First Pacific Co Ord

Good day, everyone. Thank you for joining this online briefing to discuss First Pacific 2023 full-year financial and operating results. The results presentation is available on First Pacific's website, www.firstpacific.com, under the investor relations session presentation page. Please note this result briefing is being recorded and the replay will be available on First Pacific's website in the investor relations session as well. For participants from the media, please note that Q&A session is open for investors and analysts only. If you would like to raise questions, please contact us when the meeting finishes. Today we have with us Mr. Chris Young, our Executive Director, Mr. Joseph Ng, Chief Financial Officer and Associate Director, Mr. John Ryan, our Associate Director and Head of Investor Relations, Mr. Stanley Young, our Associate Director and Head of Public Development, and other senior executives from the head office of First Pacific. Over to you, John, for the presentation.

Thank you, everyone, for joining us. We're very proud of our results today, but we'll begin with a brief reminder of who we are. On page two of this presentation, you've got some logos of some of our more well-known assets, including the core holdings of PLDT, Metro Pacific, and New Food, and Pacific Light Power, which I'll refer to as PLP during this presentation. Over on the next page, we've got a year-end 2023 snapshot of our gross asset value. You can see we've got our four core holdings holding up most of that pie chart. All of them are at market prices except for two. MPIC is there at the price we paid at its delisting on the 9th of October last year. And PLP is down at book value. That's the money we paid for our stake in that company. Now over to the results. On the next page, I think what we've got is a third successive high in contribution from operations. It was up 18% to just over $700 million. And as the numbers cascade over to recurring profit, as you can see visualized in the column chart on the right-hand side, you can see that NPIC and PLP were the most significant contributors to the increase in our recurring profit in 2023. Looking at this page, you see there's a lot written in red and in bold font. It's an experiment we're trying. Please share your views. A lot of highest evers and record highs. Earnings per share up 19%, 14.24 U.S. cents a share. And this comes down to a final distribution to our shareholders of 12.5 Hong Kong cents a share and bringing the full year payout to 23 Hong Kong cents a share, up a penny from the 2022 payout. Looking ahead, management is confident of continuing earnings growth. Broadly, our core holdings, the four of them, we expect over the medium term to deliver continuing earnings growth going from strength to strength, and we'll discuss this in the course of this presentation. Now, let's move on to our investment-grade credit ratings and our interest coverage ratio. 4.4 times at the end of the year, we're investment-grade rated by S&P and Moody's. We've got at the top left here a maturity table chart, rather, of our borrowings due dates. And please note that the $210 million falling due in 2024 is pretty much all taken care of. We've got committed facilities in place pushing those borrowings out to a more distant horizon. So the details and the bullet points on the right will already be a little bit out of date. The average maturity is by now going to be greater than the 3.2 years it was at the end of 2023. Unchanged, really, are our gross debt and net debt numbers of $1.5 and $1.4 billion, and our blended interest costs higher than it was a year ago at 5.4%, but extremely manageable. Particularly if you look at our dividend income column chart there on the bottom left, we can see that $324 million we've received from our investee companies is a record high, featuring the maiden contribution from PLP, colored in gold on that column chart. Now, let's finish this page with just a snapshot of the ratio of fixed rate to floating borrowing. It's about 50-50 of the $1.5 billion we owe, and the bulk of it is in bank loans with just one bond remaining at $350 million. Our CFO, Joseph Fink, can discuss the prospects of further potential bond issuances if you'd like to bring it up in the Q&A. Now, very, very briefly on page six, We had a smashing equity market performance in 2023, and that may be a factor behind the great number of people attending our call today. Up by a third for the full year, and so far in 2024, I think per specific share price is up about 22% for the second year in a row, beating our peers and major indices globally and regionally. And even more briefly on page seven, you'll see that our head office greenhouse gas emissions have fallen quite extraordinarily in 2023, and that's because we've managed to have carbon neutral scope to emissions thanks to Hong Kong Electric selling us some carbon certificates. We'll try to continue that going forward to set an example for our investee companies and to show we have decent bona fides in the sustainability space. This is not at the top of mind when our top people are looking at potential investments going forward, but it's a factor we consider when we regard the future and what it means for us. Now, to our biggest holding, Indofood saw record high net sales, record high core profit, and its consumer branded products division on the next page also saw record high sales. You can see there's some details here in the column chart on the right-hand side. The overall performance of Indofood was driven by consumer-branded products. It's in the separately listed ICBP company. And if you look at the EBIT margin comparison in the blue box down there on the bottom right, you might notice that the noodles margin in full year 2023 was the highest it has ever been. The noodles business is going from strength to strength, has been in the past few years, and we expect it to continue doing so going forward. We are very, very pleased with Indofood. And now let's have a look at its biggest business, Indufood CBP, on page nine. Again, we've got a river of record highs flowing downstream towards you. I have a particular affection for that chart on the bottom left, which shows how extraordinary its sales have grown over the past, what, oh, 13, 14 years or so. from under 20 trillion rupiah to just under 70 billion rupiah over that time span. They had a terrific year, as the bullet points describe. And looking ahead, Indofood told their analyst briefing, I think it was yesterday, that 2024 is going to look pretty good, too, with sales up 5% to 8%, and EBIT margins remaining quite strong. Now, we're going to jump forward to Metro Pacific Investments on page 12. Let me remind you that this was delisted in the second half of 2023 at a price of 5.2 pesos per share. That's the holding company which owns all these assets, the major ones being Moralco in the power generation and distribution business, the Toll Roads business, which is expanding fast across Southeast Asia, and the biggest water company in the Philippines, Mainalad, plus the biggest healthcare network, 23 hospitals now, and several others smaller but also interesting investments. So how did NPIC assets perform? Let's skip over page 13 and go to page 14, where we can see there are some more record highs. Core profit, record high. Contribution from operation, record high. Moralco, as you can see in the column chart on the bottom left, had a fantastic year. Again, record highs there. The water business, after years of tussle with MWSS, its regulator saw the beginning of tariff increases, long delay, begin to come through in 2023. I think overall it was about 16% last year. And then in January this year, they got another bump of about 17%. I may have those numbers swapped around, but they're broadly accurate. Very quickly over to Moralco. You'll see that in this investor handout on page 15, we've got expanded pages devoted to MPIC. And that's simply because as a privately held company, it's more difficult for fund managers to get a look at what exactly is going on there. So we're increasing our transparency over the MPIC assets from 2023 full year and going forward. Now, briefly about Moralco, as I said, it has the highest ever revenues, highest ever core profit, and highest ever core EBITDA. The generation contribution in terms of dollars and gigawatt hours are there in two of the blue boxes, and we expect all of these numbers to show improvement in 2024. Now, let's move forward to page 17, where we've got a brief mention of the toll roads business. If you've been typing MPTC into your Google search box in recent months, you'll see that they have been rather active in expansion abroad. We can go over that more in the Q&A. Stanley Yang, our head of corporate development, can discuss this if that is your great interest. Average daily vehicle entries now are well over a million vehicles a day, cars and trucks, across its networks in the region, and that drove them to record high revenues for profit and traffic. Moving over to page 19, a very brief word about Mainalad. Record high revenues, very strong rise to core profit. They had in the distant past had higher core profit, I think back in 2013 or 14, so not a record high there. Their earnings growth is mostly due to the increase in tariffs that was mentioned just a moment ago. Now, let us move towards the largest telco in the Philippines on page 21. PLDT saw record high service revenues and record high EBITDA. How did it all work out? Again, as it has happened over the past few years, earnings growth has been driven by data, as you can see in the column chart on the bottom right-hand side of this page. Wireless data and SMS fixed line data all showing strong growth. and it's the legacy businesses, that solitary black box of 2.3 billion pesos, being the only thing restraining the service revenue growth to just over 200 million pesos. This year, they see the core profit rising in mid-single digits to at least 35 billion pesos for the full year, and CapEx will be coming down to the range 75 to 78 billion I think it's the second year in a row of coming down for CapEx. It was as high as 50% of service revenues, and I think it's going to be somewhere around 42% for 2024. Now, let's move to a very interesting small business, which is making its first visit to our investor handout on page 23. That's Maya. That's the fintech that PLDT owns 38% of. It is the only telco to have a digital banking license in the Philippines, and it's quite small, as you can see, but it is growing very, very fast. Bank deposit numbers doubled last year. Deposit balances went up almost threefold, and the cumulative loan dispersal was up almost sevenfold over the course of 2023. In a country where two-thirds or more of all the population are unbanked, Maya's growth is something to keep an eye on. It's 38% owned by PLDT. Yes, it lost money again in 2023, but they think they are going to turn into the green by the fourth quarter of this year. We will be keeping you apprised of how that's going. Now, on to page 25, Pacific Light Power, our fourth and youngest of the core holdings. Lots of record highs and highest evers here, revenues and EBITDA. They managed to deliver an enormous dividend to its two shareholders. At the same time, their net debt fell by more than two-thirds over the course of the year. They've really had a very, very strong 2023. And over the next few years, that will prove to probably be hard to duplicate, but the earnings will continue to be strong. Looking ahead, Pacific Light Power, PLP, has got a project to put together a scheme to export solar power from Bulan Island, that's part of Indonesia, via undersea cable to Singapore for feeding the data centers that are fast-growing in that little city-state. It's an exciting project, and Stan, again, can speak to this if that comes up in the Q&A. Now, very briefly, our last major holding is Felix Mining on page 26. Many of you have long known that it's currently operating. PadCal Mine has been scheduled for closure. I think it was originally going to be 2020, and then they keep moving it out, moving it out, moving it out. And it's now going to be operating at least until the end of 2027, because the mining people there have figured out how to get the diminishing ore grades to remain profitable. As you can see, the earnings are down in 2023, but they're still positive. And that's good news because the cash flow from PADPAL is handy to have as development of the new, much richer grades mine in Salangan, down in the south of the country, works towards opening commercial operations later in 2025. That's coming really sooner than we would think. So... We have had a very, very good 2023. That's just been a very rapid overview of how it has looked. And I want to wind up the introductory narrative with a glance to page 29. The left-hand column, as you see, is the very familiar NAV per share description that we put in all of our financial statements. These are the end-year numbers. So the share price of 311 is a little bit out of date. You can see it's towards the bottom of that column chart there. And our NAV discount at the end of the year was about 55%. With the current increase in our share price year-to-date, I think it's closer to 45 today. But what I'd like to draw your attention to on this page is the valuation of MPIC. Our $1,371 million valuation is the price it was worth at 520 a share when it was delisted. CLSA reckons that it's worth a bit more than that when you're doing a look-through valuation at what its assets are worth. Remember, there's Moralco listed, Mainland, the toll road business, MPTC, and others. So they've increased their valuation of MPIC to a bit under $2 billion, and then – In the couple of months before it was delisted, there were six analysts who were covering MPIC at the time who did their own look through valuations. And they came up with a larger number. Well, of course, I put this in our presentation. What does this all boil down to? The $7 per share NAV in the blue box at the bottom that we had at the end of 2023 looks to be different numbers from these differing perspectives. Over $8 NAV per share. These are Hong Kong dollars. according to the CLSA view, and a bit under $10 NAV per share, according to what those analysts were saying. This is all food for thought, but perhaps the more conservative among you will want to bear in mind that First Pacific Management is extremely confident about overall broad earnings growth among our core holdings filtering through the head office over the next three years. And that's it for the introduction.

Thanks, John. We are now ready for questions.

We have a question here.

What is the NAV as of today? Can we get an update? I looked at it yesterday, and it was about 45%. But look, I've got in my email, I've got a new number, 44.4% at today's market close. That is the NAV discount of First Pacific at today's closing price of $3.82. Jeff, unmute yourself and ask a question, please, Jeff.

Thanks, John. Hi, everyone. Thank you for taking my question. So basically, I have two big questions. So the first one would be. about the latest dividend policy, which I see you have put some wording like progressive absolute dividends going forward. So I just want to see, first of all, how do we decide the amount for the final dividend this time and how should we think about this going forward? And zooming out a little bit, just want to get your latest thought on capital allocation at the whole core level. How do we strike a balance between... potential investments, dividends, buybacks, or debt reduction going forward? And I have one question after that.

I'll give a brief introduction and hand it over to Joseph for more details. The dividend policy unlinks the distribution to our shareholders from the profit numbers, which, as you've seen, keep growing from record high to record high year after year. And the distribution is based on, well, funded by the dividend income that we have. So what we wanted to do is stop an increasingly tenuous link to the profit, linking the cash income to the profit, and replace it with an assurance that over time our aim is to show distribution increases to our shareholders. And now for more detail, I think Joseph can help.

Well, I mean, maybe I answered the second part of the question about the capital allocation. If you go to page 31 of the presentation, you'll probably get a sense of the cash flow definition. 2023, you see that, well, we have quite a bit of dividend income from the units, and the record high, 324, and then taking out all those items, you are having 235, but you would take out the dividend, I mean, that we pay in the course of the year, then you probably have something like 110 million, that sort of figure, 120 million, but make quite a bit of investment. So for the full year, we're in the negative zone. So we would think about the capital allocation form when we get into 2024, if we could maintain that level of dividend, say 300, 300 something million net, then we probably have a service case of something like 80, 90 million. then we get into the kind of just thinking about capital allocation between what you say, increasing the dividend or reserving some of the cash for future investment. Remember that we're also one of the parties of investing in this Singapore-Indonesia renewable energy project, even though we're still in the process of finalizing all the necessary arrangements with the governments and the other parties. So we need to build up a little bit of cash reserve for that as well. So the investment, the return to shareholders, and debt reduction. But we are talking about getting into 2024, maybe somewhere around $70 million to $80 million if we could have that sort of service cash starting 2024.

Patrick has a second question.

Hang on. Let's go to others before we do that. Our current voting stake is asked. Stan, can you help with that question?

Sure. From an economic perspective, It's 46% after the listing and the share placement at MPIC. From a voting perspective, there are voting preference shares in Metro Pacific that MPHI has, a holding company. That brings us to a majority shareholding on a voting basis. I'm not sure if that's publicly disclosed, but it is. Okay, so it's at 58%.

Okay. Thank you, Stan. Joseph, can you briefly explain? I mentioned the potential for issuing dollar bonds. Can you give more color on that? I don't want to have misled anyone.

Yeah, if we go back to that maturity program set out on page 5, and that's how the maturity of the bonds and the band loans, as mentioned by John earlier, we already line up committed facilities to fully repay the 210 million due in second quarter 2024. Actually, we have very strong responses from the market to the extent that we may be able to raise a bit more compared on the 400 million due in 2026, cheaper borrowing rate, and then also term out a significant portion of the 400. Now, the next question coming up is what are we going to do with the remaining loan balance due in 2026 and and also the 2027 bond. Now, we have then, after we're prepaying the loans in 2024, we have a clear kind of 18 months or so at least for us to observe the market, the interest rate environment, design market, and decide what we want to do. And clearly, our preference, if we want to balance the source of credit from the bond market and the bond market, then preference will be going for a bond, which gives us a tenner. at least seven years, if not 10 years till we term it up. But I mean, we have time to observe the market and see whether the market behave and the interest rate environment evolve. So we are quite conservative, but we have time. And then if the market is good and the rate is good, then clearly we'll go for some new point issuance in the next 18 months or so.

Thank you very much, Jeff. We've been joined by our Managing Director and Chief Executive, Manny Angelinen. Thank you. Manny, there's a question about toll road developments going forward, but perhaps you might use that as a lever to discuss what sort of thinking we've got about our corporate developments going forward.

Well, in terms of toll roads, I think quite recently we've gotten fresh news adjustments on our tariff. So we're looking forward to a graded profit picture for our tollways in the Philippines, particularly. And that is shown in the first two months of profit results of the tollways, which are higher, quite significantly than what it was last year. And there are several of the tollways projects in the Philippines that are nearing completion within the year. Part of it is the Candaba Viaduct, the third phase of it, which is a two-lane highway in the middle of the Viaduct, such that we will now have six-lane, to become a six-lane highway, connecting one particular province in the north and Metro Manila. The other, the Calambala-Guna Expressway, the There are two next to it, the province of Laguna, which has been completed, but the Cavite province has just been started because of rights-of-way issue last yesterday. 47 March, Wednesday. Yes, Monday I had dinner with the host of dinner for the governor of Cavite province, and he has promised to sort out the rights-of-way issue. So we anticipate that by early next, assuming we can do that in the next two months, I believe we can finish the Cavite leg by the middle of next year, which is probably what can be done as quickly as can be. In which case, the Calas project should be finished. Segments of it can be finished within the year, the Cavite leg, and the final segments will be completed by the middle of next year. In Indonesia, we are the highest bidder for 35% stake in the Transjava tollways. 65% will be retained by Jasamarga, which is the Indonesian government's tollways company that builds most of these tollways in that country. Actually, the board of Jasamarga has approved the the bid of Metro Pacific Tollways for the 35%. And I think that goes through several government formalities before the award is given to us. But we should anticipate getting the formal award from the Indonesian government within a month from today. Can I talk about this on the emergency?

Maybe why the benefits?

Okay. Yes, Manny, I think.

Well, there are ongoing discussions between Metro Pacific Investments and San Miguel Corporation itself about combining the two tollways into one significant consequential tollways company. And in principle, we have shook hands with San Miguel about this particular merger on the basis that it will be a 50-50 joint venture between ourselves and San Miguel combining their Philippine operations. They're only in the Philippines. And in the case of Metro Pacific Tallways, both the Philippine operations and the Indonesian operations, especially after the inclusion of TransJava in the portfolio of Metro Pacific Corporation. Now, from the looks of it, On an EBITDA basis, the combined EBITDA of the Philippine and Indonesian operations would be slightly larger than the EBITDA of the authorities of San Miguel, which are confined to the Philippines. But the deal with San Miguel, the agreement with them is it will be a 50-50, so any differential will be settled by way of cash and or assets acceptable to the receiving party. We're in the process of engaging financial advisors to sort out the numbers and the exchange ratio between the two. I would guess that the transaction is subject to the Philippine Competition Commission. So this would take a bit of time, maybe the next four to six months before we're able to complete. Of course, you could sign an agreement subject to conditions, and we should be able to do that after the gas plants have probably been finished. So I think this is the joint EBITDA of the two, in total about $52 billion, attributable to both MPTC, Metro Pacific Tallways, and to the San Miguel Tallways Group. So that will be a significant update. The intention is to float it. If you're able to complete the merger this year, perhaps as early as 2025.

Thank you very much, Manny. Let me briefly mention a question here at the bottom about the dividends. We received $324 million, but the payout was only 5% up after the $324 was up 43% from a year earlier. I think the answer begins on page four, the bottom right-hand chart, where you've got opening cash of $97 million and closing cash of $71 million. Our cash was used up in this way. the single biggest expenditure was net investments, and that was the delisting of NPIC, and that was followed by the distributions we paid. But more broadly speaking, I think Joseph Ng, CFO, can speak about the policy towards dividends going forward.

Yeah, I think John has pointed out basically that he increased that, he pointed out, I mean, he increased to 43% of 90 million from the last year's 226,324. And in terms of increasing recurring earnings, it's about 18%. But, I mean, John has pointed out correctly that the bulk of that increase of 98 million is used for investment, unlocking the value of MPIC through the delisting and subsequent kind of subscription of shares, so as to maintain a 46% in the delisted MPIC. And that unlocks value to the specific amount of and throw up to first specific shareholders. I think that's the kind of basis of setting an increase in dividend and still giving the shareholders kind of decent return of 6% plus, even based on the latest increase in share price. Because we based on the earlier, the year end share price, I think clearly even higher. So I think when we get into the 2024, it's a function of whether we have any significant capital investment, as I mentioned, We need to think about future, and we are involved in the renewable energy project in Singapore and Indonesia. Probably we need to build a little bit more cash to cater for the capital investments there. But nothing is finalized yet, so we tend to be a bit on conservative side, but we're still giving 5% increase in the dividend per share. And then I think the yield is 6% plus. I think that's in line with the other market players out there.

Okay. Thank you, Joseph. There's a question here about closing the gap to NAV, mentioning especially Indofood and CBP. Well, up at the Hong Kong level, the focus more is on First Pacific's own NAV discount. You can see that it has narrowed by about 10 percentage points so far this year. And as we move deeper into 2024, One of the most significant things we can do to narrow that discount, as it's described here, is the transparency, the oxygen of sunshine. We've got expanded presentation materials. We've got expanded ambitions to see non-shareholders and our current shareholders, of course, in April and May. We're making our first ever visit to mainland China to see mainland fund managers in the middle of that month. All of you who are on the call, you want to see us when we hit the road, please drop me a note. And I think as we continue to report our companies, their quarterly numbers beginning in May, and then our half-year numbers that we report in August, we will bed down the sentiment that first specific is strong and getting stronger and the nav discount is increasingly unwarranted with that closing rate of um 10 percentage points over the course of less than three months um we're feeling pretty good about it but we will be unstinting in our effort to ensure that our shareholders see the full value of the asset they own in 142 hk um There's a question about consumer branded products about the 2024 EBIT margin being a bit lower than 2023. While they do forecast fair stability in commodity prices for 2024, and think here wheat and palm oil, the folks over at Indofood, they tend to be conservative with their forecasts so that they can feel comfortable that they'll hit them. I think that's probably the main reason. that they're suggesting the EBIT margin might be a bit lower than 2023. They're giving themselves a little bit of buffer. Now, about the Indo-Agri ISPO compliance for their palm oil production, that's a quality and environmental standard made by the Indonesian government. It's very related closely, similar to the RSPO international standard. It would take 20 minutes to give a full answer to this question. I believe I will see the questioner later in April, and we can get into more detail there. ISPO is very highly regarded, and I think they'll hit that 2025 target of 100% certification. And no, they're not out of regulation by not being there yet. There's a question asking about non-recurring losses. May I please ask our financial controller, Richard Chan, to break down those non-recurring numbers?

Sure, John. The non-recurring item of about $120 million mainly comprises of an impairment provision for ICBP investment in Deauville. And the impairment is specifically arising from the significant depreciation of Nigerian currency lara during 2023. I guess the extent of depreciation is about 50%. And the other major significant item included in our recurring losses is the weight off of the capitalized subscriber acquisition cost at PODT level in respect of its trended home subscriber.

Okay. Thank you very much. Stan, there are some questions here about the solar project of PLP. Noel, can you show Stan these questions?

Sure, I'll take that one. There's a consortium which consists of the shareholders of Pacific Light and two other groups, Medco Energy out of Indonesia and Galant Ventures, which together form the project consortium and For the TLP shareholding side, it's a 37% interest in this project. I can't share the total capex. We haven't disclosed that, and it is a process where there are other bids involved in the EMA process. But we are going through it. There is a conditional approval on the EMA side, and a MOU was recently signed on the Indonesia side, and there's an element there. that we're trying to progress ahead in terms of these discussions. But it's still early in the process, but in terms of the capital requirement, though, of the 37%, then there's also a joint venture between MGEN, Morocco Power Generation Unit, and First Pacific on a 58% to MGEN and 42% to First Pacific. So the attributable interest to and therefore the share of any equity requirement would be approximately 15% to 16%. That's the level.

Okay. Thank you, Stan. And there's a question about the retail contracts and what they look like now, the ones that have been renewed last year.

Sure. In the past, retail contracts were typically on a one-year basis. I think as the market has changed and also given some of the fluctuations in the price in the last couple of years, then there's been a move and a shift into longer dated contracts. And so in this case, you're seeing two-year, three-year, and sometimes even well above that. And so that's definitely a change in terms of the portfolio. I would say that PLP has signed up a number that are three years or more. That's a significant component now of the retail contracts. And so The market, I think, as we mentioned earlier, the performance of last year is not – the fact that margins were in excess of $100 per megawatt hour is not a long-term level that we would expect. It's well below the vesting levels, which historically have been at the $50 per megawatt hour level. That's a long-term benchmark for the long-run marginal cost. And so on that basis, I think the market, though, still remains quite robust. And in terms of the margins that would be still in this market, though, it's not quite 100, but it's in a $70 to $80 level in terms of the non-fuel margins.

Okay. Thank you very much, Stan. Now, PLP has been in profit for three years in a row after many years of losses. So your commentary there, what does it suggest for the next few years for PLP?

Well, one thing to remember is one of the problems of PLP was in the past a very unfavorable LNG contract. It was a generator that had the highest cost base and was in a very bad position relative to other generators. And since the 2020 debt restructuring, and that also was a fuel restructuring that took place as well that year, then PLP has reversed, and it's now actually in a quite favorable position on the gas procurement side. So that's one element that helps the business, and these are long-term. And so this is, you know, a benefit that will be with PLP for at least the next five years. Now, the market is changing. The government is looking at a centralized procurement system. That's something that EMA is evaluating. But for at least the next five years, there's definitely a good position on the gas supply for PLP. And so I think, you know, when we think about the market dynamics, then I think given that there is continued demand growth, there is strong support in terms of the technology sector and electronic sector for capacity. I think that, you know, from our perspective, that will be beneficial in terms of keeping levels, certainly in excess of the vesting levels for the next few years. I think longer term that will be a function of how much more new capacity comes into the market. And, you know, for Singapore, it's the balance of the players as well in the market, including ours. So I think what helps also with PLP is that when we started the debt restructuring, the debt at that time was around Singapore dollars, $700 million. With the cash flows and the benefit of the group, you know, that debt level at the end of last year was huge. And so it's significantly improved and will continue to improve from the leverage side of the business. And so from a debt to EBITDA level, for example, you know, it's well below one times at the moment. And so that's putting the business in much more secure hands, not just to benefit the profit even as margins decline, but also to continue to pay up attractive dividends.

Okay. Thank you, Stan. Tony Watson, your hand is raised. Please unmute and ask your question.

Hi, guys. Thanks for the call. I've got a couple of questions on different areas, so I'll ask one and then jump back into Q. Can you just talk to us a little bit about your debt strategy, whether you're looking to deleverage further, extend your maturity profile given falling interest rates? what your thoughts are around local currency bonds, fixed versus floating. If you just walk us through your thinking around that whole topic, it would be great. Obviously, we're debt investors, so that's very helpful.

Well, I mean, should I answer that first? Or do you have other questions? Maybe I just addressed that correctly. There's no immediate plan for us to do this. any debt, and then we are quite comfortable with the existing 1.4 or roughly 1.5 billion debt. And, of course, if there's the opportunity for us to pare down the debt, but then it's a question of tying up where do we get the funds to do that for paring down the debt in a kind of a meaningful manner. And basically now we are having a 50-50 fix and pro then. I mean, it's a very broad interest rate environment, and there are signs that, well, the interest rate may go down a little bit, starting in the second half of 2024. That would help us because 75% of that is actually banned loans, 50% floating. So that would help us. So I think currently we are comfortable with 50-50 fixed and floating. But according to the earlier point that I made about looking into a bond, I think that's basically helped us diversify the credit resources going forward because we only have one bond outstanding. in the portfolio, $350 million, which is 25% of what we have. And now the bond may help us to term it out and also help to balance the credit resources between Bandalong and bond investors. So we monitored the market. We got a credit rating in early 2022, so at some point we probably would like to use it, but we are patient and then, as I mentioned earlier, that maturity profile, we are we're quite comfortable because, well, we have everything lined up. There's nothing due until 2026 after paying down the, or fully repay the ban on steel in second half, so the second quarter of 2024. And you make a good point about local currency bonds. It's basically the Philippine market or the Indonesian market. And I think we look into that. But at the end, I think in terms of liquidity, raising the money, And I think clearly the U.S. dollar market is more liquidity, more investors there. And also, I mean, you need to pay premium above and beyond the U.S. dollar. So it's kind of a balancing issue as to where we take the bond investor. And on the other hand, I mean, you take the bond market, the Philippine bond market, you need to think about whether, I mean, you can apply the kind of the credit resources for local units there because A lot of our operations are also located in the Philippines, the infrastructure projects, the water project, the toll road project, and others. So there are a number of things that we need to take into consideration about raising local currency bonds in, say, the Philippine market or in the Asian market. So overall, I think we have been in the bond market for quite a number of years. Actually, our first bond was issued back in 2010, 2010. So we are quite experienced. We're not a new issuer to that market. So I think we will make use of that market when the timing is right.

Okay. That's great. And just sort of related to that, and you did touch a little bit, but if you could just walk us through your capital management policies, particularly as they relate to debt. So do you have, like, debt to capital, EBITDA to interest, maturity profile targets that you use? like to manage your debt exposure around?

Yes. I think in terms of the so-called debt to, let's say, value of the asset, I think we have something like $5 billion simply based on the market value of the asset that we hold. We have over $5 billion worth of asset. And if you think about that, our net debt is something like 1.3, 1.4, so it's roughly 25% of that. of that figure. But we don't have any covenant like that. We don't, because the value of the asset is a function of many things, right? The foreign exchange rate, rupee and peso exchange rate, as well as share price of the underlying assets. So we don't tie ourselves to any single ratio that we should not be having any debt more than 20%, 25% or 30%, because it's not something within our control. But we do pay a lot of attention. And that's why it's highlighted in one of John's slides about interest coverage ratio, because that's real cash. real deficit interest servicing capability. So we focus on that a lot. And then we have a recorded kind of historical high at 4.4 times interest coverage ratio. We have certain loan covenants tied to that, but it's much, much lower than that. So it's actually below 2 in some of the loan covenants. And, of course, there are certain press so set by the credit agencies that, well, we should meet. But it's well below the 4.4. So I think we are quite comfortable with that. with the 4.4. Now, with the interest rate going to decline starting second half 2024, at least that's the market view at least. So the interest expenses will come down. And at the same time, it's a function of what kind of dividend that we could receive from the unit. So it's kind of something that we are monitoring closely. And for us, I think that's the key kind of debt measurement ratio, if you like, at the first specific headquarters level.

Thank you, Joseph. If we turn to page 16 of this investor handout, there's a question about the potential capex in the SPNEC project. And Stanley Yang, our head of corporate development, has some thoughts on that.

Sure. SPNEC, just for those who aren't familiar, is a project that's a TerraSolar project. It's a very ambitious 3,500 megawatt peak solar build-out. This is one that – MGEN invested into at the end of last year. It is one that once completed will be the largest single site in terms of solar projects globally. And it's a scale that takes advantage of the land that has been accumulated, which in total, once it's completed will require 3,500 hectares. Now on this project, TerraSolar itself has been benefited by having a 20-year power supply agreement that has been awarded with Moralco. And so with the tariff that was secured through that PSA, that will help underpin the long-term returns and the attractiveness of this project in terms of the economics. And given the size, 3,500 megawatts, it's a very large, $200 billion is the above CapEx on a 100% total basis, which equates to about 3.6 billion U.S. dollars. Now, there's a lot of interest from financing banks because it's renewables and it's backed by the 20-year PSA. And so discussions are underway on the project financing element of it. And when it comes to the equity component, we are also in discussions with some interested parties who would look at a minority investment into this project. I think this is a discussion that has been taking place in the recent weeks, and so we will look at that option as well in terms of how to partner together on this particular project going forward. But given the scale, given the importance of renewables into the fuel energy mix in the Philippines, we think this is a great one, especially given the benefit of of the PSA.

There are a couple of questions here about the toll roads business and the power business under MPIC. So I've just asked Manny to say a few words about his thinking for MPIC going forward over the next few years?

Well, the biggest investment of MPIC is Maralco, and I think in many ways, I think Stan has alluded to the solar project, which is the biggest single-site project in the world that we're building. Not a simple project is turning out. It's a to be built on 3,500 hectares or approximately 10,000 acres. But our people, we've organized a group to execute the project, and they have been going around China to take a look at the supply chain of both the PVs and the batteries, talking to potential EPC contractors. They visited other countries in the process, and we're on our way in terms of detailed engineering, transmission issues related to the connection with National Grid and, of course, the plant itself. But that is a $4 billion project, approximately, and we will need to have investors to invest in the TerraSolar or in the project itself. But that could be transformative for Miralco and for the country moving forward. The next big project in power generation is the interest that we have acquired from San Miguel in their gas plants. Basically, there are four components to the gas plants of San Miguel. Number one is the regas facility, initially at about 3 million tons to supply the existing two plants. The second are the two plants, an operating plant in Lihang, which is about 1,260 megawatts, and a second plant, a gas plant being built, about 1,300 nearby, adjacent to the existing plant, and no problem with the grid connection because it's already there. The third component is the property company that owns the land and leases. It will be owned by the same shareholders. It is leased to the to both the regas and the gas plants. So the partners, our aboites, ourselves, and Meralvo and San Miguel, San Miguel will retain a 33% interest in the solar project, and we have formed a special purpose vehicle at the top, 67% that will own the gas plants and regas. and the land. And the 67% is split into 60-40 in favor of Miraco. So our effective interest is about 40.2%. So we will be the second largest shareholder of this particular gas plant. With respect to the distribution unit, I think it is, as you can see, in last year's profit results of Naloxone is steady as you go, about 8% increase in their profitability. But the first two or three months of this year, build volume on the distribution side has grown by about 8% to 11%. And so we're quite optimistic about the economy in general and about the prospects for Naloxone itself because of the significant increase in generation capability and profits and continuing stable earnings of the on the distribution side. In Tolerance, we spoke about our expansion in the Philippines and in Indonesia, principally Transjava, and the potential merger with Morocco, and we think it will be income-attractive for both MPIC and for specific. On the water side, profits were up significantly last year on account of a modest increase in in tariffs which flow through and some increase in volume, in bill volume at the water side. This year, we will get a significant increase in tariffs starting January of 2024. That's about 18%? About 20% increase in tariffs. So that should flow through in the Council. I think last year, their profits was about $9.8 billion. And this year certainly exceeded 12 million pesos for income for Manila. So what else have we got today? That's the bulk of it. Thank you very much. The small ones, we ran out of milk for Carmen's Best, and we are now acquiring one or two new dairy farms, but existing dairy farms with significant amounts of milk to provide the input for work. Time is best. Our greenhouse project in north of the Philippines should be operational by the end of the year. Excellent. It's recovering from its disastrous three-year last year. We managed to bring down the price, and they seem to be doing much, much better this year.

Thank you very much, Manny. Tony Watson, you've got another question.

Yes, thanks. More of a high-level strategic question. So your portfolio of companies looks like it's already pretty well bedded down. Are you looking just to work those assets going forward or grow the portfolio by M&A to expand those existing businesses? and or are you looking to widen out the portfolio breadth a bit to include new businesses? I know that you guys are dipping your toe into the FinTech area. So if you just talk to me, talk to us around that a little bit, that would be great.

Chris, do you want to start and Manny will finish?

Yeah. I think most of the M&A activity would actually happen at the operating company level. I think, in particular, that's where the expertise resides. Manny outlined quite a number of investments and other corporate finance initiatives which are underway at MPEG. And I think Stan went into detail about Pacific Light and Power. So I think you can expect that activity to be at the operating company rather than for specific itself. In terms of fintech, again, I think that would be concentrated at the operating company level. That's where the resources are to utilize digital initiatives most efficiently. So PayMaya is probably the most visible, or sorry, Maya is probably the most visible of these initiatives. But if you look at PLDT, Moralco, MPIC, they are working on quite a number of digital initiatives themselves, which we think will create value for the group going forward. Similarly, InnoFood and ICBP have quite a number of digital initiatives which they are working on, which should create value for the group as we move forward. So I think that's the broad picture. Thanks very much, Chris.

I'm sorry, folks.

I look forward to seeing you when I'm in Manila in the next month. Are you in Manila? Yeah, we'll be in Manila end of next month. I think we were talking to somebody on your side about setting up a meeting.

Yeah, all right. That's being taken care of, Tony. Okay, thank you for your questions. I'm sorry, Manny has left for his 6 o'clock meeting. I'll just remind you all that First Pacific Management are visiting investors in Europe and North America beginning after the Easter holiday. Let us know. Drop us a line if you'd like us to come visit you, and we will make every effort that we can. I think there are no more questions. So, Chris, may I ask you, please, to just sum up where we stand today and where we're going to go?

Okay. Thank you, John. I think what you will have heard from the presentation that 2023 was an excellent year for specific. However, this is not a one-off. This was really built on strong operating and profit performances in 2022 and 2021. So given that strong base that we've seen over the last three years and the strong start to 2024, I think we see a continuation of these encouraging trends going into this year, 2025-26. I think that's the broad picture. It just remains for me to thank you for joining us today. We look forward to you joining us again for the first half results of 2024, which I think will be held in towards the end of August this year. So thanks again to everyone for joining us.

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