the Board. He has always spoken his mind and was comfortable challenging conventional wisdom using his many years of experience across a variety of industries. We are the better organization for his independent engagement.

Mr. Matsunaga has been on the board since 2017 and was a member of the Executive, Audit, Personnel and Compensation, Risk Management and Related-Party Transactions, Corporate Governance and Nomination, and Sustainability Committees. I would like to thank Mr. Matsunaga for sharing his experience, time, and wise counsel all these years. He has also constantly worked to expand our business relations in the Philippines and across Asia. He has also been an excellent business ambassador for Japan, a country who we value as a partner to the Philippines. We would also like to acknowledge our institutional relationship with Mitsubishi Corporation, which has provided strong support to Ayala over the past 48 years.

As we work these transitions, we are pleased to announce the nomination of two distinguished individuals as independent directors: Mr. Cesar Purisima, who served as Finance Secretary and Chairman and Country Managing Partner of the Philippines’ largest professional services firm, SGV & Co., and Ms. Chua Sock Koong, Senior Advisor at Singapore Telecommunications, Asia’s leading communications technology group, after having served as its Group Chief Executive Officer for 13 years. Ms. Chua also serves on the board and holds advisory roles in various institutions of the Singapore government. We believe Mr. Purisima and Ms. Chua will provide immense value and complement the existing expertise and strengths of our current Directors. We look forward to welcoming them to our Board.

The pandemic accelerated e-commerce growth, which has proportionately reflected Entrego’s increased volume.

The road ahead

As we look to 2022 with guarded optimism, we are excited by the many opportunities that continue to appear for the group. Despite the headwinds of the past two years, the Ayala group remains fundamentally strong and poised to build on the momentum in the country’s recovery. I look forward to the continued partnership of our shareholders and all our stakeholders as we steer our institution to remain a progressive force in the economic and social development of our country.

Finally, I would like to thank our Board of Directors for its guidance, our leadership and management teams across the Ayala group for their deep commitment and engagement across many fronts, our business partners, and all our customers for their continued trust and support.

Jaime Agusto Zobel de Ayala
Chairman