Chairman's Message

FELLOW SHAREHOLDERS:

Let me start by saying that we are encouraged by the positive developments in the Philippine economic and political landscape during this past year. Our GDP grew by its highest rate in over three decades, supported by robust domestic consumption and rising private investments. Consumer and business confidence was high and rose further after the leadership transition in government.

These conditions encouraged revenue growth in our domestic businesses as our various industries captured the uptrend in the early stage of this growth cycle. This was reflected in their strong operating and financial performance in 2010, which our President will elaborate on in his report.

At this stage, we see a sustainable pattern in this growth, particularly in our real estate, banking, telecom, and water businesses. There are opportunities in each of these sectors as we seek to tap a much larger base of customers, at all levels, including those at the base of the economic pyramid that remain unserved or underserved. Meeting the needs of this broader community in ways that encourage social and economic development ultimately expand economic value not just for ourselves, but for society as a whole. While we have been quite successful in our traditional markets, which continue to grow, we believe there is also opportunity in creating value by addressing the needs of customers beyond the mainstream market. This segment defines a market with unique needs that, when met by innovative and creative business solutions, can present a compelling economic proposition. We believe that, as a group, we are in a position to put our resources to work to address this market effectively. Our overarching view is that our long-term economic success as an enterprise is closely linked with the well-being of the communities within which we operate.

While we continue to work with our traditional markets, I thought it was worth highlighting a number of initiatives we have developed in the less traditional side of our group.

Let me start with the launch of BPI Globe BanKo Savings Bank, the first mobile microfinance bank in the country. Since its launch in February 2010, it has established six branches, three of which are in Luzon, two in the Visayas, and one in Mindanao. We have extended around P1.1 billion in loans to micro-entrepreneurs and BanKo is now able to reach 40 microfinance institutions that, in turn, reach out to 200,000 customers. Our goal is to expand our business reach to this new market segment, while also creating a more inclusive developmental business proposition by providing access to financial services to many of those who previously could not open a bank account.

In real estate, Ayala Land Inc. also attracted new customers this year through its latest venture in the economic housing segment under the Amaia brand. While growth in the top-end and mid-range segments continued to drive our residential development business, we saw Amaia making an initial contribution to residential sales this year. We believe that this new segment has strong potential for growth.

In our water distribution business, Manila Water, through its Tubig Para Sa Barangay program, is serving more than 1.6 million people from low-income communities, including informal settlers. This program has also been key to reducing the incidence of water leakage and pilferage. It has contributed to the decline in non-revenue water to an all-time low of 11% this year, aside from generating savings for customers in this segment.

Our development of these new customer segments runs parallel to our growth objectives in the traditional markets we serve. As we see growth spreading outside Metro Manila, we are also expanding our presence in high growth provinces and cities and have locked in a pipeline of projects in these areas. The opportunities we see have led us to increase our group’s capital expenditure program in 2011 to P79 billion, 21% higher than what was spent in 2010. A significant part of this is allotted for investments in the domestic market as we strengthen our group’s capacity to address these opportunities.

The current momentum in the domestic economy has also ushered a renewed interest to invest in sectors that are critical to sustaining and raising the country’s growth trajectory, particularly with the government’s emphasis on increased private sector participation in the infrastructure and power sectors.

We believe there are value propositions in these sectors. We have made initial investments in the power sector in 2010 and, over the medium term, we aim to assemble a portfolio of power assets comprising both renewable and traditional energy sources. We are in the process of developing focused platforms across various technologies, such as solar, wind, both large-scale and mini hydro, as well as thermal energy with the intent of balancing cost of energy delivery with sustainable practices. We also remain engaged in the transportation infrastructure space and continue to evaluate opportunities that allow us to enhance the business proposition of our other business units.

In the end, we hope to broaden our customer reach and diversify our portfolio in a manner that creates developmental impact and economic value both for our corporation and society as a whole. We have always taken pride in aligning ourselves with national development goals and this year is no exception.

We thank our board of directors, management team, business partners, and fellow shareholders for their continued support and trust in Ayala. We hope to remain partners with you all in our quest to build sustainable longterm growth and value for the institution.

JAIME AUGUSTO ZOBEL DE AYALA