Ayala Group sticks to growing current businesses

In the seemingly ongoing race to the top in terms of scale of operations and profitability, the Ayala Group, unlike other corporate giants, prefers to focus its current business strategy on organic growth.

Ayala Corp, the holding company for the group's diversified interests, has no plans for major acquisitions at the moment, but is keeping a "wide lens" to see opportunities on the horizon, its chairman and chief executive officer Jaime Zobel de Ayala said in a media briefing on Friday.

"We do look at other areas, but there's nothing definite or specific at this point," said Zobel.

Ayala Corp. has long been a prime mover in Philippine business and enjoyed the title of being the country's largest conglomerate for a time.

Its current portfolio--retail, real estate, banking, telecommunications, electronics, information technology, water infrastructure, and management and business process outsourcing--was built from organic business growth and past aggressive acquisitions that sealed its leadership position.

After its attempt to acquire financial services leader Philamlife, the local unit of bankrupt global insurance giant AIG that belatedly decided not push through with Philamlife's sale, the Ayala Group has been out of the mergers and acquisitions game.

"We are very happy with the way our companies are progressing," Zobel explained.

Acquisitions

Meantime, Philippine busines is being re-shaped by how other conglomerates are beefing up their own portfolios through aggressive expansions and diversification.

Large and heavily cashed up San Miguel Group, led by chairman Eduardo Cojuanco Jr. and president Ramon Ang, and the group of Manual V. Pangilinan, who heads Philippine Long Distance Telephone Co. (PLDT) and Metro Pacific and Investments Corp., have upped the acquisitions game.

San Miguel has acquired significant stakes in the power distributor Manila Electric Co. (Meralco), oil refiner Petron Corp., and telecommunication firms Liberty Telecom and Extelcom.

The PLDT group, on the other hand, has branched out from telecommunications into utilities, with its acquisition of water firm Maynilad Water Services and the tollroad business Manila North Tollways Corp.; media, through major broadsheet The Philippine Star; hospitals and hotels businesses; and most notably, power, through its investment in Meralco.

Some of these buy-ins are said to be moves by San Miguel and PLDT to secure synergies for their telecommunications businesses.

It means stiffer competition for the Ayala's own telecommunications arm, Globe Telecom.

Strategies

Zobel said they remain unfazed by this development, stressing that while acquisitions and partnerships remain to be ways to achieve growth, they are not necessarily the more effective strategies.

"The growth of the company should not be measured in deal-making, but the way they progress and use their capital. How efficiently (capital) is used and the customer base and growth they build up over time," he noted.

The global economic slump has slashed by almost half Ayala's profits last year.

Despite the economic downturn, Zobel said they will continue to invest heavily to grow their current businesses.

P49-B budget

Ayala Corp. has earmarked P49 billion to fund its capital expenditure program this year. Although lower than the P56 billion alloted in 2008, the spending budget is seen to strengthen Ayala Corp.'s major and capital-intensive businesses including Ayala Land, Manila Water and Globe.

"This will position the group appropriately for the next upturn in the economic cycle," said Zobel.

The holding firm, which celebrates 175 years of operations, prides itself of a strong balance sheet despite the general weakness in global markets.

Company chief financial officer Rufino Luis Manotoc said they previously raised P23 billion in fresh funds, and together with internal cash, "these would be enough to finance our capex program this year."

Regional expansion

Meanwhile, Ayala Corp. president and chief operating officer Fernando Zobel de Ayala said they are also eyeing to expand their footprint regionally.

"Increasingly what you will see, the group will move more and more into the region," he said.

Ayala Corp.'s holding company for international property investments, AG Holdings Limited, for instance, has a cash horde of $250 million which it will use to invest in new projects.

AG Holdings currently has residential and other developments in Singapore, Malaysia, Thailand, Hong Kong, Indonesia and the United States.

Electronics unit Integrated Microelectronics Inc. is also looking to expand overseas after recent investments in Japan and China.

Ayala Corp.'s business process outsourcing division, LiveIt Ltd., on the other hand, is focusing on growing its new investments and is considering acquiring small companies if there are opportunities.