First Pacific Co Ord

Good day, everyone. Thank you for joining this online briefing to discuss the First Pacific 2022 full-year financial and trading results. The results presentation is available on First Pacific website, www.firstpacific.com, under the Universal Relations Session presentation page. A physical experience is being recorded, and the rebate will be available on First Pacific website in the Universal Relations Session as well. For participants, From the media, his local Q&A session is open for investors and analysts only. If you would like to ask questions, please contact us when the briefing is finished. Today, we have with us Mr. Mandy Pangilinan, our Managing Director and Chief Executive Officer, and Mr. Chris Young, who just joined us, our Executive Director. mr joseph our chief financial officer and associate director and mr john ryan our associate director and chief sustainability officer and other senior executive from the head office of first pacific over to you john for the presentation please thanks very much sarah as ever i'll do a quick run through uh highlighting the important factors in our results for the full year of 2022

And then we'll switch to our Q&A. And our chief executive, Manny, is primed to help you. And so are our other senior executives. Now, Amy, could you please click on the screen so that I can press page down? Thank you. Now, a quick overview of the assets that we hold. Not much change since we've last spoken to you back in August. We own a little bit more in MPIC, owing to repurchases by that company of their shares. I'm sorry, but when you click away from here, I cannot reach now. Right. Sorry about the interruption there. Amy, could you click it forward one page, please? Thank you, Amy. Page three, we're looking at everyone. Notwithstanding a sharp decline in the Indonesian rupiah, almost 10% last year, and of the peso, almost 4%, we managed to deliver recurring profit increase of almost one-fifth to a record high, and that's on the basis of record high turnover and record high contribution from operations. As you can see in the column chart on the top left of this page, the change in recurring profit is led by higher contributions from PLP and Indofood, followed by MPIC and slightly improved results from our sugar business underneath per specific natural resources. As you can see from the head office red line, our net interest expense rose about seven percent to just under 55 million dollars uh owing to higher interest rates which we'll discuss in a moment um notwithstanding that increase uh we have recurring profit of over half a billion dollars for the year um recurring earnings per share as you can see rose just a little bit more just under 12 American cents to share. And the distribution for the full year was up 16% to a full 22 Hong Kong cents a share, up 3 cents from a year earlier. As you can see from the cash flow column chart, that distribution's paid was just over $110 million. And turning over now to the next page, let's have a look at our balance sheet and borrowings. Amy, could you please page forward to the slide?

Yes, please page forward.

Thanks, thanks. Okay. Just about a year ago, we were granted investment-grade credit ratings from S&P and Moody's. And our debt levels and cash levels are really unchanged over the course of the year. As you can see from this debt maturity chart at the bottom of the page, We've got an average maturity that's a little bit short at 2.8 years, and our interest coverage ratio is at four times, well above the minimum of three times that we'd like to see regarding our borrowings. Please bear in mind that there's a bond maturing next month. You can see in the blue box at the top. It's on the 16th of April. And we have funds in hand in our bank account to pay those bonds when they mature. And our CFO, Joseph Ng, who also runs our treasury operations, can also talk about the bank loans that we've got coming up due in 2024. Overall, fixed-rate borrowings are just under two-thirds of the total at 64%. And do remember that none of our associates, affiliates, or subsidiaries have any recourse to head office on their borrowings. Now, the next page shows us a quick pie chart of borrowings. our gross asset value. There's a change here that I'd like to draw your attention to. We have a valuation now of $150 million on Pacific Light Power. That's our power company in Singapore, which we noted a moment ago was a big source of the increase in recurring profit for us. uh last year now let's flip forward two pages to page seven um and a quick word about our esg report for 2022 that will be published on april 27 along with our annual report There are some highlights listed here. Key among them are ESG performance KPIs and the annual staff bonus. And just agreed by our board of directors this morning, First Pacific head office now has a net zero target for scope one by the year 2030. by which time we will have no automobiles that run on ICE, internal combustion engines. Now let's move to our biggest holding on page eight, end of food. Record high net sales, record high EBITDA, record high core profit. And that's notwithstanding some gyrations in soft commodities, particularly with regard to wheat and palm oil, which affected the bogus story of flour and pasta business and the plantations business as well. As you can see, the EBIT margins pretty much held up in the blue box down at the bottom, a little bit down on the noodles, and rather up in Bogusari, where we balanced the price movements of wheat rather well. So it was a strong year, again, record high numbers. Looking ahead, 2023 revenues are seen up by double digits, and the EBIT margin, their forecast is 18% to 20%, and that's the same forecast they gave for 2022 as a whole. Now, the Pine Hill transaction saw the first major penetration into markets in Middle East and Africa and a little bit in Southern Europe. That expansion is continuing now and moving into 2023. Two years ago when we bought Pine Hill, almost three now, two and a half years, there was a noodle making capacity of 9 billion packets a year. That is now up by one-third to 12 billion packets a year, and that shows the confidence the institute has in the growth of those markets. A quick look on the following slide at ICBP, which is the parent of those Pine Hill companies. Again, we've got some record high numbers for sales and so on going forward. But we've got a flat EBIT margin with the noodles EBIT at 22.9%, and that was down largely because of higher input costs, the CPO and the flour that it uses in the manufacture of the noodles. Noodles are particularly important, as you can see, an 82% almost share of EBIT when you take away unallocated income and before elimination. Moving quickly to page 10, let's have a quick look at the external sales column chart in the top left. As you can see, every single business saw an increase in sales except for edible oils and fats, which declined rather a lot. And all of these businesses, almost all of them, saw increases in volumes, however. Ones that didn't include the aforementioned edible oils and fats. Bogusari saw lower volumes, and so did dairy. Now, let's move to PLDT, the largest and highest quality phone company in the Philippines. More record highs here. Service revenues up 6% to a record high. EBITDA over 100 billion pesos first time ever. And the margin is still strong at over 50%. We see the service revenues in EBITDA hitting consecutive record highs in 2023. And as you can see in the column chart down at the bottom, this is all driven by data. On the next page, there's a glance at the three main businesses. The ring chart shows you on page 12 that data and broadband service now generate 80% of revenues, and that ranges from 73% at the enterprise business up to 85% of all the revenues at the home business where demand for data is high. Flat out. Likewise with the individual business where data traffic on mobile phones was up by almost a third in 2022. Very quickly on the next page, page 13, the network quality continues to be well ahead of all the competitors, whether they are on the fixed line or wireless segments. Now let's move over to Metro Pacific Investments. A holding company in Philippines, which has these investments, which I think we're all familiar with. Turning very quickly to page 15, you can see the rise in contribution was led by the toll roads business and power as the country began to recover from inflation. pandemic-mandated shutdowns across the economy. Now, if you look at the operating revenue and core profit column chart to the right there, you can see in 2019 that we had some record high numbers. NPIC's best year ever was there. And there is some hope that the improvements expected in 2023 might have investors thinking fondly about those levels yet again on the next page a quick word about morale biggest electricity distributor in the country enormous growth in electricity generation where it's got a commitment to build out uh 1500 megawatts of renewable capacity over the next four years uh revenues and profit up to record highs and we see continued steadying growth in morale going forward on the next page we have got the toll roads business where the map shows you that the biggest toll road network in the country is growing very, very well. Revenue is up by almost a third in 2022. As you can see in the blue box, more roads are being built out domestically as well as abroad. And we expect to see further record highs in revenues and profit in that company going forward. A last quick word about water underneath MPIC. Manalad continues to be a steady generator of cash flows for the company. Revenue's up just a bit. Core profit down by 7%, and that's due mostly to concession amortization from completed cap banks. And now to Pacific Light Power, that's an LNG-fired power plant in Singapore, which has seen a 50% growth in revenues, more record highs here. I'm repeating myself, rather a lot. A bit that tripled to $365 million Singapore dollars and even faster growth in core profit. Ted, if you don't have a question about PLP, I'll be rather disappointed. Now let's move on to Felix Mining. In 2022, we had some difficulties with some breakdowns of machinery. So revenues were down and core profit was down. Grades were down. Not terribly changed from the year previously, but as we can see, this is a mine, Pad Cal, that's been in operation for 64 years. And the focus now is towards development of the Salangan project down in the south of the country, which is expected to begin operations in 2025. a good two years uh before the pad cal money is expected to run out following a life of mine extension there um so uh that's a quick snapshot of what's been happening with first pacific and the operating companies we've had i think two years in a row of some record high numbers at first pacific head office and some of our other companies we're quite optimistic by the future uh for the future as the increase in our distribution to shareholders suggests we're quite confident and in this mood we're ready to take questions thank you john um we are now ready for questions if you have any questions you will either type your questions in the chat box or you can raise your hand

Okay, we've got Jeffy. Jeffy, go ahead.

Hi, can you hear me? Hi, Jeff. Hi. Thank you for taking my questions, and congratulations for the results. So I have three questions, but my first question is really about FPM Power. So the business has done quite well in 2022. So how should we think about the business earnings capability going into the current year? How many of the strengths last year can be carried forward into the 2023? And maybe in the longer term, it would be helpful if you can help us think through this business. Thank you.

Jeff Stanley Yang is This is PLP, and he'll respond to you.

Hi, Jeff. So on PLP, one of the aspects of the business is the improvement in performance was driven by a mix of a few things, one being demand has continued to rise in the Singapore market. there's been no supply of capacity. And in fact, some of the F-class units, I think seven, are going to be more than 25 years or older soon. And so when you look at these factors, plus in terms of the LNG and the gas shortage that's been in the market, that's led to the strong performance for PLP in terms of the numbers. And so on a 100% basis, EBITDA in 2022 was $365 million Singapore dollars versus the prior year in 2021 at $111 million. Looking to this year, one of the things that management was able to do was to lock in a number of retail contracts, which constitute the bulk of their generation capacity that they're expecting for this year. And those margins are quite attractive. The sustained margin in the market has carried into this year. And so in the early months, we're seeing that growth continue. And so we expect that, you know, when you see the first half, that that will be a strong result stemming from the continued shift. But longer term, I think where Singapore is facing is that need to build additional capacity. And so EMA, the regulator, has pushed for improving the potential for imports of solar as well as domestic supply. And so the question really in the long run will be whether that additional capacity will be enough to make up for, one, the aging of some of the existing generators, And second, in terms of the continued demand, I think that's where we're really going to see. And so EMA is aware of that. They are aware that the crunch today is leading to that under shortage of the supply and pushing up prices very high. One of the things that they're looking to do is to implement more of the vesting contracts. That was something that in the past when PLP was struggling was a lifeline. Today, that's a way to cap the prices, but these are pretty high margins. They're close to around $50 Singapore per megawatt hour. And so I think that this bodes well in the absence of significant capacity coming in in the future for a sustainable return at the business. But will it continue at the high levels as last year? Perhaps not, right? I think the EMA and the regulatory is something that we're aware of. What I would say is that for this year, the outlook continues to be very strong.

Thank you. I will go back to the queue.

Thank you. The second question is from Grant at Capital Corp Business. His question is, can you please give us an update on the CapEx overspending and misreporting at PLDT? Will the investigations and accountability go up to the highest levels?

Well, the forensics that have been authorized by the board sometime mid-December last year has been completed and sometime the third week of March. The final report was rendered to the board first in executive session and in the board meeting of when the results were announced sometime March 24th. Basically, the leader of the forensics was Milbank, which is a New York-based law firm, led the investigation with the help of PWC and a local law firm, which is the first time the PLDTS commissioned all three. So it's an independent, these are independent agents that did the forensics on behalf of the board and reporting through the audit committee of the board. So the investigation has gone up to the highest level of the corporation, which is the board, and, of course, to the senior management of PLDT. In terms of accountability, yes, we have identified who were responsible for this, as you said, the misreporting. I think that's what you said, no? Okay. first to senior management and eventually to the board. And I think one of the major highlights of the forensic was that there was no fraudulent transaction that the team uncovered, no intent uh deliberate intent to uh to to hide uh the mistakes and uh there was some basis uh to um to restate uh the historic uh financial accounts the period in question of the investigations to recover 2019 up to the year 2022. so those are the highlights of the of the results of that investigation Now, I think after the investigation was finished and reported to the board and publicly as part of the overall disclosure of PLET, last March 24th, now we have to address how we deal with those who were responsible for this overspending, or missupporting, as you put it. So I think we should be able to announce it next week or two. as to the results. There are now active discussions with certain of these individuals and I think we're making progress in terms of the approach to the separation of these individuals from PLDT.

Amy, if you could turn to page 13, I'll just add a point or two to what Manny has to say. Now, there was CAPEX last year amounted to 96.8 billion pesos. As you can see, there's some details written down here. And I think it's worth drawing attention to the fact that we've now got over almost 77,000 base stations across the Philippines owned by Smart. Most of them, about 39,000, are LTE base stations. We've got over 7,000 5G and 17,000 3G base stations. And I think the net greatest consequence of this capex overspend was perhaps to build up a lot of capacity rather quickly in a short amount of time with the end result that we've only got that 2% increase in base stations over the course of the whole year. And I think you'll find over 2023 that 5G base station construction is going to go a bit more slowly And that full year 2022 CapEx number, that's the peak, both in absolute terms and as a share of service revenues. As you can see, it's just under half of the total. So a little less CapEx going forward, I think, is what I wanted to add to Manny's words.

Are there any other questions?

Jeff's got his hand up.

Thank you very much for taking my question again. So, Metro Pacific has recently made a few investments in agriculture and solar businesses, as I read from the media reports. Maybe the thing that I would just like to ask is on a broader group perspective, what kind of assets are you looking to invest in in the near term and the medium term? And if there's any implication on the underlying entities dividend and also the capital allocation strategy at first specific head office level. So this is something that I would just like to learn your thoughts, biggest thought on it. And I will have a follow up after that.

Well, I think there are two parts to your question, right? Yes, yeah. Let me deal with the easier one, the investment that we made in Solar Philippines, which we call it Espinac, right? That is an investment in a pure solar facility somewhere in the middle of the zone, the island of the zone. This is the biggest island and closest to the main market of Metro Manila, no? The partner there is a person called Leandro de Viste, who's really in charge of gathering together as many as 3,000 hectares, or a bit more, in order to enable SBNEC, together with the ICTSI group, to build as much as a nameplate capacity of 3,000 megawatts of solar. effective capacity, this is without any batteries, of 850 megawatts supply. I think so far, XPNEC has acquired about 1,900 hectares subject to conversion from, because these are mainly agricultural land, and there's a conversion requirement from agricultural land to commercial industrial use, you know. So he's two-thirds of the way there, he and Espenek. And so Metro Pacific, this is an important piece of investment for Metro Pacific. So the two billion pesos that Metro has made would be sufficient to pay for the balance of the cost of the land, part of which Espenek has advanced already. So I would dare say, though, that eventually we would have to pass on the investment made by Metro Pacific to Morocco, which I believe should be the proper owner of this generation facility, which would be the largest in the country, and I would guess one of the largest in Southeast Asia. So... So, in many ways, this is an interim step for MMPIC in order to secure that big shed in this very important solar facility for the group and for the country. As to the second part of your question, which is the agri-facilities, or the agri-investments, We made a modest investment in daily farming with Farm is Best. That cost us about 190 million pesos or a little less than $4 million. The next one we made was in Axelum, which is the largest coconut processing facility in the country. It's a facility that processes 700,000 coconuts each day, and 90% of its revenues are export. So the business model is quite good because it is a dollar-based revenue and peso-based expenses. So it's pretty much like a mining business. But we export the coconut products into to some degree beginning to export to Europe, to the EU community. And the buyer of our finished coconut products are the branded coconut water, the pharmaceutical companies and the cosmetic companies for desiccated coconut and for the coconut cream. So So that's the investment in Axiom. That's probably our biggest investment in a single ag-related company in the Philippines. And the third one is in these greenhouses located north of Metro Manila, 22 hectares. And I think the projected volume is a pure vegetable operations with the Uspaters. We partnered with the Israelis. They are both on the dairy side. And on the greenhouses, I think the LR group of Israel has taken a 40% stake. And we want to – this is the first step in our greenhouse effort. It's all organic. And we want to expand that. Those 22 hectares are land that First Pacific – sorry, Metro Pacific bought for its logistics business. And there's another 20 hectares we own in the southern part of Metro Manila. And we want to invest greenhouses as well in that piece of property owned by M-PICNO. I think the idea now or the intent is to expand the dairy business. And when we announced our investment there, it has elicited quite a number of interest from local dairy farms, not doing well, but bigger than Carmen's best. So that's the ability I've been able to obtain scale in the dairy farm business with the help of the Israelis and sort of the greenhouses with them, you know. AXELIM also offers us the opportunity to consolidate the coconut industry in a bigger way. And so we're looking at other coconut processing facilities and coconut plantations that are available for investment or partnership in the Philippines. Basically, that's the waterfront for now in terms of the agribusiness. Where the real test will be is to get into large-scale commercial farming. and a number of the local government units have offered land to us for development in large-scale farming. But nothing concrete has been agreed. It is a choice or an option that we have to consider very carefully.

Thank you. Joseph, just for your follow-up question, what's our thinking about capital allocation going forward? Do you want to grab that?

Well, The capital allocation, clearly it is a function of the kind of cash flow situation at headquarters level. We put up our numbers for 2022 and showing a dividend income of $220 million in aggregate and then see even the cash flow that a big part of that is for an interest roughly aggregating $70 million and people would be aware that the interest rate actually has gone up starting from the second half of 2022. The interest ticket will be a little bit increased starting the first half of 2023 onwards. So there will be some uplift in that interest expenses figure from the $52 million reported in 2022 to a higher level. Now we have crossed that a little bit less than $1.5 billion and that's a $1.4 and then at a interest costs of 5% there, talking about 60 to 70 million. So that will be some uplift, quite a bit of uplift, I would say, to the interest expenses. So net of all this is actually the cash that we would allocate for return to the shareholders and any capital investment. So we announced the dividend payout of final dividend payout of 11.5 cents. So adding together, it's 22 cents of In a full year basis, that's roughly 120 million U.S. So that's a big part of the so-called cash that we have. And so going forward, we'll really monitor the cash flow. But bear in mind that in 2022, We have not received any PLB dividend yet, and that is a very strong performance of PLB in 2022. And we started to collect quite a strong stream of dividend from PLB starting in first quarter 2023. So we expected that the dividend stream coming from PLB in the course of 2023 would be very strong, and then total dividend would be increased quite a bit as a result of that. Now, we'll look into on a full year basis as to the overall cash flow situation as to how to allocate between return to the shareholders in the form of distribution and then further investment in other investment opportunities that will be available to us.

Thank you, Joseph. Thank you. May I just have a very quick follow-up or touch on a difference here? So the full-year payout ratio slightly dipped to 24% in this year, which is below the 25% sort of the committed payout, I would say. So just learn to see if there's any structural change in thinking about a dividend policy or whether there is just a one-off consideration here.

Let me take that. I mean, in terms of the dividend-to-share growth, that's Very, very, I mean, that's 16% growth. Very broadly aligned with the 19% growth in the recurring profit. And we say that, yes, I mean, the dividend policy has been 25%. Last year, it was a little bit more than 24%. This year, it's actually on a rounded basis. It's actually close to that. As I say, it's all subject to the head office cash flow situation. At $120 million a year to our cash flow, it's not a small amount. And I think on a dividend share basis, on a growth basis, it's very, very high. I think reasonable, and it's actually with teens. And if we compare to the dividend we pay in the past two years or so, you're talking about increasing 50% in absolute amount in two years' time. So we need to balance all this. We need to monitor the dividend streams on all the units, including the big boys like PLDD, like Indofood, like Metro Pacific, and in particular PLP in the course of 2023. Now, in terms of whether there's any significant change in the dividend policy, I think we set out in our announcement that we basically stick with the 25%, but up to 25% in order to build in some flexibility in terms of percentage payout. But on a dividend per share basis, I think we kind of maintain at least at that level. That's what we are thinking for the moment.

Also, I think in terms of total return, if you add the share purchase you did in 2022, the total return is about 27%. So it's above your 25% guidance. Great.

Thank you very much.

Thank you. We have another question from Grant at Capital for Business. He asked, Metro Pacific trades at a deep discount to book value, suggesting the market has a concern about capital allocation. amongst other things. Will you be better to address those concerns by buying back stock rather than investing in new and related business lines?

Well, of course, we know that MPEG traces a deep discount to the underlying market value of the company. So we try to address that by buying back shares. I think which we've done for the past two or three years, and it hasn't really moved the stock price up despite doing that. And, you know, that was a significant buyback effort by MPIC. And despite, I must say, for the past year or so, despite the regulatory capture that has been alleged or thrown at MPIC for being unable to realize the tax adjustments required scheduled, I think we managed to get tariff adjustments for the water business, for the tall waste business, not fully, but significantly. The light rain and Meralco, that was a delay of seven years from July of 2015 to June of 2022. And it did not move up the share price. So I think there might be some real more basic issue with MPICs. I don't think it's the underlying business as such, but it's something perhaps some people call structural subordination, the cash flows, because there are operating debts of the operating companies. Metro itself has some debts, but the parent and Is it the structure? Is it because conglomerates are an obsolete concept nowadays? So that's something we're trying to address. We have to address that because we cannot, you know, Metro has not raised any new money in recent memory, and it cannot do that at these share prices. So we've got to get to the root of this issue.

Yeah, these new investments in new businesses, I think one thing that is worth emphasizing is that they are far less regulated than the water toll roads and electricity businesses that Manny's just mentioned, where there have been struggles, big struggles in recent years. with regulators to get contractual tariffs allowed. And on balance, none of the businesses have gotten everything that they felt that they were due. So there's a little bit of diversification is the investment in the new businesses.

Thank you, John and Benny. Are there any questions?

I think there's a lot more questions. Please, may I emerge many to give us a closing remark?

Well, first of all, I'd like to thank everybody for joining us this afternoon. I guess the, having just announced the 2022 results, so it's time to look forward, and I think when you ask the question in reference to Singapore Farm Plant, what we hope to please for 2023, you know, I think in our outlook or conclusion portion of our press release, we were quite positive in terms of a robust outlook for 2023 at least. And I think it was Jeff who asked a question about PLP. And the outlook this year is very positive actually for PLP. And if you look at the who will be the main driver of growth in profitability for this year to be PLP. It is actually Morocco itself. The distribution business continues to grow at a pace a little higher than economic growth, and the efficiencies of scale prove that its earnings, the distribution earnings will rise this year. At the same time, there's a recovery to profitability of the of global business power. Last year, they produced a loss of 1.8 billion for a number of reasons. And starting this year, they've returned to profitability. So that has added to a positive outlook to the generation business. The San Benaventura plant is also past two or three months also showing higher profitability this year compared to last year, no? And our retail supply business, this is the direct supply of electricity to mainly enterprise customers are also showing a positive growth compared to last year. The other driver of profitability this year would be tollways. I think in our blurb, we have about 436 kilometers of network in the Philippines, Indonesia, and Vietnam. And the roads under construction will be about 160 kilometers more. So by the next 12 months or so, we will have more than 600 kilometers. And so we anticipate the total risk group to grow by something like 40% in net profit in 2023. And, of course, there's the useful, reliable PLT and Indifood. We guided PLT to meet single-digit growth in revenues and EBITDA this year, and we hope to certainly improve in 2023 over 2022 core profitability. The capex issue is behind us. There'll be some residue that we need to reflect as it works flowing from the 33 billion adjusted outstanding POs with the major vendors will have to be completed or delivered in 2023 and 2024. So we'll have to deal with those additional capex. But we have reduced the capex, the fresh capex levels in both years to lower levels so that the overall end-time capex will be in the area of around 50 billion pesos only. For Indofood, I think it should be going.

Chris? Yeah, I think Indofood certainly had a good second half. The indications are that that will continue into the coming year. So, yes, also positive outcome from the Indofood business.

Now, I think part of your question related to dividends at First Pacific and the laggards in giving us the proper level of dividends, I really do. One is MPIC. So we should get on MPIC's back to give us more dividends and in the food. So we have some work to do on our subsidiaries.

Thank you, Manny. If you have any follow-up questions, please get in touch with John and me. Thanks everyone for joining today's online briefing.

Bye-bye. Thanks everyone. Happy Easter to all.