Message+Ops Sample

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units, which have a mandate toestablish a regional or internationalpresence and in which they havethe core competency to be globallycompetitive.

Manila Water recently signed a

joint development agreement withREE Corporation of Vietnam andour strategic partner, MitsubishiCorporation, to explore andevaluate private participationin water, wastewater and otherenvironmental services projects inVietnam. In addition, in February

2010, Manila Water also signed a joint venture agreement with JindalWater Infrastructure Limited to jointly develop new businesses inthese same fields in India. Ayalais supportive of these growthinitiatives and has signified itssupport by increasing its economicstake in Manila Water.

We also continue to support theexpansion of IMI as it seeks towiden its global manufacturingfootprint. A sizable untappedmarket exists for electronicsmanufacturing services. IMI iswell-positioned to develop its role

in this market as it expands intohigh-growth, high-margin productniches in both established andemerging electronics segments.The company will continue to buildalliances globally, forge strategicpartnerships, and participate

in acquisition opportunities. InJanuary 2010, IMI listed its sharesin the Philippine Stock Exchange togive it sufficient financial flexibilityas it pursues these initiatives. Itnow has operations across sixcountries through 12 offices andmanufacturing plants.

Our BPO investments continue tobuild scale and reach through aseries of mergers and acquisitions.In 2009, we merged our biggestinvestment in customer care,eTelecare Global Solutions, withStream Global Services. Thiscreated a global industry leader,ranked seventh in the world,with an operating footprint of over 30,000 employees in over20 countries. Integreon becamethe leading Global KnowledgeProcess Outsourcing companythrough strong organic growthand the acquisitions of attractive



companies in the outsourced legaland market research servicessectors. The past few years haveseen us focus on building scaleand ramping up the revenue baseof these companies, an importantpre-condition to ensuring globalcompetitiveness and relevance inthis space. As we now focus onimproving efficiencies within thislarger platform of operations, thesebusinesses will contribute morepositively to group earnings andvalue creation in the near future.

Exploring New Sectors andIncreasingGroup InvestmentsIn support of these initiatives, wehave increased our group capitalexpenditures to P70 billion this year,39% higher than the prior year.

At the holding company level, wehave kept our capital expenditurecommitment to P7 billion for 2010,mainly to support the capital needsof our existing businesses. Weincreased our stake in Manila Waterand we continued to pursue ourshare buy-back program. However,

we are prepared to expand this

effort if we find compelling value-enhancing propositions. We remainkeen to participate in the domesticinfrastructure space, includinginvestments in clean energy and thewater sector. We will continue toexplore avenues for public-privatepartnerships in these areas, buildingon our past success and experienceworking within this framework incompanies like Manila Water. Theremainder of the group’s capitalexpenditure plan includes ourbusiness units’ investments across

the real estate, telecommunications,and water utilities sectors.

As we explore opportunitiesin these new sectors, we arecommitted to reshaping a robustportfolio composed of businessesthat are attuned to the needs of

a broader based market and arealigned with society’s need toachieve sustainable growth anddevelopment. We intend to achievethis while continuing to realizehealthy long-term returns andvalue for all our stakeholders.

We appreciate the commitment



of our management team andemployees in aligning themselvesto our broader goals of creatinga thriving, progressive enterprisethat contributes meaningfully tosociety’s sustainable growth. Wethank the members of our Boardfor their guidance and direction, ourbusiness partners for their support,and our shareholders for neverceasing to believe in Ayala’s capacityto reinvent itself and continue itstradition of creative value building,entrepreneurship and effective use

of risk capital to add value to ourbroader community of stakeholders.

JAIME AUGUSTO ZOBEL DE AYALA

Chairman and Chief Executive Officer



FinancialServices

BUSINESS REVIEW

Despite the doom and gloom at thebeginning of the year, we weatheredthe global financial crisis andimproved our net income by 33% toP8.5 billion and our return on equityfrom 10% to 13%.

We started the year cautiouslyby paring our already prudenttreasury positions by 20% andby pricing our credit portfolio at

appropriate risk levels at the time.We felt that the economy wasshifting from systemic and marketrisk in 2008 to specific and creditrisk in 2009.

Given this, our overall loansgrew by only 2%. Excluding liquid

multinationals who paid downtheir precautionary 2008 loans,total loans to domestic companieswere at a respectable 9%. Wegrew double digit at the smalland medium enterprises (SME)and consumer segments and weimproved our position in credit cardbillings from number 4 to number 2.



Fortunately, our non-performing

loan ratios proved stable and evendeclined from 3.0% to 2.8% despitefirst-quarter fears of exporterproblems and third quarter worriesof super typhoons destructiondefaults. Following global trends,local interest rates fell 200 basispoints from end-2008.

Overseas Filipino remittancesdefied conventional wisdomof worrisome declines andgrew 15% for BPI and 5.6% forthe Philippines. To enhancecustomer loyalty, we heavilypromoted savings accounts toprotect our BPInoys during the

crisis, and they responded with

a 42% increase in overall OFWdeposits.

We refreshed our branch look,and increased our number of relationship managers and financialadvisors. We also launched a Bank Anywhere program by which everybranch became a home branch.This served our business continuityprograms well when we operatedcontinuously through non-floodedbranches and automated tellermachines (ATMs) during TyphoonOndoy (Ketsana).

We also formed two strategic

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