How Ayala makes money and impacts society

Businesses cannot simply operate in societies that are plagued with extreme poverty and where the environment is severely degraded. It is important for businesses to build in solutions to these challenges in their business strategies for their long-term viability and survival." That's according to Fernando Zobel de Ayala, who is President and Chief Operating Officer of Ayala Corporation, and concurrently Chairman of Ayala Land, the largest real estate company in the Philippines.

"We measure the success of our businesses not only in terms of the financial and economic value we generate for our shareholders, but also in terms of the impact we make in the lives of the people in the communities wherein we operate," he says.

The key is to do business on a wider spectrum but allow the lower income groups to have access to goods and services and, ultimately, achieve a significant social impact. Zobel illustrates this by highlighting the practices of Manila Water, the Ayala Group's water distribution business. Manila Water took over water distribution from the Philippine government in 1997. Prior to the takeover, a majority of the population of Metro Manila's east zone vied for rationed water or bought water from other sources at a much higher price than the cost of piped water. Only a quarter of residents had access to water day in, day out. Today, the company is supplying water to 99 per cent of the residents in the area, mainly in low-income communities, while simultaneously providing direct and indirect employment to small- and medium-sized enterprises and community cooperatives. "By achieving operating efficiencies and developing creative metering and billing systems, (Manila Water) has been able to reach low-income communities, including public schools, markets, and hospitals that previously had no reliable access to clean water," says Zobel.

As the company helps to build communities such as these, Manila Water continues to deliver some of the best returns among the businesses in the portfolio. The company reported net income of 2.27 billion Philippine pesos ($44million; Dh161m) in the first nine months of 2009, up 14 per cent from 1.99bn pesos in the same period a year earlier. Profits for the third quarter came in at 809.5m pesos, on revenues of 2.39bn pesos, up from 2.25bn pesos a year earlier. While the company continues to post growth in the country, it is looking to expand in the region. Manila Water, together with Vietnam-based Construction Technology Development JS Company is currently working on a World Bank-funded project to reduce Ho Chi Minh's water losses by 125,000 cubic metres a day and channel this as additional supply to the city.

In short, Manila Water and other operating companies of the Ayala Group are looking to grow revenue while having an impact on society. Along with Manila Water, Globe Telecoms, the telecommunications arm of the Ayala Group, generates some $520m in revenue a year.

Globe is working with hundreds of thousands of small retailers and convenience stores which are reselling cell phone airtime credit. As the retailers make money, so too does Globe.

Another example is a joint venture with the Bank of the Philippine Islands. Ayala and Globe are working in tandem with the bank to deliver microfinance services using wireless technology. The synergies allow all three firms to generate income, not only for their respective businesses, but also allow low-income entrepreneurs to have access to real-time financial services.

Having taken an Executive Education programme in International Management at Insead in France, Zobel recognises the value of building solid business partnerships, regardless of cultural differences and boundaries. The graduate school, says Zobel, is especially useful in bringing together Asian and European managers under one roof and, at the same time, opening doors to potential partnerships and knocking down cultural barriers. "It is an excellent school. The time I spent at the Euro-Asian Centre was particularly helpful and exposed me to diverse cultures, management approaches, and businesses. It was a rare opportunity where managers from many of the largest companies in Europe and Asia come together for a great learning interaction," he recalls.

The Ayala group of companies has forged business alliances with reputable global partners such as Mitsubishi over the past 35 years, Singapore Telecom for nearly two decades and the Development Bank of Singapore for more than a decade, among many others. "Throughout our company's history, we have nurtured our working relationships with different groups over a long period of time. Our businesses have grown as supported by successful long-term joint venture partnerships," he says.

Professionalism, transparency, integrity and governance standards are "paramount", he says. "In the culture of Ayala group, we strongly believe that it is companies with these types of standards that build long-term trust with investors, customers and other stakeholders. This discipline also allows us to bring the best managerial talent into the various companies in the group," Zobel adds.

Now turning 50, Zobel remains ambitious and forward looking. He continues to lead the company towards innovation and value creation, while desiring to help in the country's development. "I would consider it both a personal and professional achievement to pass on to the next generation of leaders and professional managers a company that continues to deliver financial success, makes a significant impact and contribution to national and social development, and a company that remains as relevant to its stakeholders as it has been throughout its [175-year] history," says Zobel.

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