Ayala Corporation (AC) Earnings Call Transcript & Summary

Afternoon, everyone. I’m [ Johan Cavan ] of Ayala's IR team. Welcome to AC's full year earnings briefing for 2020. Before we begin, let me introduce our senior executives joining us today, starting with TG Limcaoco, outgoing Ayala CFO and incoming BPI President and CEO; Albert de Larrazabal, incoming AC CFO and current Globe CEO; Art Tan, President and CEO of AC Industrials; Eric Francia, President and CEO of AC Energy; Paolo Borromeo, President and CEO of AC Health. Also with us are [ Opal De Asis ], Ayala's Controller; and Lito Biacora, our Treasurer. We'll kick off our full year presentation, which will be done by TG, and we will open the floor for Q&A, which will be moderated by our Head of Investor Relations, Ms. Celeste Jovenir. We have sent out the presentation to all concerned participants. But for those who have not yet received it, you can scan the few articles or visit the URL on the screen to download it. Lastly, we just have a few housekeeping rules for the Q&A before we begin. Participants can use the Q&A chatbox or the raise hand function to address our panel. Just please make sure that we can identify you by making sure your Zoom ID contains your name and company as we call you out. And likewise, please state your name and company before asking your questions, if you choose to raise your question slide. Now with that, for the final time, let me pass the floor to TG for recommunication. TG, over to you.

Thank you very much, [ Johan ], and good afternoon to everyone on this call. Allow me to present -- make a presentation a little bit differently this time. I'll start off by really talking about our fourth quarter numbers and how strong we are relative to quarter 3 as a result of the opening of the economy and give you some of the facts that drove that. And then let me go into the full year numbers and then do some details of each of our major businesses. So honestly, with the further easing of the quarantine and mobility restrictions that we saw in the fourth quarter, this sustained our quarter-on-quarter growth. If we isolate the provisions that we recognized by the various business units during the period, and the partial reversal of Manila Water's remeasurement loss that we booked in the previous year, our core net income grew 46% to PHP 6.8 billion in the fourth quarter from the previous quarter, and this was primarily driven by: one, Ayala Land, which posted a better performance on higher residential and leasing revenues as the operations and construction activities progress faster obviously with the easing of the mobility restrictions. Secondly, stronger results recorded by Manila Water and AC Industrials and then obviously also from the better valuations of AC Venture's international fund investments. Our reported net income for the quarter increased 69% quarter-on-quarter to PHP 5.8 billion, and this includes the effect of the partial reversal of Manila Waters remeasurement loss and other provisions. When we look at core equity earnings, our core equity earnings rose 29% quarter-on-quarter. We are pleased to report that the indicators that we have been tracking throughout this pandemic have continuously shown improvement. For example, Ayala Land's property presales registered PHP 21.1 billion in the fourth quarter, which is about 58% of the pre-COVID levels. The average weekly mall for traffic on the other hand has reached 35% to 45%, an improvement of about 10 percentage points from the last quarter. We even saw 90% to 100% of the foot traffic during -- in some malls during the Christmas holidays. For BPI, 2 of the many data points that we look at, at BPI are the applications for auto and housing loans. This number gives us an idea on the appetite for big-ticket items. As of January 2021, we were pleased to see that the former had reached 92% of pre-COVID levels, while the latter had recovered to 76% of pre-COVID levels. At Globe, we track mobile top-ups, which dipped for a period at the start of the ECQ, and this has reverted back to pre-COVID levels. Moreover, due to the strong take-up of home broadband because of the lockdown, total top-ups have surpassed the pre-COVID levels by about 5%. Fixed wireless subscribers have also more than doubled from the 2019 number. At AC Energy, power demand in Luzon saw a 22% drop in April, but has significantly recovered since then. This past January, Luzon peak was at 94% of the year-ago levels, and AC Energy's 2020 attributable output grew 38% year-on-year. In our other utility, Manila Water, the broad volume for the East Zone saw a 3% increase in 2020, but with a shift towards residential consumption in light of the restrictions on mobility due to the lockdown. And lastly, at AC Industrials, one of our hardest-hit businesses, they've exhibited a nice rebound, particularly on the global manufacturing point. Plant activity has normalized with all 30 manufacturing sites operating. At AC Motors in the local auto space, retail car sales were only 56% of pre-COVID levels in September but now has progressed to 70% by the end of the year. Likewise, unit service reached 74% of their pre-COVID levels. Now if we move on to the full year performance, if we exclude the divestment gains from education and power that we booked in 2019, and we exclude the impact of the reclassification of Manila Water as an asset held under PFRS 5 for both 2019 and full 2020 and the more -- the significant loan losses at BPI, Ayala's core net income declined 16% to PHP 26 billion in 2020 as the impact of the mobility restrictions weighed down on our various business units. As background, we recognized a remeasurement loss of PHP 18.1 billion in December 2019 as a result of the reclassification of our investment in Manila Water as an asset held under PFRS 5, the accounting standards for assets held for sale. In 2020, we recognized a partial reversal of the said loss provision in accordance with the accounting standards. Our reported net income, on the other hand, decreased 51% to PHP 17.1 billion, owing to the impact of COVID-19 on our business operations due to the provisions booked by our various business units as well as the absence of divestment gains from AC Energy and AC Education. During the same period of 2020, our core equity earnings dropped 10%. Let me discuss the equity earnings contributions of our various business units. If we strip away the extraordinary gains, Ayala Land was evidently our most severely affected business, recording a 74% drop in 2020. While AC saw 26% drop -- sorry, while AC saw a 26% drop in BPI earnings contribution, considering the excess provisions, if we do that, if we exclude those excess provisions, this actually reflects a 38% increase. The equity earnings contribution from Globe declined 9%, largely driven by softer GSR and higher depreciation expenses from its continued network investments. The AC Energy equity contribution, on the other hand, increased close to 4x as plants and acquisitions drove upward for 2020. Finally, AC Industrials narrowed its net loss despite the challenging period due to the improved performance of IMI, which turned positive starting in the third quarter. As we have shared many times throughout this pandemic, our digital channels have benefited from this otherwise unfortunate period. Our finance apps, BPI Mobile and GCash, are the top finance apps in the Philippines according to the third-party data provider AppAnnie. Our BPI Mobile app -- for BPI Mobile, our enrollments online grew 18% during the year, while the number of our active users increased 41%. GCash, on the other hand, has consistently been on the top of finance charts across all platforms. The growth in registrations is 3.7x that of the pre-COVID pre-ECQ levels with registered customers at 33 million people, one out of every 3 Philippinos. QR code and P2P merchant charges are at over 600,000 as well. Additionally, we breached the One peso trillion mark in gross transaction values over GCash in 2020. Our logistics company Entrego saw a tremendous growth as e-commerce activity accelerated during this quarantine period. While there was a slump at the start of the ECQ due to mobility limitations, volume has seen a steep recovery since and is now at 67% higher than pre-COVID levels as of January 2021. We also onboarded in 2020 a total of 98 clients, 98 new clients, only 3 of which joined in the first quarter. Lastly, our e-commerce fashion platform, Zalora, is ranked third in both the Apple Store and the Google Play platforms. Growth is evident with the number of brands increasing more than 7x in January from the same period in 2020. Likewise, our customer base increased 30% in the same period. This has led to Zalora's NMV to grow by 50% during this period. As we entered lockdown, one of the immediate priorities of Ayala was to ensure financial sustainability, which means having our balance sheet strong enough to sustain operations, service debt and capitalize on possible opportunities. As we try to invest to serve cash and shore up liquidity, the parent cash level at the end of 2020 ended at PHP 19.9 billion with net debt hitting PHP 104.7 billion. We were very active in managing our debt [indiscernible] goal, taking advantage of the current interest rates by bringing down our blended cost of debt seen in the 70 basis point drop from year-ago levels. Our current cost of debt was at 4.5% at December 2020. Close to 65% of our parent debt is in pesos, and roughly 83% of the total is fixed rate. Our maturity profile is also well spread out and with an average remaining life of 17.4 years, giving us the flexibility to fund growth opportunities as they arise. Our current net debt-to-equity ratio stood at 80% from 63% due to AC's cash commitment to AC Energy in September and our CapEx outlays for AC Health with the venture. A loan-to-value ratio or the rate of our parent net debt to the total value of our assets ended at 9.2% in 2020. As the pandemic has pushed back some of our investments in 2021, it was obvious that we only spent 58% or a total of PHP 12 billion of the PHP 21 billion we had programmed for 2020 CapEx. However, as we move towards a nationwide vaccination program, Ayala is hopeful to see volumes decline in COVID and opportunities in 2021. Our group will continue executing on our investment pipeline, and we'll set aside PHP 196 billion in combined capital expenditures at the group level with the bulk coming from Ayala Land and Globe telecom. At the parent level, this will remain muted as we expect to spend PHP 11.5 billion in capital expenditures, primarily to support AC Health, which recently acquired the Qualimed Health Network, and I'll talk about that more in the next slide. Our CapEx at the parent level is likewise earmarked for the pockets of investments program at AC Venture, AC Infrastructure and AC Industrials. Last February 26, AC Health acquired a 52.4% economic stake and a 70% floating interest in the Qualimed Health Network, which operates 4 hospitals located in Nuvali, [ Sanna Sadal Mont ] in Bulacan, Iloilo City and Tanauan, Batangas. In addition, Qualimed also operates an ambulatory surgical center at UP-PGH and has clinics in Makati, [ Cason ] City and in the Cebu IT Park. This acquisition complements the more than 85 outlets and clinics and 80 corporate clinics under the Healthway brand and also complements the country's first special cancer hospital, which we're set to open in 2023. Now allow me to touch on some of our major business units, starting with Ayala Land, whose total revenues declined 43% to PHP 96.3 billion, while net income fell 74% to PHP 8.7 billion due to the impact of the COVID-19 on business operations. In the fourth quarter, Ayala Land registered PHP 33 billion in revenues, a 49% improvement from the third quarter as demand continued to pick up. Moreover, fourth quarter net income reached PHP 2.4 billion, a 28% increase compared to the PHP 1.8 billion booked in the third quarter. Property development revenues amounted to PHP 66.5 billion, a 43% [indiscernible] due to lower project bookings and limited construction activity. However, for the fourth quarter, we saw a substantial 64% improvement in this number from the third quarter. Meanwhile, reservation sales were steady quarter-on-quarter at PHP 22.1 billion or 58% of the pre-COVID level despite limited selling activity over the year. Ayala Land launched a total of 13 projects in 2020 with PHP 10.6 billion. Commercial leasing revenues declined 44% to PHP 21.9 billion because of restricted mall and hotel operations and the closure of resorts. As restrictions were eased throughout the quarters, however, the foot traffic gradually improved to its current 35% to 45% of the pre-COVID levels. Likewise, both tenant sales and operational GLA have recovered to 53% and 69% of pre-COVID levels respectively. This drove a 10% increase in mall revenues quarter-on-quarter in Q4. For 2021, Ayala Land has earmarked a total of PHP 88 billion in capital expenditures and is prepared to launch PHP 100 billion worth of residential projects as it prepares for a recovery in the coming years. For BPI, the net income of our bank decreased 26% to PHP 21.4 billion in 2020 due to the PHP 28 billion in loan loss provisions we booked in anticipation of an increased nonperforming loan. This provision was 5x larger than the PHP 5.6 billion in provisions in 2019. Total revenues increased 11% to PHP 101.9 billion due to net interest income and noninterest income growth. Net interest income was up 10% to PHP 72.3 billion on the back of a 14 basis point increase in the NIMs coming from lower cost of funds. On the other hand, noninterest income rose by 11% to PHP 29.7 billion because of robust security trading gains, which offset soft fee-based income. These boosted the pre-provision income by 22% year-on-year to PHP 53.8 billion. On the lending side, total loans declined 5% to PHP 1.4 trillion, primarily on soft corporate lending despite higher mortgage and microfinance loan segments. BPI ended the year with an NPL ratio of 2.68%, a 30 basis point improvement from the third quarter. Likewise, NPL coverage ratio rose to 115% from the 100% in the previous quarter. In addition to the statistics mentioned in our Ayala Group digital slide, BPI saw the share of transactions done digitally growing significantly over the year, accounting now for 92% of our total transactions versus 85% a year ago. On Globe, their core net income was down 13% to PHP 19.5 billion last year due to the higher depreciation charges from continued network investments. Including nonrecurring items, net income fell by 16% to PHP 18.6 billion due to a onetime impairment loss worth PHP 4.2 billion coming from the write-off of 3G assets and existing copper infrastructure. Total service revenues dipped by 2% to PHP 146.4 billion on the softness in the mobile segment as a result of the quality restrictions despite our strong broadband business. Throughout the year, the growth in demand for data has been evident as it now accounts for 76% of total service revenues from 71% a year ago. Mobile and home continues to exhibit solid growth, while corporate took a hit from today's prevailing work-from-home setups. EBITDA fell 3% to PHP 73.5 billion as a result of lower revenues and higher expenses on provisions for doubtful accounts. Consequently, our EBITDA margin slightly declined to 50% from 51% a year ago. Despite the impact of COVID-19, Globe's CapEx spend grew 18% to PHP 60.3 billion, representing 41% of gross service revenues and 82% of EBITDA. Globe has accelerated its sell-side buildout and upgrades, fiber-to-the-home deployments and 5G coverage. Globe deployed 5G sites in Metro Manila and in select Visayas and Mindanao cities, making 5G available in 1,045 areas in the country. For this year, 2021, Globe has set a CapEx budget of PHP 70 billion, 16.2% higher than the level spent in 2020. The AC Energy group posted a consolidated net earnings of PHP 6.2 billion, lower than the previous year, owing to the absence of divestment gains from the sale of its thermal assets which it booked in 2019. The net income contribution from its listed subsidiary, ACEN, reversed to PHP 2.8 billion from a net loss in the previous year on the back of higher contracted capacity and improved plant availability. Equity earnings from our international assets increased 68% to PHP 2.5 billion, supported by the full year operations of the company's solar assets in Vietnam. Other income, which includes earnings from the legacy thermal assets, offset by bond interest expense and parent overhead declined because of the absence of divestment gains booked in 2019. EBITDA ended at PHP 14.3 billion. Additionally, AC Energy's attributable output grew 38% to 4,847 gigawatt hours with an increase of 300 megawatts in operating capacity. 41% of our output came from renewable resources. The AC Energy group currently has a little over 3,000 megawatts in attributable capacity with 46% coming from assets under construction and 60% coming from renewable sources. The bulk of our capacity under construction are expected to come online during the year. In parallel, AC Energy is taking a step forward in unwinding our thermal assets with the signing of our divestment agreement for our coal-fired GNPK power plants in favor of Power Partners and their affiliates. The base selling price for that divestment is USD 453 -- USD 453 million, which will be reinvested for the company's pipeline of renewable energy projects. GNPK contributed close to 400 megawatts of thermal capacity to the group's overall portfolio. Geographically, 990 megawatts of our capacities in the Philippines under the group's listed subsidiary, ACEN, which has recently announced joint ventures with Solar Philippines and Citicore to augment its domestic portfolio. On the other hand, 1,372 megawatts of the group's attributable capacity, all of which are renewable, comes from our offshore plants in Vietnam, Indonesia, India and most recently, Australia. The company has recently announced the start of construction of our maiden project in Australia, Phase 1 of the New England Solar farm with 521 megawatts of gross capacity. Lastly, AC Energy completed its rights offerings in late January, selling 2.27 billion common shares at a price of $2.37 per share, focused primarily towards minority shareholders. The offering raised PHP 5.4 billion in fresh capital, which will be used to fund several green energy projects. With that, AC Energy has filed with the SEC its planned following offering -- follow-on offering, which aims to raise about PHP 20 billion. With the offer period running from late April 28 to May 4, AC Energy aims to sell up to 2.4 billion common shares priced between PHP 6 and PHP 8.20 per share. Moving on to Manila Water. Their net profit in 2020 declined 18% to PHP 4.5 billion due to provisions incurred for probable exposures and lower contributions from domestic subsidiaries as an effect of COVID-19. For the East Zone, revenues were flat at PHP 17.1 billion as the 3% increase in billed volume was offset by a 2% decline in average tariff. This was caused by a shift in concentration of activity towards households, tilting Manila Water's revenue mix towards a lower-priced domestic segment. Coupled with the impairment loss at Manila Water Total Solutions and higher depreciation and interest costs, net profits for the East Zone decreased 7% to PHP 4.7 billion. On capital expenditures, the total spend in 2020 amounted to PHP 12.1 billion, 81% of which went towards the East Zone concession. Last month, Ayala and Enrique Razon's Trident Water executed a share purchase agreement wherein Ayala's [indiscernible] Water agreed to sell about 2.7 billion of its preferred shares in Manila Water to Trident at a purchase price of PHP 1.80 per share, a total purchase price of PHP 4.84 billion. The preferred shares reflect a 39% holding stake and an 8.2% economic stake in Manila Water. The acquisition of Mr. Razon's group of Manila Water once fully closed will bring his group's economic interest in Manila Water to over 33.2% and voting interest to at least 51%. Ayala will remain a minority shareholder with an economic interest of 30.4% and a voting interest of 31.6%. Finally, on AC Industrials, they narrowed their net loss to PHP 1.8 billion from the PHP 2.4 billion loss in 2019. Better results from IMI and the MT Group as well as lower parent impairment provisions drove this improvement. However, the bottom line remained negative due to the health crisis negative impact on the manufacturing and automotive sectors. IMI's revenues decreased by 9% to USD 1.1 billion due to lower demand across its product lines and restricted plant operations. This trended up from the third quarter to the fourth quarter as quarantine restrictions loosened and demand recovered with the top line increasing by 11% to $347 million quarter-on-quarter. Because of better margins from increased efficiency, IMI was able to significantly narrow its net loss to $3.5 million in 2020 from the USD 7.8 million loss in the previous year. On the local auto side, AC Motors incurred a net loss of PHP 886 million as demand for local vehicles softened as an effect of the health crisis. There have been signs of recovery, however. Average retail sales and units serviced in the fourth quarter reached 70% and 74% of their pre-COVID levels respectively. Before we move on to Q&A, allow me to summarize the highlights of our presentation. First, the improvement in mobility, business operations and overall economic activity brought about by the gradual easing of quarantine protocols since March has enabled Ayala to post its second consecutive quarterly growth in the fourth quarter, with core net income up 46% to PHP 6.8 billion. Likewise, many of the indicators we have been tracking throughout the pandemic have shown recovery in varying degrees with some already reaching pre-COVID levels. Second, for the full year, Ayala's core net income declined 16% due to the effect of the pandemic on our business units. On the other hand, our net income decreased 51% to PHP 17.1 billion, including the divestment gains from education and power booked in 2019 and the impact of the reclassification of Manila Water in both 2019 and 2020 and the significant loan loss provisions for BPI. Third, we have set aside a total of PHP 196 billion in CapEx for 2021, most of which will go to Ayala Land and Globe. Fourth and related to this CapEx, we are cautiously optimistic moving forward and expect the recovery by late '22, maybe 2023, premised on the success of the rollout of vaccines in the Philippines. And finally, our balance sheet remains strong with enough cash and credit lines to keep operations afloat, service -- to service obligations, to take advantage of possible opportunities that may arise from this crisis. That ends my presentation, and I'll turn you back to Celeste for the Q&A portion. Celeste?

Thanks, TG. [Operator Instructions] I'll start off with the questions sent in by JP Fontanilla of CLSA. For Eric, how would you assess Ayala Corp's portfolio from where it stands now and where you see it being over the measure?

Thanks, Celeste. Thanks, JP. I think as you'll see, we are focusing now in terms of sharpening -- shoring up our liquidity and sharpening the portfolio decisions, not only from an Ayala group perspective but also in the respective subsidiaries or affiliates of Ayala Corp. You see a lot of increasing liquidity by realizing value in some of these parts of our assets, either for growth capital or just to strengthen the balance sheet. You've seen a lot of examples in the last 12 months alone, you've got Ayala Land doing the REIT to be able to, again, generate a lot of cash and recycling that capital. You've seen Globe be active as well in terms of bringing in investors in [ mint ]. Obviously, AC Energy has been doing this value realization and capital recycling for the last few years. We continue to do so with some growth capital injected into ACEN with some secondary share sale by Ayala as well in the process. We will continue to seek to divest thermal as well. Manila Water, you've seen us bring in a new partner, improve the liquidity and also generate some liquidity that could be upstreamed to Ayala through the preferred shares that TG just mentioned in terms of a sell-down of the Razon Group. Even in Industrials, I know Art has here had a successful IPO for VIA. Hopefully, we will do more of this as well on the infrastructure side to fund also new initiatives and logistics. So I think it's all around the group. We're very active in terms of capital management value realization. And I think it's just going to get sharper and bigger as we go on over time. I know that Fernando also as incoming CEO gives strong report in terms of the so-called sharpening of our portfolio. So it's an exciting time. I think it's an opportune time in the -- during this crisis to really solidify, strengthen the Corp, shore up liquidity, be active in investment in the investment while keeping and growing the Corp. Celeste?

Thanks, Eric. Let me call on DA then, who wants to raise his hand.

First question, I have a few questions. I'll just do it one by one. The first is on the GNPower Kauswagan sale. You did mention that the price is USD 453 million. I recall that the project cost for this one is over $1 billion. So are you expecting to book any gains from this? So that's one. And then I think TG mentioned that the capital raise here will be recycled into renewable projects. Does that mean that this capital will be infused into ACEN.

Yes. Thanks for your question. Just a couple of clarifications. You're right. The project cost is about $1 billion. That includes project debt. The equity infused by Ayala there is just a portion. That equity is typically 70-30 and Ayala puts in about 70% of the equity. So in other words, we put in a little over $200 million of book equity. We're going -- we do expect to recognize some gain. Having said that, there are retained earnings. Our carrying cost is much bigger than the par value. In other words, our carrying cost has already increased. So the gains will be muted because of the historic within earnings. But we do expect to book some gain nevertheless, once we complete the actual sell down. Now in terms of the proceeds, the $450 million will be paid over time. There will be cost of capital adjustments as well. But it is quite a flexible payment term. It's going to be done in tranches over time. In terms of the recycling of that capital, I just want to correct that like the proceeds are most likely to be upstream to Ayala Corp. I think in terms of the renewable investments and capital that we have, we -- after the restructuring and capital raising of ACEN that will culminate this year, I believe that we will have enough adequate equity capital. So I do not foresee the proceeds from GN Kauswagan to be reinvested in ACEN, but instead I would see that either stay at the energy and infra level to fund other growth investments like logistics or upstream it to Ayala Corp for capital allocation later on. Hope this clarifies the matter.

Thanks, DA. Any more questions?

Yes, I have another one. Actually, on the net debt because I noticed that the net debt increased PHP 20 billion over the course of the year, and that's despite CapEx being lower than expected. I know AC Energy after some of the money was -- that was previously upstreamed was passed on back to AC Energy, is this the only reason for the increase in net debt? And how much -- is there still capital from AC Energy just sitting with the parent? And in line with that, the net debt-to-equity looks a bit higher from 8%. Any comments on that? So those are all my questions.

Yes, thanks, DA. You're right. The reason the net debt went up and then Lito shared also, the reason the net debt went up was because we returned some of the capital that was upstreamed to us by AC Energy, and we sent it down again. That's basically the reason for the increase. On your comment on the net debt ratio, yes, it is high. So one of the targets that we are aiming for is to bring down -- bring that lower. I guess the directive from the Board is that any new investments have to be funded by capital recycling. And that's why there's this -- the strong push to recycle capital because if we want to make any new investments, we need to derive funding from that from a recycling of capital. So yes, definitely an effort. But although we do note, DA, right, that we do watch -- the big metric that I watch is really the loan-to-value ratio, which is the total debt -- our net debt as a percent of the value of our assets, which we mark-to-market. So it's a market value per asset. And that remains very muted at about 9.5%.

Thanks, DA. Let me move on to the next. There's a question sent in by multiple analysts actually. If we can share updates on the water concession agreement.

Thank you, Celeste. I've been answering this mostly. We are down to very few items. We have been in discussions with them. There's been many items already resolved. We are hoping that the very few that's left can soon be addressed. It's just that these are, shall we say, significant items that need to be studied carefully. We have recently submitted a new proposal to government to address these 2 -- the several items that are -- the remaining items that we have. So as announced by government, they're also saying that they're almost there. So we are -- we second the motion the government in saying that, yes, we do believe that hopefully, we can resolve these very few items. Celeste...

Thanks, Rene. There's a follow-up question for you from JP Fontanilla as well. Could you share any particular targets in Entrego and any time line in terms of this reaching profitability?

When we started Entrego, we had a business case, we are showing that revenues will be growing and eventually will be posited by a certain year. I'm happy to note that in the last 2 months of last year, Entrego was actually a bit a positive despite all the investments that were done. So we now believe that we can actually do better than the original plan. Unfortunately, I can't give you the exact date since we don't give financial projections. Entrego has benefited a lot from the shift to e-commerce. Our customers are now telling us to get ready for another bigger year. So we are preparing for the new volumes, new historical highs that we are supposed to be expecting this year. We see more investment opportunities in logistics. We have a better understanding of the industry. We are told that Entrego is top 3 already as far as volume for independence EP, and we have started moving into other logistics spaces already. We will make the announcements as we are able to close some of these deals at the appropriate time. Thank you.

Thank you, Rene. Let me now call on [ Jun Tarrobago ], who has raised his hand. [ Jun ]?

Yes. And just one question, actually. Given the year that was 2020, with -- at risk of oversimplifying things, TG, where do you think the most significant cost structure improvements or adjustments were for Ayala Corp across the group? And where do you think -- this is in the theme of emerging stronger from [indiscernible]. And where do you think these can result to more pronounced -- or where will the commensurate margin expansion be most pronounced across the group as well?

Well, [ Jun ], I think the one thing that strikes me is very obvious is, let's say, at the bank, where Bong has been able to bring, right, his cost, his operating expenses actually lower year-on-year, 2020 versus 2019 despite expanding the business. If you look at pre-provision operating income, he's actually up I think over 20% there. And yet his costs, right, are significantly lower. His revenues are up 11%. His costs are down. And that's -- those are structural changes he's made in terms of reducing the workforce, shrinking the branch network, putting more on technology. So that's the one big significant that comes to mind across the group in terms of making significant changes in the cost structure of the business. I think the other businesses you don't have that significant because we expect businesses to bounce back rather quickly. And basically what we've done is we've protected employees still at this time.

Maybe one last question is aside from recycling of capital, is there also some -- I'm not sure if rationalization is the right term, but a review of the different businesses in terms of what is core and what is less core? And how do you move forward with that? Sorry, my general question.

Yes. No, I think Eric's touched on that a bit, right? I think we're putting a lot more focus at the [ IC ] where we have identified our 4 core businesses, which is the real estate, the bank, the telco and energy. We are prepared to look at and execute on 2 new businesses, which is the health care and the logistics business. Everything else is a portfolio. I think one of the things that -- as Eric has said, is to be very key for the IC is to look at recycling some of the investments that we hold in portfolio, generate some cash. Look at better execution and tighter execution at the new investments that we're prepared to make bets on and then being better at capital usage across all the businesses. So as he pointed out, at ALI, they're trying to bring their debt levels down, they're recycling capital, using the REIT structure for a lot of that. At Globe, we're looking at certain activities that might be able to replicate that kind of structure. And we're obviously lighting up on some of our investments.

Very helpful. One last final question is a bit more granular on the banks. Perhaps could you share your sense of January or February NPLs? And how is the asset quality or how is the -- is the asset quality situation shaping up post the new [indiscernible]?

I still haven't seen the detailed numbers. I think they picked up a little in January, but not significantly. And those are the last numbers I looked at.

Thank you, [ Jun ]. Is that all?

That's it, Celeste.

Let me move on to Art, please. There's a few questions for you, Art. One is from Gio Dela Rosa of Regis. Can you tell us what the plans are to turnaround [ 18 dollars more ] now that it is distributing more brands including [ TIA ]? And can you also share how your cars are responding to and are affected by the safeguarding imposed on parts?

All right. Yes. So the restructuring or the crisis has actually allowed us to take a more aggressive approach in part of our long-term strategy to reorganize as well as to reallocate the different assets that we have inside AC Motors. With the addition of our newer brands and the addition of newer models to complement the different segments that we want to support that is evolving inside the Philippine motoring area, we are now aggressively repositioning the different dealerships that we have in making it a multi-brand approach. I think one of the things that is also private-centered now is the SG measures that are being implemented by the government, and to us, not all of our models are affected. And having the multi-brand approach is actually allowing us to be competitive in some parts. And then the ones that are affected, our OEM partners have already agreed to subsidize some of the effects of that change. So as far as the numbers are concerned, TG has already mentioned that the last quarter and even moving forward, we're seeing resurgence back to pre-COVID levels in terms of volume. In terms of platform, what is nice to see is that our diverse product mix in the level of private and commercial vehicle portfolio is allowing us to take a larger market share of the different segments all the way from compact, subcompact and to even the commercial transport requirements. And so we're bullish in that sense. We're seeing some adjustments that need to be made on our asset base. But in overall perspective, we see that the infrastructure that is being deployed by the government, especially with the opening of the connector skyway is helping drive that market share for us.