Ginebra San Miguel Inc

Good afternoon, everyone. Welcome to the combined 2026 first semester results analyst briefing. I am Jericho and I will be your moderator for today. A few reminders before we begin. Number one, questions will be entertained only at the end of the presentation. and only via the Q&A feature. Number two, questions sent through the chat box will not be entertained. And number three, please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Ms. Jessica Tenorio, VP and Head of Corporate Financial Planning and Investor Relations, Ms. Tatish Pallabyab, SMC Chief Sustainability Advisor, Ms. Monica Ang Mercado San Miguel Food & Beverage Inc CFO Ms. Tina Garcia SMFP Investor Relations Head and Mr. Eric Peh Lim Petron Corporation Investor Relations Head We'd also like to acknowledge the presence of other key executives of the group who will be joining us in this call. I now turn you over to Ms. Cheska Tenorio to discuss the SMC Group's financial and operational results.

Thank you, Jericho. Good afternoon and welcome to San Miguel Corporation's combined first half 2026 results analyst briefing. We are very pleased to report that despite a more challenging operating environment, the SMC group delivered resilient first half results, demonstrating the strength of our diversified portfolio and the continued execution of our long-term growth strategy. Let me begin with an overview of the key developments and drivers behind our performance during the period. The first half of 2026 was marked by a more challenging operating environment in the Philippines, with GDP growth slowing to 2.3% in the second quarter and 2.6% for the first half. Weaker investment activity, softer consumer spending, elevated inflation, passive depreciation, and disruptions arising from tensions in the Middle East weighed on overall business and consumer sentiment. Despite these headwinds, SMD delivered resilient first half results. Core net income grew significantly, while consolidated operating income grew by 17%, reflecting the resilience of our diversified portfolio. Although second quarter performance was affected by the Middle East crisis and foreign exchange movements, the group continued to benefit from solid top line growth, steady domestic demand, and stronger contributions from the energy, food, spirits, and infrastructure businesses. On the sustainability front, SMC continued to advance the sustainability agenda in the first half of 2026, moving from establishing key frameworks toward greater integration into business operations and decision making. Key progress included advancing in the climate risk assessment, net zero roadmap, and people upliftment framework alongside the publication of the 2025 sustainability report. Flagship initiatives such as the Better Rivers Program continue to deliver measurable environmental and social outcomes, while stronger internal engagement and sustainability governance supported SMC's focus on long-term resilience, value creation, and sustainability growth. We will discuss these developments in greater detail in the succeeding slides. Let's now take a closer look at the group's financial performance. San Miguel Corporation remains resilient in the first half of 2026 with its diversified portfolio, supporting strong performance despite heightened external challenges. For the first semester of 2026, the group generated consolidated revenues of 964.1 billion pesos, up 34% from last year. Growth was driven by higher average selling price and volumes at Petron. Sustained strength in the energy business and solid food business led by record high feeds volumes and continued support from Magnolia dairy. This growth was achieved despite more pronounced headwinds in the second quarter when the Middle East crisis and foreign exchange movements weighed on Patron's margins. The resilience of the group's diversified portfolio, supported by stronger contributions from the energy and other key businesses, helped cushion these pressures and brought consolidated operating income for the first half to 102.3 billion pesos, and that's 17% higher year-on-year. Consolidated reported net income reached 37.7 billion pesos, 44% lower than last year, but this is mainly reflecting the absence of prior year one-off gains and the impact of a 16.5 billion foreign exchange loss from the peso depreciation. Stripping out these non-core items, consolidated net income would have grown 48% to 54.2 billion, reinforcing the strength of the group's core earnings. Now to walk us through the performance of San Miguel Food and Beverage, I'll turn the floor over to Tina.

Thank you, Jessica. San Miguel Food and Beverage remained resilient through the first half of the year, supported by the strength of our operations and the hard work of our teams, despite high inflation, slower growth, and geopolitical disruption. Let me start with the macro conditions. The economy grew 2.8% in the first quarter, and household spending was 3% down from 3.8% in the fourth quarter of 2025. Inflation moved from 2% in January to 4.1% in March, led by transport at 9.9% as the Middle East conflict pushed up fuel costs. That pressure intensified through the second quarter with inflation reaching 6.8% and the peso weakening 4.6%, which raised the cost of our imported inputs. Consolidated sales reached 205.3 billion, 2% higher led by the continued growth in food, Food grew 5% on volumes, spirits was steady and beer eased 1%. Food and beer are still our largest contributors at 48% and 36% of sales, with spirits at 16%. Cross-profit was steady at 58.4 billion, supported by revenue growth and efficient cost management. The earnings pressure this first half came through operating expenses, rather than the top line or the gross margin, mainly on higher freight and handling costs and the cost of running new facilities. Income from operations and net income both eased 4% to 28.8 billion and 22.1 billion with both margins easing one percentage point. EBITDA was 1% lower at 38.8 billion with margin of 19%. Beer is still the largest contributor at 50% of income from operations and 52% of net income. Food follows at 31% and 30% and spirits at 19 and 20%. Despite these pressures, demand across our core categories remained relatively stable. We closed the first half with total equity of 205.3 billion, up 4% alongside improved liquidity and leverage ratios. Next slide, please. Turning to the food business, food revenue rose 5% to 99.3 billion, driven by the feed segment and sustained demand for branded products. Animal Nutrition and Health had its best first half volume ever, up 26%. This was driven by major growth in hog feeds, supported by product enhancements, effective sales and marketing programs, farm conversions, and industry repopulation. Layer free range and broiler feeds also posted strong rates. Volumes grew double digit across every channel, more notably from feed stores due to improved distribution and trade execution. Feeds accounted for most of food's added sales. Protein sales eased 5% to $35.9 billion amid a challenging industry supply situation and software demand. While poultry volumes remained stable, the sustained influx of imported frozen chicken continued to weigh on chicken prices, which averaged 5% below last year's levels. Industry frozen chicken inventory rose from 57.5 million kilos at the end of 2025 to 68.1 million kilos by June 2026, with imports accounting for 69% of total stocks. As the shortfall was driven by weaker pricing rather than lower volumes, it cut directly into profitability. There are early signs of improvement. Chicken prices have gradually recovered since April, although they remained below year-ago levels. Demand in the second quarter remained resilient, particularly from food service and wet market channels, helping support a more positive outlook for the business. Monterrey Meats also returned to profit given a more focused business team, a better channel mix, and improved farm efficiency. Prepared and packaged food grew sales 5% on stronger volumes, better prices, and improved product mix, supported by Magnolia Dairy and Coffee, Pure Foods Luncheon Meats, and Pinoy Favorites. Our economy brands Star and Bonga also contributed to the top line as consumers sought affordable yet trusted alternatives. Flower sales eased as customers moved to lower priced alternatives, including imported flour. Our fighting brands, bakery ingredients, and retail premixes offset part of that, and operating income still improved on weak costs that were below last year's levels. For food overall, gross profit grew 4% to 22 billion, helped by favorable prices for most raw materials and by deliberate cost reduction efforts across operations. Operating income increased 2% to 8.8 billion. EBITDA was 5% higher at 13.8 billion and net income rose 8% to 6.4 billion. Favorable input prices and cost discipline helped the business cope with high inflation and the impact of the Middle East conflict and sustained margins. Next slide, please. Moving on to the beer business, beer remained the group's largest earnings contributor, although sales eased 1% to 73.7 billion as consumers became more selective with discretionary spending amid elevated inflation and a weaker peso. Domestic sales remained steady at 66 billion, supported by the January price adjustment implemented to offset higher excise taxes, despite a 5% moderation in volume. First quarter volume was partly affected by the trade's inventory buildup in December 2025, ahead of the adjustment, while the second quarter performance reflected more cautious consumer spending amid elevated inflation. The June earthquake in Mindanao also temporarily affected volumes in the region. We continued investing in our brands with campaigns and sponsorships across our portfolio, alongside intensified sales and distribution initiatives that helped cushion the volume shortfall. Domestic operating income closed at 13.4 billion, 5% below last year, as lower volumes, higher fuel prices and excise taxes and fixed costs offset the pricing gain. International sales were 7.7 billion, 7% lower or 11% lower in dollar terms at $128.5 million, primarily because the Middle East conflict affected our exports business. That was partly offset by growth in the domestic operations of our international markets with stronger sales in Indonesia, South China and Hong Kong and higher San Miguel brand volumes in Vietnam. Operating income declined on lower volumes, higher production costs driven by aluminum can prices and increased distribution expenses, including freight subsidies. We are now gearing up for export recovery as conditions ease. For the peer business consolidated operating income was down 11% to 14.4 billion and net income declined 12% to 11.4 billion. EBITDA was 19 billion, 7% lower, higher container amortization and the distribution costs from the conflict added to the decline. Next slide, please. Turning now to the Spirits business, Spirits revenue was steady at 32.3 billion as higher pricing offset softer volumes. Volume eased 5% reflecting more careful consumer spending against the elevated inflation and slower economic growth, which I described earlier. Our core brands held up well, supported by campaigns and in-store promotions that reinforced value and affordability. We also widened the portfolio and route to market, launching Vamos Tequila Gold in May and adding dealer routes, pool sailors, and warehouses, and exports grew as we reached overseas Filipinos in more countries. Profitability improved despite lower volumes. Cross-profit rose 5% to 8.9 billion, helped by lower molasses and alcohol costs, better distillery efficiency, and use of more secondhand bottles. Operating income rose 8% to 5.4 billion, EBITDA was up 3% to 5.8 billion and margin improved from 17 to 18%. Net income increased 3% to 4.4 billion. That concludes the update for San Miguel Food and Beverage. I would now like to invite Eric to present the updates on Petron.