Ayala Corporation Investor Presentation W a t e r August 2018 - - PowerPoint PPT Presentation

Ayala Corporation

Investor Presentation August 2018

Real Estate

F i n a n c i a l S e r v i c e s

Telecom W a t e r Education Industrial Technologies Infrastructure Healthcare Social Commitment Power Generation

With solid macroeconomic fundamentals in place, we believe Philippine expansion remains resilient amid a continuing weakness in the global economy Our portfolio of businesses is well-positioned to capture the sustained momentum in the domestic environment underpinned by the 10-point economic agenda of the Duterte administration Our core businesses remain upbeat as our power business begins to deliver a new source of growth We continue to expand our portfolio and are establishing new businesses in healthcare and education and are deepening our presence in industrial technologies to seize opportunities in these sectors Ayala has ample financial capacity to support portfolio movements and potential sizeable investments, with demonstrated flexibility to raise capital

Key Messages

Ayala is well-positioned to capture sustained momentum amid Philippine economic growth

2

Macroeconomic Overview

GDP per capita has steadily grown on consumption, which is expected to increase further due to the first package of the government’s tax reform program Opportunity to benefit from demographic dividend, the working-age population increases relative to the young and old by 2050

2,947

15

2,880 2,852 2,768

2016 14

3,022

13

+2%

2017 However, more work remains, particularly in power and infrastructure and attracting further capital investments 2018 should see continued growth, amid solid macro fundamentals 5.8 7.0 6.3 5.6 5.6 17 16 14 13 15

37 63

19

34 39 29 25

10

0-14

155 101

2050

15-24 25-54

2015

>55

22 18 16 13 25 23

14 13 17E 16

+15%

15 12 3.4% 17 5.6% 16 15 12 14 2.7% 13 2.7% 2.0% 3.3% 18E 6.1% 17 3.2% 16 4.1% 3.2% 12 3.0% 15 1.4% 1.8% 14 13

6.8%

6.9% 17 15 16 14

7.2%

6.7% 12 13

5.9% 6.2%

17 4.0% 13 4.0% 3.0% 16 3.0% 15 14 3.5% 28.1 16 27.3 28.3 14 13

29.7

25.4 15

With healthy fundamentals combined with a demographic sweet spot, the Philippines remains on a solid growth path

7-8% 2018 Govt Target GDP Per Capita ($) Household Consumption Growth Demographic Dividend BPO Revenues Infrastructure Spending As a % of GDP Interest Rates GDP Growth Inflation Remittances

Source: Bank of the Philippine Islands, Bloomberg, U.S. Census Bureau

17 3

We continue to be positive about our growth trajectory as we move closer to our 2020 goals

Business Overview 4

Increasing our profitability by doubling our net income and improving return on common equity Diversifying the portfolio by increasing contributions of emerging businesses and expanding international businesses

Net Income and Return on Common Equity Equity Earnings from Emerging and International Businesses

30.3 26.0 22.3

50.0

2020 2017 2016

15%

2019 2018

2X

12.1% 2015 12.6% 5% 3% 2015 7% 2016

10%

2017 2020 12.4% 2015 16% 11.8% 2017

20%

2016 2020 Contribution of International Businesses Contribution of Emerging Businesses 13.2%

5

Amidst the Philippines’ economic growth, our unique portfolio of businesses provides various engines for growth and diversification

Business Overview

100%*

A fast-growing regional energy platform with investments in renewable and conventional power assets and development,

• perations and retail

supply capabilities

47.0%* Leading and most diversified property developer in the country with the largest landbank (approx. $12B market cap) 48.6* Pioneering financial institution and one of the most profitable banks in the country (approx. $8.5B market cap) 31.0%* Purveyor of the Filipino digital lifestyle, supported by a robust telecom infrastructure (approx. $4.4B market cap) 51.6%* Regional player in water infrastructure services and development (approx. $1.1B market cap)

Real Estate Financial Services Telecommunications Water Utilities Power Social Infrastructure

100%* Industrial technologies investments focused on electronics manufacturing, vehicle retail, and enabling technologies

Industrial Technologies

100%* Developing an integrated ecosystem focused

• n affordable

medicine and access to healthcare services 100%* Investing in educational institutions to deliver affordable high quality education that improves employability of students 100%* Growing portfolio of key infrastructure projects and public- private-partnerships (PPPs) in the Philippines

*AC effective ownership as of May 2018

Infrastructure

100%* Making Ayala’s strategic investments and fulfilling roles as an enabler by investing in complementary businesses; and as a pathfinder by investing in emerging trends, and innovative businesses.

Strategic Investments

Ayala Land is shaping a more balanced portfolio in terms of net income mix by location

Real Estate

6 Creating a balance between residential and leasing segments Continued expansion of large scale township developments across the nation

1H2018 54%

New Estates/ Growth Centers Established Estates

55% 45% 1Q2018 46%

1.0 1.0 1.8

3.1

Office GLA

2016 1H2018

1.4 3X GLA 1.5

1.8 2020

Malls GLA

2017

1.6 0.7 0.8

2015

25.3

2X

2020

40.0

FY2017

Predicated on continued growth

• GDP momentum
• Stable rate environment/

inflation

• Positive mortgage lending

environment

Income contribution by location

Increasing leasable space

Gross leasable area in millions sqm.

Net income (₱ billions)

2020-40 Growth Plan

Total landbank: ~10,285 hectares

Launched ₱88.8B worth of projects in 2017

Azuela Cove Davao City Evo City

Kawit, Cavite

Parklinks

Pasig

BPI continues to focus on earnings stability through strategic lending and ramp up of fee-based businesses

Financial Services

7 Amidst the intense competitive landscape and increasingly challenging regulatory environment, our core banking business continues to improve Our goal is to optimize strategic lending and to further improve earnings quality

▪ Ramp-up in new technology investments aligned with the Bank’s digitization strategy for Growth, Resiliency, and Security ▪ Focus on stability of earnings from core lending and fee-based businesses ▪ Created the Business Bank to focus on the needs of the SME segment ▪ Continued expansion of retail footprint by an additional 30 new branches per year for the next 3 years ▪ Broad-based increase in fee-based income to come from cross selling credit cards, cash management as business growth moves down to SMEs

1H2018 26.2 1H2017 23.5 1H2018

11.8

• 6.9%

11.0

1H2017 1.2 1.1

+15.7% 1H2017 1H2018

1.5

1H2018 1H2017

1.4

7.2%

FY2017 1H2018 NPL ratio 1.29% 1.80%* Capital adequacy ratio 12.74% 17.29% Cost-to-income ratio 54.3% 57.0% ₱ billions ₱ billions ₱ trillions ₱ trillions

Net interest income Non-interest income Loans Deposits +11.5%

*Based on BSP Circular 941 effective Jan 2018

Globe continues to gain traction through highly targeted product offerings and successful capture of the digital lifestyle

Telecommunications

8

Revenues and market share increasing on the strength of subscriber-driven growth, supported by controlled costs resulting to faster EBITDA growth

Globe’s customer-centric strategies are key in achieving continued growth for mobile and data 27.3 +19% 32.5

1H2018 1H2017 1H2017

57.3 59.8

2.5 2.4

62.7

+9%

Postpaid

1H2018

65.1

Prepaid

1H2017

0.6

+22%

0.6 1.2

Wireless

0.7

Wired

0.8 1.5

1H2018

39.7

Non-Data

28.5

+9%

Data 1H2018

68.2 33.1

1H2017

62.9 29.8

Service Revenues EBITDA Total Mobile Subscribers Home Broadband Subscribers

Entertainment Music Social Shopping Chat As part of its commitment to the National Telecommunications Commission on the use of the LTE frequencies acquired from San Miguel, it has deployed over 1,100 cell sites to utilize the LTE 700, LTE 1800 and LTE 2600 frequencies. For the first quarter of 2018, Globe has spent $127 million in capex, ~64% of which was related to data requirements.

Continuously building a portfolio of services and content for its subscribers’ evolving digital lifestyle Globe continues to invest in its data network to improve service delivery

MWC is holding steady in the core Metro Manila Concession, while ramping up its other domestic and regional operations

Water Infrastructure

9 Steady growth in the Manila Concession amidst arbitration challenges Continued ramp-up in non-Manila Businesses, both locally and internationally 57 55 193

242

188

Domestic/ Semi-Commercial

250

1H2018

+3%

1H2017

Commercial/ Industrial

133

Expansion

1H2017

Platform

+3%

1H2018 111 139 109

By customer By area type

Manila Concession billed volume (in mcm)

Launch of Healthy Family Mini Gia Lai Bulk Water Project, Vietnam

Gearing towards further international expansion: Vietnam, Thailand, and Indonesia

Stake in PT Sarana Tirta Ungaran (Indonesia) Stake in East Water (Thailand)

AC Energy manages a diversified portfolio of generation assets

AC Energy Portfolio

10

AC Energy’s local and international portfolio

(81 MW) North Luzon Renewables (52 MW) NorthWind Power (632MW) GNPower Mariveles (1,336MW) GNPower Dinginin 2019 (244MW) SLTEC (45MW) Sacasol (80MW) Islasol (20MW) San Carlos Biopower 2018 (25MW) South Negros Biopower 2020 (18MW) Monte Solar Inc.

(552MW) GNPower Kauswagan 2019

(280 MW) BIM Solar Plant 2019 Salak Geothermal Darajat Geothermal Plant 637 MW (combined capacity)

International 300MW Philippines 1.4 GW

(75 MW) Sidrap

Over 1.7 GW

Attributable capacity in

• perations and under

construction across the region

Under Construction

1.2 GW

Operational

480 MW

Thermal

1.3 GW

Renewables

400 MW

AC Energy is scaling up its renewable energy platform with a strong project pipeline

AC Energy Pipeline

11

Projects estimated to reach financial close by 2022

Over 4 G W

P i p e l i n e

*Gross capacity in the Philippines, attributable capacity yet to be determined with partners

AC Energy is targeting to exceed 5GW by 2025

AC Energy Targets

12

AC Energy 2025 Vision Key Strategies < 5GW ~1700MW 2025F 2017 Aug 2018 ~1600MW ▪ Exceed 5GW attributable capacity ▪ At least 50% of

• utput from

renewables ▪ Will require around US$2 billion of equity ▪ Scale up to over 1GW for each priority market ▪ Leverage both internal development capabilities and strategic partners ▪ Active recycling of capital Sources of Funding

▪ ~US$1 billion from thermal platform sale (valued over US$2 billion by third parties) ▪ ~ US$500 million from recycling profits and other value realization initiatives ▪ ~ US$500 million of corporate debt ▪ No expected capital call from Ayala beyond the US$800 million that has been committed to AC Energy

AC Energy employs active development and capital recycling to sustain growth

AC Energy Business Model

13

Illustrative Case Study: Wind Project

Traditional “build & hold” model Equity invested US$100 Mn Hold to maturity IRR 16+ % Valuation at “X date” after de- risking (construction, customer

• ff take risks)

US$250mn Expected return vs MTM value 8% p.a. Estimated value after 2 years post ” X date” US$290mn Hybrid long term hold + capital recycling model Same Same Same

Sell down 40% at “X Date” for US$100mn, while retaining 60% stake worth US$150mn Reinvest US$100mn on similar project & outcomes Estimated value after 2 years post ” X date” US$175mn (From 60% ownership

• f original investment)

+ US$ 250mn (100% ownership

• f 2nd project)

~US$425mn or 47% improvement over “build & hold”

NORTHWIND POWER

NORTH LUZON RENEWABLES

MONTESOL SD Geothermal SIDRAP PROJECT GNPOWER MARIVELES SLTEC

Northern Luzon Northern Luzon Western Visayas West Java, Indonesia Sidrap, Indonesia Central Luzon Southern Luzon

Net Capacity

52 MW 81 MW 18 MW (DC) 637 MW 75 MW 632 MW (2 x 316MW) 244 MW (2 x 122MW)

Ownership / Attrib capacity

~68% / ~35 MW ~36% / ~29 MW Underwriting 100%

• f project / ~17 MW

~20% / ~126 MW 75% / ~56 MW 20% / 126 MW 35% / 85 MW

Partner(s)

Northwind founders PINAI Fund, UPC Renewables, DGA Bronzeoak Star Energy EGCO UPC Renewables Indonesia Power Partners, Aboitiz Power Phinma Energy, Axia Power

Project cost / Equity Invested

~$100M / ~$26M $220M / ~$103M ~$27M / ~$27M N/A ~$150M / ~$150M $1.0B / ~$165M $522M / ~$86M

EPC contractor

Vestas turbine for 33MW; Siemens turbine for 19 MW Siemens turbine Conenergy Star Energy Gamesa turbines China National Electric Engineering Co DM Consunji, Inc.

Status ▪ ₱5.76/kwh feed-in- tariff for 33MW ▪ ₱8.53/kwh feed-in- tariff for 19MW ▪ Additional stake of 17.79% effective November 2016 ▪ 81MW completed Nov 11, 2014 ▪ ₱8.53/kwh feed-in- tariff ▪ Started operations in February 2016 ▪ Qualified for ₱8.69/kwh feed-in- tariff ▪ Certificate of Compliance (COC) in process - given Feb 2017

• Acquired in April 1,

2017

• Salak Geothermal:

377MW integrated steam and power plant

• Darajat

Geothermal: 217MW integrated steam and power plant

▪ Construction completed in 1Q2018

• 604MW
• perational since

Feb 2014

• Additional 28MW

Pmax Certification from ERC on Jan 2017 (from 604MW to 632MW)

• Unit 1 operational

since 2Q2015

• Unit 2 operational

since Feb 2016

AC Energy has assembled over 1,700 MW in attributable capacity across thermal and renewable platforms

Power Portfolio

Renewable Energy Operating Assets

14

Conventional Energy Operating Assets

Power Portfolio

15

GNPOWER KAUSWAGAN

GNPOWER DININGIN

BIM SOLAR POWER PLANT Northern Mindanao

Central Luzon

Ninh Thuan Province, Vietnam

Net Capacity 552 MW (4 x 138 MW) 1336 MW (2 x 668MW) Closed 280 MWp of 330 MWp AC ownership / Attrib. capacity 85% / 469 MW 50% / 668 MW 50% / 140 MWp Partner(s) Power Partners, PINAI Fund Power Partners, Aboitiz Power BIM Group Total project cost / Equity Invested ~$1.1B / ~$250M ~$1.7B / ~$120M Approx ~$900k per MWp EPC contractor Shanghai Electric Power Construction Turbine and generator supplier: Siemens Shanghai Electric Power Construction Turbine and generator: Alstom BIM 1 & 3: JUWI Renewable Energies Pte Ltd BIM 2: Bouygues Energies & Services; and BYME Engineering (HK) Ltd Status ▪ Construction of 4 units in full swing ▪ Units 1 and 2 COD target end-2018 ▪ Units 3 and 4 COD target 1H2019 Units are expected to come online between March to August 2019 ▪ Construction of 1st unit in full swing ▪ Achieved financial close of 2nd unit ▪ Unit 1 COD target 2019; Unit 2 COD target 2020

• 30 MW on-going construction
• NTP issued to Bouygues Group for BIM 2
• USD 93.5/MWh FIT rate

Conventional Energy assets under construction Renewable Energy asset under construction

AC Energy had assembled over 1700MW in attributable capacity across thermal and renewable platforms

We continue to scale up through strategic acquisitions in renewable platforms here and overseas

Recent Developments

16

Small Islands Power Projects

Bronzeoak Development Platform

Australia Renewables Visayas Renewables

AC Energy DevCo

Indonesia

Visayas Region

N/A Australia

Combined Capacity Projects ranging from 10 – 20MW ~213MW

(San Carlos Solar Energy, Negros Island Solar Energy, Monte Solar Energy)

N/A TBD

Up to1,000 MW Robbins Island and Jims Plain projects in North West Tasmania and the up to 600 MW New England Solar Farm located near Uralla in New South Wales.

Attributable Capacity TBD ~10MW N/A TBD % ownership acquired TBD 100% 100% 50% Counterparty N/A Bronzeoak Founders San Carlos Clean Energy Founders N/A Partners UPC Renewables N/A N/A UPC Renewables

Strategic acquisitions

We are building a new industrial technologies group to capture global and domestic opportunities in automotive and manufacturing

Industrial Technologies

17

Increase earnings capacity Double attributable capacity and ramp up renewables portfolio

Short Term

Portfolio Building

Mid Term

Establish right to win

Long Term (Post 2020)

At Scale

▪ Acquire critical assets ▪ Manage existing portfolio ▪ Implement operating synergies ▪ Build scale in selected sectors ▪ Expand on strategic partnerships ▪ Begin building own IP and technology ▪ Globally competitive, recognized industrial group ▪ Automotive as one of several pillars ▪ Manufacturing services group serves multiple sectors

Merlin

Differentiated solar solutions (78.2%)

Key megatrends continue to drive disruption in the auto industry today

Industrial Technologies

18 ▪ Move toward self-driving and electric cars ▪ Digital revolution: analytics, smartphones, cloud computing, and IoT ▪ Rapid M&A to acquire key capabilities

Pace of technological change Data: the new natural resource Growth in consumer buying power Evolving regulatory environment Key Disruptions

▪ Rising electronic content in the car – demand for safety, connectivity, comfort, and entertainment ▪ Changes in manufacturing amid greater competitive and profitability pressures ▪ Alternative ownership models – e.g. car-sharing, on-demand services ▪ Savvy consumers demanding new buying and ownership experiences ▪ Aftermarket solutions that enable big data and increased connectivity

1 2 3 4 5

▪ Connectivity is now a high priority ▪ Data is “currency” for convenience, services ▪ Google, Apple aiming to control in-car experience – OEMs fighting back ▪ Stricter emissions requirements ▪ Pricing pressures from excise/other taxes ▪ Handsfree communication (e.g. distracted driving law) ▪ Consumers expecting smartphone-level functionality in the vehicle ▪ Better leverage from more available information ▪ Higher expectations of value for money

Controlling all of Ayala’s automotive interests allows us to better integrate industry expertise and offer a full, value-adding partnership

Industrial Technologies

19 Market intelligence and access Capital Labor Niche technology and IP Distribution Vehicle assembly Components manufacturing Financing

Global leaders Motorcycles/others Long-term strategic partnership across value chain and geographies

Traditional/ existing Ayala strengths Priority for investment and development

MCX

AFCS

LRT1 – CAVITE EXTENSION

Current ridership/traffic ~31,589/day, up 13% from 1H2017 ~5.4M cards in circulation ~448,000/day, up 4% from 1H2017 Distance 4km Retail and other use cases MDRs (merchant discounts) 32km, 29 stations Base tariff ₱17.00 (full length)

• ₱11.00 boarding + ₱1.00/km

Adjustment mechanism CPI applied every 2 years

• 5% p.a. applied every 2 years

Other revenue Advertising, land rental Other e-payment sectors Ad placements, retail space AC ownership 100% 10% direct 26% direct and indirect 35% Partners Getinsa SA (Spain) – 20% in Facility Operator Company 20% BPI, 20% Globe, 10% AC Infra 20% Smart, 20% MPIC, 10% MeralcoFinserve 55% Metro Pacific Light Rail Corp 10% PINAI Fund Project cost $54M Rail component: $38M $1.4B ($780M to concessionaire) Target D/E ratio Equity financed

• 80/20 allowed by Concession Agreement

TBD; likely lower than 80/20 EPC/O&M partners EPC: MDC O&M: Egis Systems integrator: MSI Global EPC: Bouygues Travaux Publics O&M: RATP Project status ▪ Inaugurated on July 24, 2015 ▪ Currently operating and in steady ramp-up phase with consistent upward trend of traffic ▪ Fully interoperable tollway ▪ Petition for toll rate adjustment received by Toll Regulatory Board ▪ Launched on July 2015 starting with LRT line 2 ▪ Completed full roll-out on LRT1 and MRT3 lines ▪ New payment/ retail platforms: additional 12 buses from existing partners’ new P2P routes; Coins.ph application with beep™ loading capability ▪ Completed full system takeover on September 2015 ▪ Redesign and refurbishment of stations

• ngoing; increased number of operational

light rail vehicles from 77 to 111 LRVs ▪ Signed ₱24B loan facility in February 2016

20

We have built a sizeable portfolio of infrastructure projects; and continue to

• ptimize their operations

Infrastructure

Infrastructure/PPP projects

Infrastructure 21

9M17 Operating Statistics

AC Infra set up a logistics platform to develop a broader fulfilment and logistics presence within and outside the Ayala group

New Opportunities Project highlight

• Entrego

leverages experience in e-commerce logistics, focus on technology, and a diverse team

• f experts to build a next generation logistics

provider rooted in the Philippines

In addition, we continue to scale up our healthcare and education businesses

Social Infrastructure

▪ Acquired 50% of Generika in July 2015 ▪ 774 retail pharmacy stores as of end-June

• 2018. Leader in affordable medicine, with

plans to grow to over 1,000 stores ▪ Generika revenues up 20% in 1H2018 on strong network retail sales and store expansion ▪ Opened two pilot full-service primary care community clinics under the brand name “FamilyDoc” with a total network of 37 clinics and over 128,500 unique patients as

• f end-June 2018

▪ Across the group, Ayala is putting a greater focus into healthcare ▪ Qualimed hospitals and clinics through Ayala Land ▪ KonsultaMD telehealth venture through Globe 22

In addition, we continue to scale up our healthcare and education businesses

Social Infrastructure

▪ Acquired 60% of University of Nueva Caceres in July 2015 ▪ Student population of 8,500; ▪ Recognized programs in engineering, architecture, business, education, arts & sciences ▪ Operating 23 APEC schools in partnership with Pearson with 17,700 students for SY18/19 ▪ Graduated its first cohort of 2,000 students in June 2018

• Signed a non-binding term sheet in December 2017 for a

potential merger with iPeople, Inc., which includes Malayan Education System (Mapua University), a leading private engineering and technical university ▪ Completed acquisition of 96% of outstanding voting shares of National Teachers College in February 2018. 23

Strategic Investments

1Q17 Net Income (₱ billions) 1Q 2017 Consolidated Net Income (₱ billions)

Enabling Investments Pathfinding Investments

▪ AC Ventures invests in adjacent businesses that are complementary to Ayala’s existing businesses ▪ AC Ventures serves as a pathfinder for the Ayala group by investing in new sectors and geographies, emerging trends, and innovative businesses. AC Ventures Overview 24

We created AC Ventures as our window into new technologies and business models in relevant and complementary sectors

Ayala Land, Globe, and AC Energy continued to drive Ayala’s equity earnings

1H2018 Equity Earnings 1H2018 Equity in Net Earnings by Business Unit (In ₱ billions)

3.1 1.7 0.8 2.1 5.3 6.3

25 +18% +14% 2.22x +25%

• 5.7%

+5%

₱16.1 billion

Net Income

₱19.5 billion

Equity in Net Earnings

+ 7% + 12%

Our balance sheet remains at comfortable levels to finance our expansion initiatives and meet our debt and dividend obligations

Financial Management Click to edit Master Click to edit Master Click to edit Master

As of Dec 31, 2017 Audited As of Jun 30, 2018 Audited

PARENT Gross debt

₱83.3B ₱109.2B

Cash

₱18.6B ₱15.7B

Net debt

₱64.7B ₱93.5B

Net D/E ratio

Total Parent Equity

0.59 0.85

LTV ratio

6.4% 11.6%

Cash flow adequacy ratio

2.33x 1.62x

CONSOLIDATED Net D/E ratio

Total Equity

0.68 0.76

YE2017 1H2018

Debt in ₱

58.5% 66.4%

Debt with fixed rates

92.6% 84.5%

Blended cost of debt

4.2% 4.4%

• Avg. remaining life

15.4 years 13.7 years

*Excludes preferred shares 1Excludes perpetual bonds

Click to edit Master

Schedule of Debt Maturities1*

(₱ billions)

10 20 25 28 24 21 18 26 23 19 22 20 27

USD PHP

Debt Profile*

26

Statements in this presentation describing the Company’s objectives, projections, estimates, expectations may be “forward looking statements” within the meaning of applicable securities laws and regulations. Actual results could differ materially from those expressed or

• implied. Important factors that could make a difference to the Company’s operations include, among others economic conditions affecting

demand/supply and price conditions in the domestic and overseas markets in which the Company operates, changes in Government regulations, tax laws, and other statutes and incidental factors.

For more information, please contact: Ayala Corporation – Investor Relations Unit

investorrelations@ayala.com.ph http://ayala.com.ph/investor_relations

DISCLAIMER