For a company that has witnessed revolutions, regime change and economic challenges, some might say the prevailing global financial turmoil is just a challenge Ayala Corp. can easily breeze through.

But brothers Jaime Augusto and Fernando Zobel de Ayala, chairman and president, respectively, of the 175-year-old conglomerate, both acknowledge the fact that times are now difficult, though good opportunities are still reachable.

This being the case, Ayala, a holding firm with interests in telecommunications, banking, real-estate development, electronics manufacturing, business-process outsourcing and water concession, among others, took a step and recently announced changes in its units’ managements—a move the brothers described as attuned to the current business climate.

“We really have a tradition of readjusting with the environment. These [movements] are not really that unusual. The last thing we want to see is for people feeling some sense of instability in what we are doing. The change should not be taken negatively,” said the company chairman.

Fernando, for his part, highlighted the corporation’s good fortune in having a deep bench in management.

“We are faced with very, very intense competition. And we saw an opportunity to move some people around. The change that we have implemented drew positive reactions from our partners and the investing community,” he said.

The confidence the Ayala leaders have in their management team is tantamount to the faith they have in their balance sheets. Fernando said the never-ending task of the conglomerate is to make sure each and every company has a strong financial position to get through any type of crisis.

And who says crisis limits opportunities? Certainly, not the Zobel brothers.

“We always believe that good opportunities have taken place during down cycles. The global situation is very serious but we keep the business strong in a crisis. We are in the lookout for interesting opportunities. Next year or so, we’ll see interesting things to happen,” said Fernando, who also chairs Ayala Land.

What’s in store

Ayala Corp. reported an unaudited consolidated net income of P8.1 billion for 2008, 50 percent lower than what it made the year before, as equity earnings from its operating units dropped to P7.8 billion and capital gains from share sales declined 63 percent.

Units Ayala Land, Bank of the Philippine Islands (BPI), Globe Telecom and Manila Water all posted positive results. However, the uncertainties spawned by the global financial crisis as well as some nonrecurring items weighed on the holding firm’s earnings.

Still, Ayala realized capital gains of P2.7 billion in 2008. The year before, it booked a record P7.3 billion in gains as it took advantage of higher asset prices to realize values from some of its long-held investments. These value-realization efforts, combined with several fundraising initiatives in 2008, allowed Ayala to raise its cash to P25 billion by year-end. This would position the company well for potential acquisition opportunities amid deflating asset prices.

“While the operating environment is and will continue to be challenging, these distressed conditions also present opportunities. We continue to explore these and have ensured sufficient liquidity across the group to pursue any compelling opportunity on top of our committed growth targets in the short to medium term,” said Fernando.

Jaime Augusto describes 2009 as unpredictable.

“There are so many opinions out there and it is very hard to see which one is correct,” he said.

Fernando added, “These are the toughest times to prepare budgets. You are trying to get as good a picture as you can, but you just don’t know how deep the impact is on the country. But our group’s strong focus will be on cost efficiency and balance sheet strength. We will be more selective and reprioritize what is absolutely necessary or what has the strongest potential this year. But you will still see expansion and see a large number of capex [capital expenditure] for the group.”

Solid history

The oldest holding firm in Philippine business celebrates 175 years with a level of respect and trust few others in the country have received.

As the pioneering business house in real estate, banking, telecommunications, water distribution and electronics manufacturing, Ayala has performed a crucial role in helping the Philippine economy achieve a degree of strength comparable with those of the biggest markets in the region.

Since its inception, Ayala has continuously emphasized the value of stability, financial strength and prudence, product and service quality, and professionalism in its business mission and activities. These qualities made it the local partner of choice of international companies, and a premium brand that attracts the best and brightest talents to its ranks.

Officials also tout an unwavering dedication to social development and corporate social responsibility as one that also turned Ayala into a strong partner of entrepreneurs and communities in promoting their growth.

The seeds of Ayala’s achievements were planted on fertile ground of sound business principles cultivated and nourished since 1834.

Ayala traces its roots to Casa Roxas, a business house established in Manila in 1834 by Domingo Roxas and Antonio de Ayala. The company initially focused on agriculture and trading, but it eventually expanded to manufacturing and other industries and services, such as the Destileria y Licoreria de Ayala y Compañia, a distillery with modest beginnings that, in times, supported and gave added value to Philippine sugar.

In 1851, one of Roxas’s heirs bought Hacienda Makati, a tract of farmland in the outskirts of Manila that would be the site decades later of Ayala’s landmark development in real estate. In the 1920s, Ayala launched residential subdivisions in the area; and in the 1930s, it developed more subdivisions in Manila and other parts of Makati.

Ayala’s involvement in banking likewise started in 1851, when a Spanish royal decree created El Banco Español-Filipino de Isabel II, the first bank in Southeast Asia, with Antonio de Ayala as a director. Over half a century later, in 1912, Banco Español-Filipino was renamed Bank of the Philippine Islands. BPI would later break new ground by introducing certain innovations, including electronic and Internet banking in the Philippines.

In 1888, a member of the Ayala clan introduced a street-car system in Manila through Compañia de los Tranvias de Filipinas. In 1900, this company ceded its rights over the streetcar system to Manila Electric, Rail and Light Co. or Meralco—today the biggest power distributor.

By 1900, Ayala’s holdings had grown to encompass other sectors. In 1910, Ayala established the first Filipino life-insurance firm, Insular Life Assurance Co. In 1933, it also established Filipinas Life Assurance Company—now named Ayala Life Assurance Inc.
Many of Ayala’s groundbreaking enterprises remain today as leaders in their respective fields.

The later 20th century saw diverse and profound changes in the Philippine economy, and Ayala responded to them wisely—pioneering steps in real-estate development in 1948, banking in 1970, telecommunications in 1974, electronics manufacturing in 1980, and water distribution in 1997.

In 1948, Ayala unveiled a 25-year urban development program for what remained of Hacienda Makati. This master plan envisioned creating areas that complemented and enhanced each other’s value. Within that 25-year period, Makati emerged as the new financial, business, and commercial center of the country, with residential communities that set the standard for property development in the country.

In 1969, when tourism started to show great potential, Ayala opened Hotel InterContinental Manila, the first five-star hotel in Makati. Later, with its Makati development program still in the early stages, Ayala entered into a joint-venture agreement with the Madrigal family to develop Alabang. Decades later, this area would give rise to a new premier residential and business district.

To pursue plans for further diversification, the Ayala y Cia partnership was dissolved in 1968 and replaced with the corporate vehicle Ayala Corp.

Foreign investment became a focal point for national development, and in 1973, Ayala welcomed several Mitsubishi companies, led by Mitsubishi Corp. as investors, signing a business collaboration agreement to explore new investment opportunities in the Philippines. This partnership was instrumental in creating the country’s leading industrial park and other ventures in automotive manufacturing, information technology and water infrastructure.

Meanwhile, other Ayala enterprises continued to grow. BPI acquired People’s Bank and Trust Co. in 1974, followed by several other acquisition and merger programs which enabled BPI to become a banking icon in the Philippines.

Twenty-nine years ago, Ayala established Integrated Microelectronics Inc. (IMI) to engage in the manufacture and export of electronics. With its steady growth through the years, IMI is now a regional manufacturing player offering a wide variety of products and services to some of the best-known global original electronic manufacturers.

BPI, in 1982, pioneered ATM banking in the country. From then, it would continue introducing novel and cutting-edge alternative delivery systems to customers, including Internet banking and phone banking.

The role of state-of-the-art technology in Ayala’s ventures grew significantly in 1993, when Ayala entered modern telecommunications. Out of Globe-Mackay Cable and Radio, Ayala created Globe Telecom Inc. in partnership with Singapore Telecom that introduced the GSM system for mobile communications in the Philippines.

Ayala Land, meanwhile, started to focus on a nontraditional market—the midrange property segment—by creating Laguna Property Holdings Inc. This diversification would later bring the Ayala property brand to various emerging markets around the Philippines.

In subsequent years, major new opportunities surfaced which Ayala successfully capitalized on. In the 1990s, Ayala invested in assembly operations and a dealership of Honda and Isuzu motor vehicles. It also became a catalyst for Internet and wireless-technology use in the Philippines, with investments in e-commerce web sites, an e-procurement portal and Asia’s first free e-mail service provider.

The conglomerate also participated in the government’s infrastructure privatization program and won the landmark auction of one of Metro Manila’s water-distribution services in 1997. For this unprecedented entrepreneurial venture, Ayala, in partnership with United Utilities, Bechtel and Mitsubishi Corp., formed Manila Water Co. The company focused on operational efficiencies and eventually became a model for the government’s privatization program.

Furthermore, Ayala joined the consortium that built the 18-kilometer Metro Rail Transit system, which began serving the public in Metro Manila in 1999.

At that time, too, Ayala started working with the University of the Philippines (UP) to establish an experimental facility in technology development and technology-based entrepreneurship. And in 2008 UP–Ayala Land TechnoHub in the UP Diliman campus was launched. The facility promotes interaction among members of the industry, the academe and the investing community to harness technology initiatives, attract technology startups and establish technology-based enterprises.

By responding proactively to changing business environments, Ayala has proved that large and established institutions can succeed in business and thereby contribute to national growth. It has generated investment opportunities in a manner unmatched in the Philippine capital market. Today, the Ayala group accounts for five of the 30 companies that constitute the main index of the Philippine Stock Exchange, namely, Ayala Corp., Ayala Land, BPI, Globe Telecom and Manila Water.

At the start of the new century, Jaime Zobel de Ayala and sons Jaime Augusto and Fernando noted that the group’s success could not be measured in terms only of the bottom lines, but also in the group’s ability to sustain performance in the long term.

Ayala determined which distinctive capabilities enabled it to create value above and beyond those in its publicly listed subsidiaries. The result was a realization that besides long-term sustainability, the fundamental Ayala value was a large measure of trust.

“We found that our name means quality and trust,” the Ayala leaders said. “It gives us a premium and brings many new opportunities to our door.”

This uncommon level of trust in Ayala is a product of its record and reputation for stability, financial prudence and product quality—and Ayala continues to build on these foundations.

On the basis of trust, Ayala’s partners have contributed additional capital, technologies and networks, allowing Ayala to access new markets and introduce more products and services at world-class standards. Also on the basis of trust, Ayala continues to attract outstanding talent to its work force. It takes pride in having the best people, group-wide, for its diversified interests.

There goes its history. But its story moves on.