First Pacific Co Ord

Thank you for joining this online briefing to discuss First Pacific 2022 First Half of Financial and Operating Results. The resource presentation is available on First Pacific's website, www.firstpacific.com, under the Investor Relations Session presentation page. This resource briefing is being recorded, and the replay will be available on First Pacific's website in the Investor Relations Session. For participants from the media, please note the Q&A session is open for investors and analysts only. If you would like to raise questions, please contact us when the briefing finished. Today we have our executive director, Mr. Chris Yang. Our financial Our chief financial officer and associate director, Mr. Joseph Ng, and Mr. John Ryan, our associate director. Another senior executive from the head office of Hong Kong. Over to you, John, for the presentation, please.

Thank you very much, Sarah. We reported our half-year numbers at lunchtime today. I hope you've all had a chance to do some digesting of them. in the intervening hours between then and now. Each of the past few reporting periods, we've reported ever better numbers. So again, we've hit some record highs. Our contribution from operations up more than a fifth to a record high. Our recurring profit is up to a record high of $263 million, up by about 25%. We've increased our interim distribution by 17% to 10.5 Hong Kong cents a share. Our three-year share repurchase program with a budget of $100 million is well underway with about $32 million spent by the end of July when we reached a blackout period during which we had to suspend such share repurchases. We can expect those will be returning to the market in the days ahead. If we look at the graphic on the top right of page three, we can see that all of our operating investment companies there contributed to the increase in recurring profits. looking ahead for the rest of the year and further into the future broadly speaking all of our portfolio companies are expecting uh stronger earnings moving forward now um a brief look at our cash in the bottom right hand graphic on this chart uh we have um More cash at the end of June than we had at the beginning of the year, thanks to the dividend and fee income coming in. A relatively low net interest expense. Our newly appointed Chief Financial Officer, Joseph Ng, can speak to how that might change in the second half of the year in the higher interest rate environment when we turn to the Q&A. We've had very slight new borrowings and net investments. That is mostly our participation in a rights offering by Philex, the mining company, to help finance a mining project in Mindanao called Selangin. And our investment of $20-some million into that rights offering kept our stake unchanged at a little more than 30% in FILEX. And, of course, we've spent some money on share repurchases. Now, a little deeper look into our cash flow and balance sheet on page 4. A few months ago, we obtained investment trade credit ratings from Standard & Poor's and Moody's. You can see the details here. They both have stable outlooks. At the end of June, our gross debt was about $1.5 billion. Our cash on hand is about $139 million at the end of June. And when you look at the debt maturity column chart at the bottom of this slide, you see we have nothing to repay this year, and the $360 million or so that's coming due in 2023 has, in principle, all been taken care of with long-term banking facilities we agreed earlier this month. Our net interest, our blended interest cost has risen a little bit since year end, given the increase in interest rates across the board. And the average maturity has shortened a bit to about 3.3 years. The ever-important interest coverage ratio has unchanged at 3.8 times. And again, that is our dividend income minus our costs, and you divide that by the interest bill. So, we've got four times more money left over than we have in the interest bill. And now, let's have a look over two pages to page six, a snapshot of our gross asset value. One more page, please, Amy. As you can see, our three biggest assets there are Indofood, NPIC, and PLDT, our gap of just under $5 billion at the half-year mark. When markets are all closed later today, we will very likely be updating this presentation with end-August figures so that you've got you've got a more up-to-date number there. But for our half-year report, we want the half-year GAV chart there for you. On the next page, page seven, there are a few details here about sustainability matters, which are increasingly important. Not printed on this page is discussions we had yesterday in a two-hour meeting of our Corporate Governance Committee, where we've approved a couple of initiatives and changes to some of our policies. nothing quite major there but worth having a look um a look at on our website and um later we may announce some details of our tree planting initiative in cooperation with some of our companies down in the philippines um i'd like to draw your attention to the blue box at top right our iss governance quality score following our annual general meeting and publication of our Annual report in April remains at one, the best possible score. There hasn't been any change recently in any of those other scores. Now, let's move to our biggest single asset, Indofood, which at the half year reported, again, record high net sales. That was to be expected. core profit rose less um than it did for the full year of 2021 up by only two percent um and as you can see uh they've had some difficulties with um across the ebit margin box and the bottom right shows you that the noodles margins uh which a year ago were pretty much at a record high have come down quite a bit um but um other businesses which are more reflective of commodity prices saw the converse an increase in their margins so bogusari the flower and pasta division saw a healthy increase in their margins and so did the agri business um broadly speaking uh we had uh sales up across the board except in the agri business where volumes were down rather a lot in both the edible oils and fats and plantations business, each down by a third or more. Now, looking to the full year, Indofood expects continuing strong earnings with EBIT margin perhaps towards the bottom of that range of 18% to 20% that they expect. Sales growth is continuing very strong at consumer branded products, driven in particular by the Pine Hill business in Africa and the Middle East. We can discuss this more in the Q&A if you like. All in all, the full year should continue strong. A very brief look at ICBP, the consumer branded products business on the next page here. Their sales, again, were at a record high, just like the parent company. Their margins were down and their core profit fell quite a bit by 23%. Now, let's move to PLDT, which is the largest and highest quality telecommunications and data services provider in the Philippines. Again, we have record high revenues. This is a consistent theme in the companies that we are invested in here at First Pacific. Record high, 97 billion pesos in the first half. The EBITDA was up 8% to over 50 billion, and they're suggesting that EBITDA for the full year is probably going to be over 100 billion pesos. And that seems to me, looking at numbers over the past decade, to be a very likely record high. Telco core profit is expected to be up 10% or so to 33 billion pesos. At the interim, we saw a special dividend paid to shareholders, which is very welcome here at First Pacific. And CapEx at 85 billion pesos is down a bit from the previous year's 89 billion pesos. And we expect over the next few years to see the ratio of capital expenditures to service revenues to glide down to less than 40% of service revenues. Now, if we have a very quick look at the line charts on page 12, we can see, pardon me, page 12, one more page, Amy. We can see that PLDT maintains its continuing lead in network quality over its competitors, whether it's in the mobile space or in the fixed line. The earnings growth at PLDT is driven very hard, yet again, by the home business, where sales are up by about a quarter. We expect a similar performance for the full year. The individual business, which has been mobile phones in the hands of consumers, has had a bit of a struggle, but we're beginning to see signs of turnaround in the second quarter numbers from PLDT there. And the enterprise business itself continues to grow strong with service revenues up almost 10% in the first half. For fuller details on the performance of PLDT and the other companies, we invite you to look at their own investor presentations or speak to us in the Q&A. You can even ask me to email it to you. Now, let's briefly look at Metro Pacific Investments Corporation. Page 14 reminds us of the assets underneath MPIC. Moralco, the biggest electricity distributor in the country, and increasingly a major generator of electricity too, particularly with its fast-growing ambitions in the renewable space. And then we've got the toll roads business, which is growing very, very fast. We had a major bridge project open in April in Cebu, connecting the airport to the mainland. And later this year, we will see in Manila the opening of the connector road connecting the northern and southern Luzon highway systems. So we're seeing very strong contribution growth from the toll roads business, and that will continue surging on in the years ahead. And there we have the biggest water distributor in the Philippines and the biggest hospitals business. now turning to the next page we can look at the change in contribution chart on the bottom left and as you can see toll roads was the biggest contributor to the increase in contribution followed by the electricity business at moralco and some others we expect the earnings growth that we saw in the first half with core profit up almost a quarter to continue for the full year and i say again looking ahead we expect the toll roads business to deliver an increasing proportion of the earnings growth over at MPIC. While not to be outdone, the electricity business has got ambitions to build out 1500 megawatts of renewable capacity over the next five to seven years. So, those are the two biggest sources of earnings growth at MPIC in the years ahead. Now, let's move several pages ahead to page 19. where we've got our Singapore asset Pacific Light Power, a very modern gas-fired power plant, is generating far stronger earnings than it did a year ago when it began a turnaround after several years of difficulty. As we can see, for profit in excess of 130 million singapore dollars whereas a year earlier it was a little over a million singapore dollars uh what's going on here it's a very efficient plant demand is growing much faster than supply of electricity uh and the outlook over the next few months uh is fairly positive and um dialed into this call we've got stanley yang who's on the board of directors he's in charge of corporate development with us he can speak to any questions you might have about pacific light you might want to bring up this potential solar project based in indonesia where we would like to import solar-generated electricity into Singapore. From there, there is some regulatory and trade matters that need to be addressed there before that could go ahead. Now, we'll wind up with the operating companies on page 20 with a brief look at Philex Mining, which saw a decent increase in operating revenues because mostly of higher metal prices offset a little bit by lower metal production. Gold price up 3% to almost $1,900. Copper price up again, still quite high, to $4.38. The full year numbers might not be quite as strong if metal prices do not sustain at the level that we saw in the first half. And the outlook for this company very much hangs on the Salangan project. which was mentioned very briefly at the beginning of this presentation. They've got some additional financing in place after the stock rights offering. And in the meantime, study continues how they can keep the PadCal mining operations to extend beyond 2024 by looking at potential ore bodies in the environs of that mine, which would be used at the mill there at PadCal. Now, all in all, to recap, we've got record high recurring profit. The contribution from operations is at a record high. We've got a fairly high base from the second half of 2021. So, I don't know if we can promise again a 25% or so increase in our earnings. But the outlook is very, very positive. And you can see that in the 17% increase in our distribution to shareholders at the interim. We're very positive about the outlook for us, for our operating companies, and that winds up the initial introduction to this discussion. And Sarah will now moderate the questions.

Yes, we are now ready for questions. If you have any questions, you can raise your hand. So unmute, we will let you know when you can unmute your device, or you can put your questions in the chat box. Thank you.

Go ahead.

While we're waiting for the first question, my colleague Peter Lin from the Treasury Department reminds me that the new net investment in the first half was not PhilX. That was in the second half of last year. but it's an investment in Voyager, FinTech company underneath PLDT, which has got the biggest online banking business in the Philippines called Maya. Right, and now we have Sarah, can you read the question?

The first question is coming from Jeffrey of CLSA. And his first question is, the first one is a dividend payout ratio. I understand you still would like to have a 25% dividend payout for the full year. But for the interim, we have a 22% payout. And the last time we have a 22% payout in the first half was in 2013. My question is, does the payout in the first half have any indication that the management may possibly be cautious for the second half 2022 earning outlook? And the second question from Jeffy is, For the investments at the head office level in our previous meetings, we learned that investment will be made along with underlying entities like PLDT. Can you give us any update about those investments of where we are at? For the payouts?

Well, I mean, it's Joseph here. Maybe I tried to tackle the first one. You're quite right that the 25% payout is set on the full year basis. And the 22% payout is for the first half. It's actually representing a 17% growth in the dividend per share basis as compared to 9% on consent last year first half. And even in the first half of 2021, we paid $0.09. I think that's not 25%. I think a little bit lower than that, I think 23%, 24% level. So as far as we're concerned, the 25% is more for the full year. The second part of the question is that does that indicate kind of that we have a little bit caution on the second half? I think generally it's not incorrect to say that the macro situation out there is not very friendly. I mean, there are so many qualities in the market. Interest rate will be going up, and that will be clearly affecting all the operating units as well as the headquarter companies. And inflation is out there. I mean, the G7 countries are recording 6% to 10% inflation. And I think the Philippines itself is recording 6.4% inflation as well. So at the end, all this will affect all the operating units in terms of increasing fuel costs. electricity cost, and on the consumer side, the kind of disposable income. So all this will affect all the operations that we are in. And it's actually trying to be a bit cautious, but we're still quite optimistic about the second half because of the nature of the business that we are in, under stable foot, under in the foot, and all the infrastructure operations, the telco, to power distributions, water distribution, and total operations. So as John put it, I mean, the first half, we have an excellent first half numbers, 25% growth with the grand profit. And we are quite confident that on a full-year basis, we'll still deliver a very impressive set of numbers. That said, I mean, all these volatilities are affecting us, and we need to be cautious in addressing all these factors. Before we kind of make a final decision, we'll see the final numbers for the full year and then set the final dividend payout ratio.

Okay. Stan, please, could you reference the second question about HO investments?

Sure. I think the question was how we're going to be investing alongside our group companies. And so on the first For example, there was a $20 million investment into Voyager, Voyager being the parent company of the Maya platform. It's a business fintech that was started by PLDT and over the years had brought in additional investors, including KKR and Tencent. And so we invested into the Series C round, which coincided not too shortly thereafter of the launch of the digital bank, Maya Bank. And so with this, because this was a license that the business got late last year and worked hard and quickly to get it up and launching and running, that was a good entry for us and an opportunity to build into this very high growth area. Other investment areas that we're focused on include at the head office renewables through a Singapore project, which has been mentioned before, but it's a subsea cable from Indonesia into Singapore where we're looking to develop a solar project. This is part of the EMA's request for an opportunity seeking proposals to invest into this area. One of the key hurdles would be securing the licenses and including the export license from Indonesia that could then allow the power to be sold into Singapore. And so it's a project that's ongoing. It's one that will take time to get the regulatory approval, but one that we believe that in terms of an opportunity and an area that we want to get into, it looks very promising. And so we're working at that.

Thank you, Stan. The following question is about the performance of Pinehill. To remind, Indo Food subsidiary ICBP bought a collection of noodle companies in the Middle East and Africa for just under $3 billion in the summer of 2020. It was a very, very big transaction. And it has had significant consequences for Indofood. It's propelled them onto the global stage. It's cemented Indomie as a global brand. And Indofood is now, by all accounts, one of the very largest instant noodle manufacturers in the world, again, at a global scale. And if you're looking at the presentation on page 8, where you've got – the revenues and earnings and profit of Indofood per trade over time, you can see that the acquisition in 2020 significantly boosted both revenues and profit. Now, in the first half of this year, Indofood reports that the revenue at Middle East and Africa rose about 30% in the first half of the year. And about 90% of that is Pine Hill production, and they saw both growth in volume and in prices. Looking ahead to the rest of the year and going forward, the expectations for continued strong performance by the Pine Hill companies underneath ICBP. And while I'm speaking about Indofood, there's a question about the interest costs at Indofood. Remember, they recently did a 10-year and 30-year U.S. dollar bond, and that is the vast bulk of their borrowings. So that's, of course, at a fixed rate. It's just under 4% all-in blended for those two bonds. So if they're going to see their interest costs rise, It would be more an effect of foreign exchange movements. But let us recall that Indofood raised that money on the understanding that the interest payments will be made from its very significant U.S. dollar income that it gets following the acquisition of Pine Health. And now back one step to pandemic-related work from home at PLDT. That effect on PLDT's performance for its various businesses, like the individual and home businesses, has faded away now with the lifting of COVID restrictions in the Philippines. Chris, would you add anything more to that?

Yeah, I think it's a positive impact, but I think the question is, is it driving PLVT's performance? I don't think it is. But yes, it had a positive impact. I think in particular regarding its home business, where during the lockdown period, there was a strong demand for broadband, and particularly fiber. PLVT has the most extensive and highest quality fiber network in the country. So, yeah, so positive impact, but I think it's not driving performance at the moment. Thank you, Chris.

Joseph, could you please address the tax rate?

Well, just the interest impact on First Pacific and the holding company. I think that's the first part of the one of these questions. I mean, for the first half of 2022, actually, our interest bill come down a little bit because we did some liability management exercise in the fourth quarter of 2021. We bought back some bonds, expensive bonds, paying a bit more than 5% interest coupon and using some cheaper band loans. So that helped us to save a little bit interest in the first half. But then we start to feel the heat, actually, in the second half after June 30th. And it's not a secret about what's happening in the market, about what U.S. Fed is trying to do, right? So we start to feel the heat in the second half. But we need to bear in mind that, well, in our debt portfolio, as of now, we have roughly 64% of our debt is actually in fixed rate. there's probably roughly one third remaining 36 percent of one third is in floating so we're kind of quite well positioned uh but that said i mean we still have something like um 36 or 500 million there about um kind of bambooring that we're subject to floating away and um depending on the extent of the of the increase in the second half and more importantly going forward in 2023 and then we'll kind of have a close watch and close monitoring on this and that ties to one of the points that i made earlier about all these macro factors macro volatility factors that would affect us in the in the next couple of months in 2022 and moving into 2023. So we have more visibility when we get to the fourth quarter. We get a taste of it and also see how that would affect all the operations come 2023 budget and as well as the budget at the headquarters level.

Thank you, Joseph. Stan, could you please address the question about PLV and the growth prospects there?

Sorry, can you read the question? Is it just asking about general growth?

The contribution from PLP was very strong. Can you tell us a bit more about this investment and its growth prospects?

Sure. So the growth in the first half and the profit performance was a result of a few factors, one being the demand in Singapore, the power demand continues to steadily rise. And so with that rise in the generation demand, there is a fixed capacity in terms of the existing gas players in the market. And so over time, what used to be an oversupply situation has narrowed. The other factor that has benefited POP is that in terms of its gas profiling, they were able to restructure the gas supply arrangements and put it on a much better foot. And so as the LNG situation in terms of supply has impacted prices elsewhere in Singapore, there's been an element of pass-through to the consumer coupled with the demand. And so when you take the two together, that has significantly improved the non-fuel margins or gross margins of of the business and so that has driven the profitability of plp going forward the factors that will continue to push demand is the steady economic growth and and you know as a proxy singapore's power uh generation has generally followed gdp growth over the years adding to that uh are a couple things one is the um the the the government's push to really build out into the data center space It's an area that there was a moratorium, which only opened earlier this year, which was uplifted. And with that, because of the type of hyperscaler and customers, they're going to need a lot more generation capacity, and hence the focus on the government and EMA, the regulator, to look for imported solar and renewable energy into the market. And so we see that as a factor in terms of pushing the demand further and

and the gross uh prospects for uh for plp and and the overall gas demand thank you stan the tax point i think richard will handle that okay um i try to adjust the question on This is talking about the effective test rate from the consolidated P&L perspective. Again, First Pacific operate mainly in the Philippines, Indonesia, and Singapore. And the test rate in the Philippines is about 25%. And Indonesia is about 22%. And Singapore is about 17%. So, given our major, major operating company, again, is located in the Philippines. It is typical to see that our so-called effective test rate should be somewhere around 22%. However, to address your question, if you look at the first half of 2021, the effective tax rate is actually about 25.7%. However, in the first half of 2022, the effective tax rate actually reduced to about 22.5%. I guess the main reason is as John and Stan pointed out before, PLP has a very good performance in first half 2022. And actually in US dollar term, if you refer to page 19 of the presentation, PLP contribute a profit of about 95.6 million US dollars. However, this 95.6 million US dollar won't attract any income tax in Singapore because PLP historically has been operating at a loss and PLP accumulated quite a huge amount of tax losses. from the poverty before test. And then we calculate the effective test rate. We will be able to arrive at the effective test rate after excluding the PLP, non-testable poverty. We'll be able to arrive at, again, the effective test rate at around 25%, which is roughly similar to the first half in 2021.

I think, Richard, it's also worth noting that the tax losses will continue to have effect for probably another one or two years. Correct, Chris.

Thanks, Richard.

Are there any questions? I think we have answered all the questions. Thank you. If there are no more questions, may I invite our Managing Director and Chief Executive Officer, Mr. Manwaknaginan, to give his closing remarks, please.

Well, first of all, thank you to all of you for joining us this afternoon to hear the first half results this year of First Pacific. I think addressing one of your questions about about the full year. We are cautious about second half prospects, earnings prospects, because of a number of reasons, supply chain difficulties, inflation pressures, interest rate going up, and, of course, the impact on consumer spending and raw material prices, which will affect, I think, in the food, although the earnings will continue to grow this year, albeit maybe not at the same pace as last year. We're seeing headwinds also for PLDT, particularly the wireless side, not so much in enterprise or the home broadband, which continue to grow in double digits for the second quarter and the first half. Miraco's electricity sales continue to be strong at mid to high single digit growth uh underlined by revival in uh commercial and industrial demand uh increasing uh for for the first half this year and continuing through july and august residential sales are flattish uh because uh you know it probably hit its limits uh because of the pandemic and the lockdown We're cautious about Felix because metal prices have softened a bit, so that will impact. If it continues, it will impact on second half earnings picture of Felix. But overall, looking at the full year, First Pacific's profits will be better than last year for the second half, and we expect full-year profitability to be set at record highs, record historic highs for First Pacific for the full year 2022. So thank you. Thank you so much.

That's a great note to end on, Mandy.

Thanks, Mandy. Thanks again for joining today's online briefing.