Strategic Business Analysis with Contemporary Issues and Trends: 05/06/2022

2.) PESTEL Analysis

a.) Political:

(Given all of the company’s strengths, weaknesses, opportunities and possible threats, all of

which are based upon their micro-environment, let us now look at the bigger aspects affecting

the company’s operations, public image, and various functions in a MACRO-ENVIRONMENT.)

(Starting off first, is in the area of politics.)

The political factor plays a major role both in the market and investment sector and has a

significant impact for real estate industries. The Ayala Land Incorporation (ALI), being a

considered Property giant, has dabbled in various overseas investment in previous years due to

the presence of globalization. However, there were reports in 2018 showing that recently, ALI

decided to focus its offshore activities closer to the region of Southeast Asia.

(Now we all know that, when we talk about the political aspect, we also talk about the different

policies the government had implemented for the benefit of its people. Specifically, the benefit

that the people, including the Ayala Land Incorporation (ALI), enjoy may be attributable to the

globalization process. Started in 1995, the country’s border is open and such business

operations are becoming limitless as they can negotiate terms and transact with other countries

across the globe. With this, the Ayala Land had been able to invest in many countries, but in the

recent report of 2018, the company decided to invest closer in Southeast Asian region.)

The company had invested in Tianjin Eco-City in China, a 3,000-hectare collaboration

between the Chinese and Singaporean governments, to show their advanced urban planning and

sustainable development. Unfortunately, it had decided to unwind this investment. In the

previous years, China’s rapid growth had brought on many challenges in the aspect of high

inequality and rapid urbanization, challenges in environmental sustainability and external

balances alongside the factors of demographic pressures. ALI’s decision to unwind the

investment also comes from the implications of massive chemical warehouse explosion in

Tianjin in August 2015 that had killed over hundreds or people. Moreover, this has been known

as China’s worst industrial disaster in years.

(The first, is in China. ALI decided to invest a great hectare of land in order to show the

company’s’ way of advanced urban planning and sustainable development. Their proposal are

promising, besides from giving acknowledgement to our country, this also shows that we can

globally compete alongside other bigger countries. However, the company decided to withdraw

the investment as they realized that the increasing economy of China had brought so many

challenges and societal pressures, including the issue way back 2015 that had result in many

lives being lost during those chemical operations in Tianjin.)

On the other hand, ALI’s 66.25% investment in MCT Bhd, a Malaysian-based

development and construction firm, were seen to become the company’s vehicle in expanding its

business across that region. In addition to that, there were reports in 2018 disclosing that MCT

had invested P2 billion to acquire a 9.8 hectares of land bank in Klang Valley in Malaysia

wherein the investment is expected to double in the next two-three years. This in turn may result

into a favorable event for the company.

And the other is in Malaysia. With great confidence, ALI has a 66.25% investment in MCT Bhd

(Berhad), in order to finally expand their name and their operations in that region.

Furthermore, the company had also invested for a land, in which it is expected to appraise in the

next 2-3 years.

Another aspect we may think of, under the political side, are those governmental regulations or

possible change in tax policies in those countries they had invested on. From here, we may

analyze that, if there’s any changes as to these variable factors, and such factors could

potentially harm the business operations, then it is probable to say that these factors can make a

significant effect in the company’s structure.

With these given facts, Ayala Land Incorporation may eventually aim to expand its

operations further in a larger scope-globally. Thus, should the political variables in the

Philippines such as those in public offices, Government business regulations, and even the Tax

policies went unfavorable, it can have an impact on the corporation. For example, if tax laws in

the host countries are amended, it may have an impact on ALI’s structure and business

operations.

b.) Economic:

The Philippines have one of the longest lockdowns in the world in response to COVID-19.

With the reported cases of infections, President Duterte declared a state of public health

emergency in the country on March 8th (Proclamation No.922). In response to this, there were

news reporting that the Philippine government imposed varying degrees of community

lockdowns to curb the spread of the virus, together with suspension of travel to and from Manila.

Looking at the macro-economic level, this had caused the country’s condition to contract by

9.6%. And with the limited mobility on business operations, unemployment likewise increased to

8.7%.
Moving on to another, is in the aspect of the economy. There are different external factors that

can affect the economy’s condition. But the main driver is primarily due to the existence of

COVID-19 in the Philippines.

Because of this, our economic status are becoming worse due the various phases of quarantine

implemented by President Duterte. And since this pandemic had greatly affected our country,

this had also made a great negative impact not just to people/consumers, but to different

corporations as well, including the Ayala Land. So because of the massive economic downturn,

ALI’s financial status and operations suffered due to: (1) a significant decrease of 43% in

revenues, and 74% in net income. (2) Different investment and project plans were postponed for

the time being (3) and they had to reduce their capital expenditure by 59% to somehow meet the

revenues they projected and meet incurring obligations.

Due to these massive economic downturns, Ayala Land Incorporation’s business operations

were affected as well:

 Ayala Land’s revenues and net income significantly dropped 43% lower to PHP96.3

billion and 74% lower to PHP8.7 billion, respectively.

 Several plans and projects were indefinitely postponed, some were cancelled altogether,

or significantly changed.

 The company reduced capital expenditures by 59% to PHP63.7 billion from PHP108.7

billion in 2019 as they prioritized liquidity.

According to the corporation, the limited economic and consumer activity caused the

company’s property development business, malls, hotels and resorts to shrink:

 The revenues earned from hotels and resorts ended 60% lower from P1.59 billion to

P640.40 million, as hotels continue to experience lower average occupancy and resort operations

were restricted since end of March. And the occupancy for these resorts remains low in the midst

of quarantine and flight restrictions.

Meanwhile, revenues earned from property development amounted P40.6 Billion,

which was a 52% drop due to lower bookings and limited construction activity. In contrast to this

brought about by the resumption of construction activities beginning June 2020, property

development revenues doubled more than to P5.7 billion in the third quarter from PHP7.6 billion

in the second quarter.

Commercial Leasing revenues were also decreased to P17.3 billion, which is about 37%

of decrease from last years’ findings, given the restricted mall and hotel operations and the

temporary closure of resorts during the period. But in the third quarter, the income coming from

mall operations started to increase by 29% from the second quarter of P1.5 billion as in the

month of June were COVID-19 restrictions were eased.

So the succeeding paragraphs before you guys shows their different activities, and

sources of revenues. And from these gathered data, most of the company’s operations report a

decline in revenue earned. And even though in the subsequent months in 2020 when our country

is trying its best to handle the situation, STILL the revenue generated is either insufficient to

cover their cost of operation, or less than the expected revenue. So a quick comparative

percentages of year 2020 and 2019, there was a significant decline by 43% on revenues and

74% decline on net income.

 Summing up the company’s performance for 2020, they had ended the year with total

revenues of P96.3 billion and net income of P8.7 billion, both of which shows a significant

decline of 43% and 74% respectively, as compared to 2019. Moreover, on the supply side, health

related issues caused by the pandemic are reflected in the diminishing operations across

economic sectors, particularly those industries engaged in real estate, property development, and

tourism.

As the effects of COVID-19 and quarantine restrictions continue, Ayala Land

Incorporation reports a profit drop of 36% from the P4.3 billion, generated year on year due to

pandemic restrictions, to P2.8 billion in the first three months of 2021. In addition to this, the

consolidated revenues amounted from P28.4 billion in 2020 to P24.6 billion, representing a 13%

decrease of amounts.

(Continuing the effects towards 2021, ALI still experienced significant drop loss of profit, like

the 36% drop from P4.3 billion due to the various phases of quarantine restrictions. However,

Ayala Land are determined to fix their sales since the government had enable businesses to

operate in the “new normal setting”.)

The revenues earned from ALI’s property development business had experienced a

drop from P17.2 billion to P16.2 billion seen in the same period of 2020, which was covered by

higher bookings and construction progress. While revenues from sale of commercial and

industrial lots had shown a 67% fall from P2.5 billion to P818.4 million due to lower Vermosa

and Alveria Sales.

Furthermore, ALI’s commercial leasing activities had generated revenue that was

unfortunately shown a decrease of 41% due to changing quarantine restrictions, finishing the first
quarter with P5.1 billion, as compared to the revenues it earned from P8.7 billion. On top of that,

due to the ever changing phases of quarantine, the earnings from shopping centers declined to

P2 billion, which represents 58% decline, and hotels and resorts revenue falling to P640 million

which represents 60% decline due to travel bans. According to them, these are not expected to be

recovered until such mobility restrictions are fully and finally eased.

(So the slide before you guys are again the activities ALI did. Like what happened mostly

in early months of the pandemic, their activities had generated income which are representing

decreases again. And if we look closely, the activities were affected because of mobility

restrictions and travel bans. Furthermore, according to them, these decreases are not expected

to be recovered until such business limitations are fully and finally eased.

According to several reports, in the mid-year of 2021, the company is said to be starting

to take proper actions and precautionary measures to finally increase their sales, even if there

are still mobility limitations. And due to their operations in the first months of year, the

company’s value as per the stock exchange showed a decrease of 45 centavos, 1.39% drop, due

to the increase in economic inflation of 6.7% and declining GDP of 9.6%. “And to end the

economic part, we can therefore understand that businesses, such as those engaged in real

estate industries like Ayala Land, experience great difficulties due to the ups and down-turns on

economic movements. And THESE are just pertaining to the economic condition within the

Philippines, not yet considering those of other countries condition. And from here, we can

therefore analyze that the company’s relation to other countries may be affected and their plans

like international investing and acquisition may be delayed further should this pandemic

continues. So the other parts of the PESTEL Analysis, will be discussed but the next reporters..
 In contrast to the given facts, the headquarter and BPO (Business Process Outsourcing)

sustained operations, had improved office leasing revenues to P2.5 billion, a representation of

2% increase only.

On the other hand, ALI shares at the stock exchange were declined by 45 centavos,

showcasing a decline by 1.39%, to close at P31.85. And such event can be related to the change

in Philippine CPI inflation of 6.7% due to the severe impact caused by COVID-19 with GDP

contracting by 9.6%.

With these, Ayala Land Incorporation may face more difficulties even after the

mandatory lockdown. Base on the facts, even if the company would resume, consumer

confidence and prospective investors may remain weak due to the economic downturn.

Additionally, there is a great possibility that because of the virus induced event, company’s

recent international acquisitions may take longer to integrate.

RECOMMENDATIONS:

 The researchers recommend on further study on the implications of May 2022 elections

to the prices of Ayala Land Incorporation shares in the Stock Market. And the possible

effects should the current or prospective investors pull out their ALI shares.

 In relation to the economic factor affecting the business’ operations, the researchers

would like to commend on a deeper analysis on the result of the resilience of the Cash

Remittances from overseas Filipino workers in 2020, which was down by only 0.8% to

USD29.9 billion, much lower than the initial estimate of 5%.

And looking back, we’ve finally had a good grasp of the Ayala Land’s structure and conditions.

However, in order to fortify the study, the researchers recommend the following:
First is for the future researchers to include estimates by analyzing the financial statements of the

company and from those, they’d be able to develop a stronger foundation of risk mitigation plan.

Second is to develop such plan by including in forecast of operations by 5-10 years, and be able

to give measures to the risks identified

Third, is to perform more tedious study with regards to the implication of the May 2022 elections

to the current business output and operation of Ayala Land. And finally, is by taking account of

economic factors such as Cash remittances brought about by the ongoing pandemic.

And that’s all for the groups’ case study analysis of the Ayala Land Incorporation. On behalf of

the reporters, thank you for listening and God bless!!

POWERPOINT:

Political Aspect

Globalization

 The Ayala Land Incorporation (ALI), has dabbled in various overseas investments in

previous years.

 “Globalizing Corporate Philippines” (December 03, 2018)

(Tianjin Eco City of China)

 3,000-hectare collaboration between the Chinese and Singaporean governments, to show

their advanced urban planning and sustainable development

 It had decided to unwind this investment, due to the challenges of:

 High inequality

 Rapid urbanization

 Environmental sustainability

 External balances (factors of demographic pressures:

(Selangor, Malaysia)

 ALI’s 66.25% investment in MCT Berhad was seen to become the company’s vehicle in

expanding its business across that region.

 MCT had invested P2 billion to acquire a 9.8 hectares of land bank in Klang Valley
 Economic Aspect

 President Duterte declared a state of public health emergency in the country on March 8th

(Proclamation No.922)

 Philippines’ Economy (2020):

 Country’s economic condition contracted by 9.6%

 Unemployment increased to 8.7%

 Ayala Land Incorporation’s business operations were affected as well:

 Revenues and net income significantly dropped 43% lower to PHP 96.3 billion

and 74% lower to PHP8.7 billion, respectively.

 Several plans and projects were indefinitely postponed, some were canceled

altogether, or significantly changed.

  Company reduced capital expenditures by 59% to PHP 63.7 billion from PHP

108.7 billion in 2019.

 The limited economic and consumer activity caused the company’s property development

business, malls, hotels and resorts to shrink:

 Revenue from Hotels and resorts - 60% lower from P1.59 billion to P640.40

million

 Revenue from Property development – Income earned of P40.6 billion, a 52%

drop rate (in contrast with June 2020 earned income which was doubled more

than to P5.7 billion from P7.6 billion last quarter)

 Revenue from Commercial leasing – Income decreased to P17.3 billion, 37%

decrease from previous year. (In contrast to this, is the income earned from third

quarter of P1.5 billion, an increase of 29%)

 Closing the year of 2020:

 Total revenue – P96.3 billion, showing significant decline of 43% compared to

2019

 Total net income – P8.7 billion, showing significant decline of 74% compared to

2019.
 Ayala Land Incorporation reports a profit drop of 36% from the P4.3 billion to P2.8

billion in the first three months of 2021

 The consolidated revenues amounted from P28.4 billion in 2020 to P24.6 billion,

representing a 13% decrease in amounts:

 Revenue from Property development – Income drop, from P17.2 billion to P16.2

billion

 Revenue from Sale of Commercial and Industrial lots – shown a 67% fall from

P2.5 billion to P818.4 million due to lower Vermosa and Alveria Sales

 Revenue from Commercial Leasing activities – P5.1 billion earned from first

quarter of 2021 as compared to previous earned income of P8.7 billion.

(Representing a decrease of 41%)

 Earnings from shopping centers – Income of P2 billion (representing 58%

decline)

 Revenue from Hotels and Resorts – Income of P640 million (showing 60%

decline)
  Headquarters and BPO sustained operations – generated revenues of P2.5 billion

2% increase)

 ALI shares at the stock exchange declined by 45 centavos, showcasing a decline by

1.39%, to close at P31.85