Ayala to manufacture KTM motorbikes

Jaime Augusto and Fernando Zobel de Ayala

CONGLOMERATE Ayala Corp. is debuting into the motorcycle manufacturing business through a new partnership with Austria-based KTM AG, which has chosen the Philippines to be its hub in Southeast Asia.

This industrial venture is part of Ayala’s overall bid to become a bigger player in automotive manufacturing and diversify its stream of net income, which it aims to double to around P50 billion by the year 2020 under a five-year vision that also seeks to expand its footprint across Southeast Asia.

During Ayala’s stockholders meeting on Friday, group chair and chief executive officer Jaime Augusto Zobel de Ayala unveiled the group’s “Ayala 2020” roadmap, which aims to improve shareholder return on equity to 15 percent, expand equity earnings contribution of businesses outside its four largest business units to 20 percent and increase to 10 percent equity earnings from overseas businesses by 2020.

“Amidst the upcoming political changes, we remain optimistic about the overall environment in the
Philippines. Overall, our current businesses have a clear and sustainable growth path in the coming years that we envision will perform above nominal GDP (gross domestic product) growth. As part of our 2020 plan, we are upbeat about our investments in new platforms, specifically along three clusters: power and transport infrastructure, healthcare and education, and automotive and manufacturing.”

Over the last few years, Ayala has aggressively invested in the power generation space, with a target of building 1,000 megawatts of attributable capacity which will be achieved this year. The company has also invested in the transport infrastructure sector with tollroads, railroads, and rail payment public-private partnership (PPP) programs. More recently, Ayala ventured into healthcare and education, acquiring Generika and the University of Nueva Caceres, to build a presence in social infrastructure.

But the group is now betting heavily on manufacturing as another growth pillar. With its existing investment in Integrated Micro-electronics Inc. (IMI), one of the largest automotive electronics manufacturing services in the world, Ayala is seeking to expand its manufacturing portfolio.

The joint venture with KTM AG, a leading global motorcycle manufacturer, will both serve as the exclusive local distributor of KTM products and to manufacture motorcycles for the Philippines and for export to China and Southeast Asian countries.

The Austria-based KTM Group builds and markets a wide range of award-winning off-road and street motorcycles.

The new business will be housed under the Ayala Automotive unit, with production being subcontracted to IMI in its facility in Laguna. Ayala will take a 65 percent economic interest in the partnership with KTM, which in the future is envisioned to evolve beyond manufacturing to include the co-development of next-generation motorcycles for the global market, said IMI president Arthur Tan.

The venture will have an initial capitalization of $2 million, excluding at least P500 million to be initially invested in building the facility, which will start producing around 20,000 motorcycle units per year. Around 70 percent of production is targeted to be exported to China, Zobel said.

“This partnership is the first of many investments as we ramp up our manufacturing portfolio. Over the years, we have built a long track record of excellence in manufacturing and engineering. We believe that manufacturing should be a critical component for the country’s growth moving forward, providing thousands of jobs, creating numerous ancillary business opportunities, and helping drive inclusive growth for the Philippines,” he said.

KTM CEO Stefan Pierer stated: “We are delighted to have found a strong and capable Asian partner in the Ayala group, one of the leading conglomerates in the Philippines, a country we view as a key platform for achieving our global growth strategy. Ayala’s capabilities in manufacturing, distributorship and dealership, as well as its regional expertise and excellent reputation, make them the ideal strategic partner for our ready to race aspirations. We look forward to a long and fruitful relationship and plan to rapidly grow KTM and its brands across Asia.”

For his part, Ayala Corp. president Fernando Zobel de Ayala commented: “We are very excited to
introduce KTM and its lineup of outstanding performance motorcycles to the Philippines. For decades, KTM has been at the forefront of motorcycle engineering and technology, building vehicles that are “Ready to Race”. This venture will enhance our existing offerings under our automotive group and allow us to serve more of the country’s growing mobility needs.”

He also highlighted three areas where the Ayala group had been and continued to be a major contributor to the economic and social development agenda of the Philippines: continued investments, taxes paid and employment.

Over the last five years, the Ayala group has invested over half a trillion pesos in capital expenditures, investing in businesses that are critical to the country’s economic growth. It has paid P170 billion in total corporate taxes and has given direct and indirect employment to 90,000 Filipinos.

This year, Ayala has earmarked P174 billion in total capital expenditures across the group.