Aboitiz Equity Ventures, Inc. (AEV) Earnings Call Transcript & Summary

Hello. Welcome to our analyst briefing. Today, we're going to report on the first half second quarter 2020 financial and operating performance of AEV and its strategic business units. But first, some house rules. Number one, all microphones are going to be placed on mute by default to minimize unnecessary background noise. Second, questions have been requested from our guests in advance. These will be prioritized in the Q&A today. [Operator Instructions] Questions submitted now will be answered at the end of the presentations, if there is enough time. So those not taken up during the Q&A will be answered via e-mail. Third, the briefing will be recorded for documentation purposes. By joining this session, you can send your name, voice, image and chat comments being recorded for use and dissemination. If you do not consent to the foregoing, please do not join the session. For our order presentations today, we are going to begin with power, followed by banking, food, infrastructure, cement, land, AEV financials. And finally, we're going to end with a Q&A. And now I'd like to introduce our presenters. We are going to have Mr. Manny Rubio, President and CEO of Aboitiz Power. We are going to have Toto Hilado, Chief Finance Officer of UnionBank. We are going to have be Hubert de Roquefeuil, President and CEO of our Food group. We also have Cosette Canilao, President and CEO of Aboitiz InfraCapital. We have Nabil Francis, President and CEO of Republic Cement; Dave Rafael, President and CEO of Aboitiz Land. And finally, we have Mr. Dmi Lozano, Chief Finance Officer of Aboitiz Equity Ventures. I'd also like to acknowledge the presence of key leaders inside our briefing room, led by Aboitiz Group Chief Executive Officer, Sabin Aboitiz; AboitizPower Chief Finance Officer, Lisa Montelibano; AboitizPower Gen CFO, Raquel Bustamante; UnionBank of the Philippines Group Head of Corporate Planning and Investor Relations, Carlo Enanosa; and Food AVP of Corporate Finance, JL Guzman. And now for our presentations today, I would like to call on Mr. Manny Rubio to present for Power.

Thank you, Judd. Good afternoon, everyone. I hope everyone is staying safe and your loved ones as well. Well, the pandemic has tested and still continue to test our resiliency and resolve as an organization. The business environment remains challenging, but we continue to adapt to the world in situation to keep our businesses operational and sustain our support for our stakeholders. The new normal has compelled us to rethink the way we work to consider process reengineering, retooling and push further our program for digitalization. We have assessed our current and future modes of operations, which led to the necessity of doing an organizational restructuring, allowing for resiliency and enabling us to remain efficient, competitive and sustainable as we move towards a post-pandemic economy. We have supported our affected team members well beyond what is mandated by law and have assisted them throughout the transition. The challenge remains as we speak, but so is our hope. A strong one apiculture keeps us connected, engaged and motivated to continue advancing business and communities in the new normal and even to the next. We will continue to move forward to support the country's fight against COVID-19, and we remain hopeful for a more resilient Philippines post-pandemic. Now allow me to share Aboitiz financial performance for the first half of 2020. Our beneficial EBITDA was lower by 15% year-on-year, driven by lower demand due to COVID-19. We will discuss in later slides the impact of COVID on energy demand. Our performance was also affected by the prolonged outage of Therma South that continued from July 2020 -- 2019 up to early part of this year of our TSI unit 2 and forced outages in GNPower Mariveles and the Pagbilao units. TSI Unit 2 completed its reliability run on May 15 and is currently operating without restrictions. GMCP Unit 2 returned to service on March 26, while outage incidennce of Pagbilao units were resolved last month. There were -- these were offset by lower purchase power costs this year and new capacities from Therma Visayas, Therma Mobile, which both were online since January of this year as opposed to the second quarter of last year. We also recognized higher ownership in GMCP, which started only in May of last year. In the first quarter of last year, we included income from the generation rate adjustment mechanism or GRAM and incremental currency rate adjustment or ICERA. If you exclude that EBITDA -- these items, EBITDA would have been lower by 11% year-over-year. If you also include -- exclude the impact of COVID-19, EBITDA would have been, based on our estimates, about 3% lower year-over-year. There has been a partial collection of insurance for the TSI outage, which we expect full settlement within the year. Due to the proportionate declines of revenue and costs, we were able to sustain our EBITDA margin at 31%. Our second quarter performance versus previous quarter declined by 6%, primarily due to lower demand related to COVID-19. Meanwhile, it was lower by 21% versus same quarter last year, primarily due to lower demand related to COVID-19 and the TSI outage. The decline in EBITDA, coupled with additional taxes from income tax holiday expiration of TSI and GMCP and additional interest expense from the parent bond and loans that were taken up late last year, brings core income to a decrease of 59%. Excluding the income related to GRAM and ICERA, core income would have been lower by 55%. If we exclude the impact of COVID-19, core income would have been lower by 42% year-over-year. Next slide, please. The group recognized and realized foreign exchange and derivative gains of PHP 224 million, mostly from dollar-denominated liabilities versus PHP 121 million in the same period of last year. As a result, AboitizPower's net income for the first half was PHP 3.7 billion, 57% lower year-over-year. Without the GRAM -- without the income related GRAM and ICERA, net income would have been lower by 53%. And without the impact of COVID, it would have been around 40% year-on-year. Next slide, please. Cash and cash equivalents were up by 6% versus the end of last year, primarily due to the availment of additional loans from subsidiaries. Total liabilities increased by 4% due to increase in short-term borrowings of the parent company and additional loans from subsidiaries. Investment and advances increased by 3%, mainly due to the equity infusions to GNPower Dinginin. Total equity declined by 4% due to the dividend deceleration. With that, our net debt to equity increased from 1.4x to 1.5x. Note that the last tranche for our bond was drawn in the 1st week of July and is not reflected in our midyear results. This will largely result in a shift from current to long-term liabilities and will therefore not affect our leverage ratios. Next slide, please. Capacity sales grew by 12% compared to the same period last year. This was due to higher BCQ contracts driven by the new capacity of TVI and the new contract of TMO with Meralco, which was signed April 29 -- 2019, sorry, 2019 and expired last April 25, 2020. On a side note, we are glad to announce that recently, we were able to sign an ancillary service procurement agreement or an ASPA with MGCP (sic) [GMCP] for TMO. So TMO and MGCP (sic) [GMCP] shall jointly file an application with ERC for the approval of the ASPA. And in the meantime, TMO will not register, and will continue to be synchronized and remain connected to the grid and will continue its commercial operations. Next slide, please. Our total revenue decreased by 17% due to lower demand brought by COVID-19, spot prices indices and for long outage of TSI and lower contract rates. Energy sold declined by 6% year-on-year due to lower demand brought by COVID-19 and the prolonged outage of TSI. Our gross margins and our volume of energy generated both decreased. This was driven by the low demand again of COVID-19, lower BCQ and prolonged outage of TSI. Vessel prices were lower than our marginal costs, thus AP opted to purchase power from the spot market as part of our saving strategy. In addition, replacement power contracts were in place to mitigate margin losses from outages. This resulted in higher purchase power volume in the first half by 44%. Our average price decreased from PHP 4.57 per kilowatt hour to PHP 3.68 per kilowatt hour. Breaking down the contracts, bilateral contract quantity selling prices decreased by 13% from PHP 3.98 per kilowatt hour mainly due to indices and lower renewed contract rates. Average nuke for the first half of this year was $66 per metric ton versus $96 per metric ton in the same period as last year. The decrease in spot selling prices by 49% to PHP 2.60 per kilowatt hour was due to higher availability of baseload plants and lower demand brought by COVID-19 compared to the previous year. Now a brief update on WESM. Next slide, please. The first half of 2020 had lower -- load weighted average price compared to the same period last year. This was due to higher availability of our base-load plants and lower energy demand due to COVID-19. We will show how demand was affected by the community quarantines in the next slide. Actual average year-to-date LWAP was PHP 2.56 per kilowatt hour versus PHP 5.83 in 2019 when a number of base load [indiscernible] were out. We expect WESM prices to continue to be soft on back of lower demand brought by COVID-19. We are also anticipating additional supply from the testing and commissioning of GNPD Unit 1 by the fourth quarter of this year. Based on public data, we see here how energy demand in Luzon and Visayas was affected by the imposition of the enhanced community quarantine or ECQ. The blue line shows us the Luzon and Visayas grids' average weekly peak demand for 2020. We have placed a coronavirus icon there to mark when the ECQ started. So that's on the -- almost on the third bar. The broken yellow line shows us the percentage change versus the pre-ECQ average peak demand. Through this line graph, we see that the biggest decline was experienced in the 1st week of April where demand contracted by about 30% versus the said pre-ECQ level. It is also -- it also shows the gradual recovery, although not total recovery yet. As of last week of June, public data now show that the grids on average, Luzon and Visayas, had already recovered to about 6% lower than pre-ECQ levels. The red line is the Luzon and Visayas grids' average weekly peak demand for 2019. We see here that the June 2020 demand levels have not yet reached the previous year's demand levels. Next slide, please. On the water levels, Magat ended the first half of 2020 at an elevation of 177 meters above sea level compared to the rule curve of 175 meters above sea level. The water level is slightly higher above the rule curve due to normal inflows and the lower irrigation requirements of National Irrigation Administration. But we expect water levels and below the rule curve by the third quarter of this year due to less rainfall, lower inflows into the reservoir. However, we foresee normal water inflows in the fourth quarter due to an emerging La Niña based on numerous forecasts. Thus, we see forecast to end the year within or near the rule curve. For our distribution business group, beneficial power sales were down by 7% to 2,629 gigawatt hours year-on-year. This was due to lower consumption as a result of the enforcement of the COVID-related community quarantines in our franchise areas. Energy sales from residential customers grew by 13% due to higher consumption. Meanwhile, energy sales from the commercial and industrial customers declined by 15% due to lower consumption brought by the enhanced community guarantee. Our distribution units have complied with applicable ERC guidelines and advisories. Even with the lockdown measures, we made efforts to do meter readings for a majority of our customers, roughly about 80%. We used various communication channels to reach out to our customers. We have also implemented initiatives to make bills payment more convenient for them in these challenging times. Next slide, please. The average gross margin increased from PHP 1.53 per kilowatt hour to PHP 1.64 per kilowatt hours year-over-year. This was due to the shift in sales mix to residential customers given reduced operations from industrial and commercial segments with the quarantine. All our systems losses remain below the regulatory cap of 6%, except for Cotabato Light, the usual story, which ended up above the regulatory cap due to nontechnical losses with minimal impact on the bottom line. Next slide, please. And we are currently working on -- for project updates. Next slide, please. We are currently working on 975 megawatt of attributable net sellable capacity, so allow me to update you on the next few slides. So GNPD is now in the initial stages of commissioning, but continues to face challenges due to COVID-19 pandemic and the imposition of the travel ban from China. Construction is allowed [inderscernible] in China. Construction has slowed down because of the preventive measures taken to ensure the safety of workers on site. A total of 172 technical field assistants have arrived in the country. There are still 38 technical assistants, advisers that need to be in the country and expected to arrive to complete testing and commissioning of Unit 1 in the next couple of weeks. Due to the said circumstances, Unit 1 is expected to synchronize and earn commissioning revenues by the fourth quarter of 2020 and will commence commercial operations by the first quarter of 2021. Unit 2 will synchronize and earn commissioning revenues by the first quarter of 2021 and will commence commercial operations by the second quarter of 2021. Next slide, please. The rehabilitation of the 6 diesel engine units in Naga were completed last January and achieved the agreed rehabilitation milestones, including successful grid compliance tests done by NGCP. The units have demonstrated a combined net sellable capacity of 39 megawatts. This is almost twice the previous output before Therma Power Visayas took over the facilities in Cebu. A provisional authority to operate has now been obtained from the Energy Regulatory Commission. The PAO, the P-A-O, will allow TPVI to proceed with the commercial operations as soon as its intent to commence participation in the wholesale electricity spot market or WESM is accepted by the Philippine Electricity Market Corporation, and this is expected within the next few weeks. The plant is expected to start commercial operations by mid-August and to also do the ancillary service testing for NGCP. We are pleased also to update you on the upper steam field operation initiative to drill 12 new wells with a minimum of 15 megawatts of steam capacity by 2022. For Tiwi, the first well drilled and commissioned in December 2019 was tested at 12.1 megawatts in January 2020. For MakBan, the first well is targeted to be operational by December 2020 with a capacity of 5 to 7 megawatts. We expect to complete the drilling for incremental steam capacity by 2020. And the drilling project is significant because it allows us to optimize our recurrent net sellable capacity of 290 megawatts and further increased then. In closing, I would like to share that despite the pandemic, AboitizPower remains committed to supporting the economic aspirations of our nation by helping ensure that our energy system is sustainable for the long term. To do this, our strategy is to balance the requirements for the reliability of supply, affordability of cost and the impact to the environment. We have set a target of 4,000 megawatts of attributable capacity by 2020. And by the end of this year, we will be able to surpass that with a capacity of 4,432 megawatts with the addition of GNPower Dinginin, which will serve the country's baseload demand moving forward. In the next 10 years, we will continue to pursue renewables. We will aggressively expand our energy portfolio to support the growth of our market in the country and continue to achieve our global RE targets. We will also continue to pursue our international aspirations with focus on renewable projects in wind, hydro, solar and for gas opportunities. We will selectively build base load capacity to complement RE in the energy mix. With our balanced strategy, we are looking to build a almost 50-50 cleanergy and thermal energy mix by 2021. AboitizPower has always been committed to operating a business in a responsible manner with the highest regard for the safety of our host communities and for the environment. As for -- as a result, we continue to be recognized as a consistent company in the FTSE4Good index series for third year in a row. We believe that we have a long way to go in our sustainable journey -- sustainability journey. But we are proud of what we have achieved so far despite the challenges we are facing today. We will continue to partner with stakeholders in support for their developmental needs. We will do this while fulfilling our mission of delivering reliable and ample power supply when we needed to ensure that the supply of electricity is provided at a reasonable and competitive price and accomplish the first duty with the least possible adverse effect on our environment and communities. So good afternoon and [Foreign Language]

Thank you very much for that presentation. And now I'd like to call on Mr. Toto Hilado to present for banking.

Good afternoon, everyone. It's the second time that we are having this briefing online. I hope that by next year, we should be back in Makati Shangri-La. The first 6 months of the year was difficult for banks in general because the banks were -- the banking system was identified as a critical industry, and therefore, we have to make sure that branches were open even during the ECQ. At the worst time of the ECQ, our branch network was open about 75% at its low, but there were times we were doing about 95%. At this point, almost all our branches are back. And head office, through all this period, has been able to operate from work-from-home capacity, speak at about 90% were work from home. For the first 6 months of the year, the bank's net income was PHP 4.5 billion. This is 6% lower compared to the first 6 months of 2019. While revenues were higher by 55% due to higher margins, strong loan growth and strong trading gains, the bank decided to aggressively provide for loan losses due to the COVID-19 crisis in the amount of PHP 7 billion. A substantial part of the provisioning is due to macro overlay and not mainly due to actual loan defaults. As we all know, the expected credit loss methodology or the ECL methodology is forward-looking instead of the old incurred loss approach. And since we think that the economy is undergoing a recession and will continue to have a prolonged recession, there is a strong possibility that portfolio quality will suffer moving forward. So it's more a portfolio consideration rather than individual credits. Next slide, please. Net interest income rose 41% from PHP 9.8 billion to PHP 13.8 billion. This was due to the substantial increase in net interest margin, which grew 94 basis points. So while asset yields went down from 6.7% to 6.4%, funding costs went down from 3.1% to 1.9% or lower by 120 basis points. Funding costs went down as a result of the aggressive rate cuts of the BSP and the reserve requirement cuts and better CASA ratio. Earning assets also grew by 10%, driven by the double-digit growth in loans. Next slide, please. On the credit portfolio, total loans were up 12% year-on-year to PHP 340 billion. This was driven by strong growth in commercial banking loans, which grew 33% year-on-year; SME banking, which increased 22%; consumer loans, which includes mortgages and salary loans, was up 33% year-over-year. Corporate loans grew by only 6% as we saw less demand from corporates. Mass market loans were still down due to the impact of the new rules of the Department of Education. And CSB also had lower loan releases in the second half of March as well as lower quarter cycle sales due to the ECQ. Next slide, please. Deposits grew 15% to PHP 499 billion, attributable to the strong growth in our CASA, which increased by 21%. Our CASA ratio now stands at 41% from 39% in the same period last year. The share of peso CASA to better deposits also increased to 45% from 44% a year ago. Next slide, please. This slide shows that our CASA was -- increased during the COVID crisis. We ended 2019 at PHP 182 billion. And as of July, was up to PHP 207 billion or 14% higher. We attribute this to the ability of the bank to have all its products and services available even during the peak of the ECQ lockdown last March and April. Average peso monthly peso CASA balance as in 2020 was higher by 28%. Next slide, please. On the noninterest income, it increased 86% due to higher securities sale gains amounting to PHP 6.5 billion. Fees were slightly down 1%. Next slide, please. Next slide. On expenses, operating expenses were up 20% to PHP 10.3 billion from PHP 8.6 billion, was up 20% to PHP 10.3 billion due to some one-offs like gross receipt taxes, advertising and marketing expenses and higher VSP taxes and PDIC insurance. But if we were to take out the one-offs, OpEx would have increased by only 10%. Next slide, please. As presented earlier, we increased our loan loss provisions by PHP 7 billion. This resulted to a higher NPL coverage ratio of 108.5% versus 62% last June 2019. Our net NPL ratio also remains low at 2.1% as of June 2020. On a quarter-to-quarter basis, it is higher from 1.9% in the first quarter. Next slide, please. Let me now go to our outlook. First, we expect a flat loan and asset growth in the banking industry given the economic slowdown and dampened consumer confidence due to the pandemic. We expect that the second quarter GDP to [cut big] due to the ECQ, and we await the release of the data on August 6. We think that because of the huge drop in the second quarter GDP and the sluggish growth expected for the second half, GDP for 2020 should be in the range of negative 6.5% to negative 6.8%. We also think that interest rates will be kept low for some time to stimulate the economy. Depending on how the volume performs in the third quarter, we might even see further rate cuts before the end of the year. The BSP policy rate, which is currently at 2.25%, iS currently at 2.25% and gives the BSP some policy leeway in case a rate cut is needed. Lastly, we foresee that digital banking will continue to play a dominant role in banking if social distancing will remain in the immediate future. This could very well be the inflection point for digital take-up, meaning less reliance on physical banking and less reliance on cash as a medium of exchange. Next slide, please. This brings me to this slide, which shows that, in our case, more and more plans have shifted online. We have doubled the number of our online customers from 580,000 at the start of the year to more than 1 million, and about 180,000 of that were opened digitally, meaning without even having come to the branches. We've also seen a substantial growth in corporate enrollment this year using our portal, doubling from 5,100 in January 2020 to 10,200 in June 2020. Next slide, please. Let me end my presentation with a summary of new products that we have brought to market during this period of crisis. First, the DSWD tapped 3 banks and emailed bank FIs to release a second tranche of the social amelioration program. UnionBank was allocated 1.4 million customers out of the total of 7.1 million SAP recipients. Secondly, the bank also played a key role in the historic launch of the first app-based distribution of treasury bonds in Asia. The Bureau of Treasury, UnionBank, along with PDAX, launched BONDS.ph, which is an app which allows customers to order and sell retail treasury bonds. We also launched a tie-up with 7-Eleven that would allow UnionBank clients the option to deposit through their UBP accounts by the 3,000 branches of 7-Eleven nationwide. Next slide, please. Then lastly, our digital brand EON has also been very busy during the pandemic supporting various institutions and LGUs, which needed assistance to reach customers during the ECQ. Through EON's e-wallet and digital platform, these institutions are able to disburse cash and loan proceeds to their customer base. This includes partnerships with Paranaque City, Light Microfinance, Public Safety Savings and Loans Association and with the Imus community. That ends my presentation. Thank you.

Thank you for that presentation, Toto. Before we proceed to Food, I would like to acknowledge the presence of Food Philippines CEO, Tristan Aboitiz, in our meeting room here today. And now I'd like to call Hubert de Roquefeuil to present for Food.

Can you hear me?

Yes, I can hear you well, Hubert.

Good. Good. So we are presenting the results of the first half of 2020, benchmarked by the 6 months of 2019. There's lots of figures in the beginning and after projects that will reinforce our group for the future. So Food Group, Pilmico plus Gold Coin revenue jumped 9% year-on-year to PHP 40 billion, a positive contribution on feeds and flour division. EBITDA increased 18% to PHP 2.8 billion following the improvement in revenue. EBITDA margin improved 49 basis points due to the increase of margin of all division except farm. Overall, Food Group operating income after tax improved 36% year-on-year to PHP 1.1 billion. This is due to the 100% income contribution of Gold Coin from 75% ownership in first half 2019, in the first half of 2020 an 18% growth in EBITDA. Total Food Group revenue grew 9%. Are you all there? Yes. Total Food Group revenue grew 9% year-to-year to PHP 40 billion on the positive contribution of the feed and flour business. Flour revenue rose 3% year-on-year to PHP 4.2 billion due to the 9% growth in volume, slightly tempered by a 5% drop in average selling price. Feeds revenue increased 11% year-on-year due to the 8% improvement in selling price and 6% higher sales volume primarily driven by the strong performance of the livestock feed line of Gold Coin. Meanwhile, farm business average selling price [indiscernible] at 11%, but slightly offset by 1% increase in volume. The challenges in price drives the farm revenue down by 3% year-on-year to PHP 1.5 billion this year. Next slide. Following the growth in revenue, Food Group EBITDA jumped 18% year-on-year to PHP 2.8 billion, one of the better performance of feeds and flour. Starting with the flour business. EBITDA saw 52% year-on-year following the 11% increase in gross profit per buying. This was further improved by the increase in the by-product contribution. The consolidated feeds business EBITDA grew 43% year-on-year due to the following improvement: first, 72% year-on-year upswing in feeds Philippine performance and the 17% increase in the ROIC per metric ton; 32% year-on-year's hike in feed management holding coming from strong livestock growth and 2.3x increase in commodity trading following the 5.8x improvement in gross profit margin. However, the improvement of the total Food Group EBITDA was slightly upset by the lackluster performance of the farm division. Farm division EBITDA went down by 192% year-on-year following the 203% plunge in margin on the double-whammy effect of challenged price and higher costs due to the spread of ASF in the country. Next slide. The group first half 2020 operating income after tax improved 36% due to the positive contribution of feed and flour business. Flour income surged 50% year-on-year, following the 52% growth in EBITDA. The upswing in EBITDA was softened by the 5.7x jump in interest expense, coupled with a 1.5 higher unrealized ForEx losses on [indiscernible]. Feeds consolidated income contributed 137% more year-on-year following the 43% increase in EBITDA, coupled with 32% year-on-year improve in the financing cost of feed Philippine and commodity trading and 100% stake in profit of Gold Coin in first half of 2020 versus 75% on the same period last year. However, farm stepped into the red at PHP 501 million loss from PHP 44 million profit last year on the same period. The spread of ASF exacerbated by the COVID pandemic results in a huge blow that dragged the profitability down. Next slide. The continued spread of COVID-19 around the world has been causing several challenge in the country we are operating in. However, Food Group sales measure have been proven to be effective in keeping our operation and strategic plans intact. We have maintained sufficient level of raw material to support our operation, and we have done a good selling and buying. There are no major issues in terms of domestic and international logistics. We keep on accelerating the business despite the turmoil through: one, focusing on product line that is supported by strong demand; improving -- two, improving operation efficiency; and three, proactively managing collection and expense to improve cash flow. Lastly, we are making sure that we prioritize vital capital expenditure to protect our bottom line. The status of all our ongoing project will be touched in the succeeding slides. So next slide, this is a 2020 project pipeline. Next slide. We have completed the new floating fish line in Dongguan, Southern China last April 2020. This was an incremental capacity of 5 ton per hour and is now catering the demand for fish feed in the region. For the upcoming project, for the farm business, we are expecting to fully commission our next fabrication plant system in September 2020. It was finally foreseen to be finished in May. But due to the implementation of ECQ in the entire Luzon, full completion and installation of system were deferred. The fabrication plant, the slaughterhouse has a capacity of 346,000 heads per annum, equivalent to 2.75x of our current production. This is a big step we are undertaking to integrate the business toward the value chain. On the other hand, Feeds Philippine third feed mill line in Iligan is expected to commission during September. This is delayed by 6 months from the original plan due to the effect of ECQ. The Chinese contractors involved in the construction of the plant were restricted on the site, hence, interrupt the construction of the plant. Once completed, it will be an incremental capacity of 20 tons per hour to support the growing demand for lifestyle feed in the VisMin region. Next slide. Same goes with the fish feed line in Ha Nam, Northern Vietnam. The plant has a capacity of 5 tons per hour, and we started commissioning in September 2020. It would be operational in October 2020. The delay in the commission was brought about by COVID-19 as foreign contractor was not able to travel into Vietnam. The interesting part of this investment, this investment is very flexible. It can do pet food which is our future, and marine fish which is a new segment we want to enter due to the high margin. Next slide and last slide. By the end of this year, the last growing finishing farm of the [Phase] 2 expansion will be completed. It was originally planned to finish in June 2020. But due to the risk of the spread of ASF and the implementation of ECQ in the entire Luzon, the project was deferred and expected to commission in December 2020. Growfin Farm XII is the last growing finishing farm to be constructed for the 14,000 sow level expansion. It has a capacity of 9,460 heads. Meanwhile, the fish feed line with a capacity of 5 ton per hour has been started to be constructed in West Port, Malaysia. The plant is expected to supply growing demand on fish in the region. And this plant is also fitted to make pet food and marine fish. And in Thailand, you have lots of marine fish, so we want to grow in that segment. That is for Food Group.

Thank you for the participation, Hubert. And now let me call on Cosette Canilao to present for Infrastructure.

Hello, everyone. Good afternoon. These last few months, we've seen the unparalleled disruption brought about COVID-19 pandemic to our society, businesses and the overall global economy. For Infrastructure, in particular, it impacted supply chains demand, investment priorities and spending. But amid these challenges, Aboitiz InfraCapital remains committed to supporting the government in its pursuit to implement strategic infrastructure programs and continue delivering on projects that would provide value-adding facilities and services for Filipinos. While the health crisis is far from over, we remain hopeful about our prospects in the infrastructure space. We believe that infra projects are vital to our everyday life, and it will play a crucial role in helping revive our country's economy post-COVID. Now for our operations, I'm going to start with Lima Water. Next slide, please. Lima Water Corporation continues to deliver unhampered services to our customers at Lima Technology Center in Batangas. The company's billed volume for the first half of the year was challenged not only by the pandemic, but also by the Taal Volcano eruption in January. It dipped significantly in April to about 4 MLD, but has gradually started to go up to pre-COVID levels of around 7 to 8 MLD starting June as locators also normalize their operations post-ECQ. To make things more convenient for our locators and boost collection efficiency, we introduced alternative payment channels during the lockdown. Our CapEx program for Lima Water remains the same. But for this year, we are focused on rolling out the critical and efficiency-related components. In June, we were also officially accredited by the B&R as one of its environmental laboratories. Lima Water is now the only industrial park water services provider that has been granted such accreditation. This license will allow us to extend our laboratory services not only to the locators within Lima Technology Center, but also to locators of other industrial parks. At Apo Agua, construction activities resumed in mid-May after water projects -- water project constructions were permitted by the local government to continue. Our EPC contractor, JVAC, is currently concentrating work on the raw water facility, water treatment plant and the treatment water pipelines. To stay on track versus our target project completion, JVAC is implementing an aggressive manpower ramp up. To ensure the workers' health and well-being amid COVID-19, our EPC contractor has also put in place a world-class sitting and social distancing protocols and other safety measures in accordance with government guidelines. As to our other projects, for the airports, we remain committed, next slide please, in pursuing our proposals for the Bohol-Panglao International Airport and Laguindingan Airport. These projects are aligned with the InfraCapital's objective to support regional growth centers outside of the national capital region. We have initiated the discussion with our government in the best and most prudent way to move forward with said projects. For our towers business, next slide please, the company's goal to push for digital infrastructure continues as well, especially with the increasing need for better telecommunication services. We continue to discuss with Globe, Smart and Ditto for their requirements on common towers. Underground activities, such as site service have also restarted following the lifting of the ECQ. In parallel to our projects, together with the rest of the Aboitiz Group, We've also been doing various CSR activities to complement the government's efforts. Our COVID-19 relief operations have benefited not just our host communities, hospitals and LGUs in Batangas, Davao, Bohol, Cagayan De Oro, Iloilo, but also front-liners of our subcons. We continue to support the beneficiaries of some of our programs in Apo Agua through our college scholarship program, financial assistance to high school students and adopt a side watershed rehabilitation project in partnership with Davao City Water District and medicine donations to Batangas health centers in Davao City. We will continue to find opportunities to assist communities amid the challenging conditions brought about by this pandemic. That concludes my presentation. Thank you.

Thank you very much, Cosette. And now I'd like to call on Nabil Francis to present for Cement.

Yes. Good day to everybody. I'll not be in a position to give you as many figures as my colleagues, but at least I try to give you some points and color of the cement market. So the good news is that now all our plants are up and running. And the operation is not like -- last time you remember when we have met last time, we got shut because of the lockdown. We had to shut down our plants. But now all our operation is going full hog. And the good news is that our IT system is well prepared. So we are in a position to operate 100% virtually, make that ordering, delivering and invoicing cement. Now collaborators are doing this working from home when it comes to the administration side. Another problem that we faced last time is that when the lockdown happened, we were caught in the perfect storm because at that time, we were commissioning our new equipment, our new capacity. So we had on site a lot of foreign technicians from the original equipment manufacturers, and unfortunately, they had to leave. But happy to say that the team has done a good job, and they have managed to commission the cement equipment virtually. So now we have a fully ramped up and up and running with the production capacity very close to 10 million ton of cement per annum. Now moving to Q2. I think Q2 has been a very dynamic market. You know that we are segmenting our market into 3 main segments. The one that is the most resilient is the residential segment with the individual house builders. We believe that after 3 months of starvations, there is a need to replenish stocks. So we have seen a clear improvement in the demand in the month of June and also with what's happening in July. Now where the market is really affected is the 2 segments, the one of infrastructure and the one of the nonresidential. What we call nonresidentials are the schools, hospitals offices. So those 2 segments are really taking a hit. As a matter of fact, it takes time for the infrastructure projects to resume activities. And we see there's a clear drop in demand in term of bulk cement. The residential segment will mainly ask for barge cement, and those segments with also bulk cement industry light companies recommend the demand for cement was around 30%. And nowadays, it's a little bit more than 20%. Now to give you some forecast, it's still very difficult to give you an accurate forecast of the market because the situation remains fluid. Also the full extent and the duration of the COVID outbreak is still uncertain. And the other socioeconomic impact and the impact if we have a deeper and prolonged shutdown, we might constitute a significant downside risk of COVID. And in term of projections, the fundamentals of our market are remaining very, very strong. And our strategy is intact. The big question for us is how fast with the component be able to restore the business confidence and to, again, ask investors to go for some projects. Now at the domestic market level, total market of the Philippines, we believe that in 2020, this market will drop more or less by 15%. So the H1 is definitely the most affected semester with a drop there that is most probably between hovering around 25%. But the good news is that H2 will be already closer, if not higher than H2 in 2019. So this is driving us to believe that this market is quite resilient. And that we can see no later than 2021 figures at least equivalent to the one of 2019. Now just a small parenthesis when it comes to imported cement. We know that we have already discussed this topic together. And I think there is clearly a risk of market -- traders and importers are capturing and nowadays the market share between -- estimated between 15% to 16% of the total market. So I definitely see that the Philippines remain a key target for foreign focus. We are looking at this with a lot of attention, and we're keeping close watch on this topic. We are also suspecting some dumping practices. And I'm happy to say that we are in full support with the new government campaign, the [indiscernible] campaign buy local. We believe that this crisis will be an eyeopener for the public to buy local product, to buy local cement in order to support our economy and to support the job position. So we'll be happy to take your question later on. But in conclusion, the situation that we are presenting today is a much rosier scenario than the one in the last time. Thanks a lot for your attention.

Thank you very much for that presentation, Nabil. And now I'd like to call on Dave Rafael to present for Land.

Can you hear me?

Yes, Dave. I can hear you well.

Okay. Other slide, please. All right. So I guess the property industry has been one of the hardest-hit industries by this pandemic. In terms, of course, overall demand really significantly dampened as many people have lost their jobs, their businesses. OFWs are forced to come home. Also all -- almost all aspects of operations, like construction, sales, action and all has also been hampered by the lockdown. So it's no surprise that the performance of AboitizLand for the first half doesn't look too good. So for the first half of the year, AboitizLand contributed a net loss of net PHP 39 million, 165% decrease versus the same period last year, significantly due to the decrease in top line from the residential business and higher operating inquiry costs. In terms of residential sales, AboitizLand generated PHP 1.2 billion for the first quarter, a 106% increase versus the previous year, resulting from the improved sales operations across the different projects and continued efforts in building up the sales momentum. In terms of revenue, AboitizLand contributed -- next slide, please. In terms of revenue, AboitizLand contributed PHP 1.1 billion, down by 20% year-on-year. As mentioned, the overall decrease is mainly due to the residential business, which has a significant decline in its revenue contribution year-on-year. This will be discussed further in the next slide. On the other hand, the industrial business saw a 79% year-on-year increase in revenue, as recognition of industrial lot sales have started to kick in following the recent issuance of proclamation. Progress in the site development also added to the increase in revenue contribution. Commercial business also posted a 14% increase attributable to the higher operational occupancy at the outlets of Lipa and LIMA exchange compared to the same period last year. So this has been slightly offset by the commercial assets at Cebu due to the rental concession ranted to tenants during the lockdown period. Nevertheless, we're optimistic operations will slowly bounce back given the format of our commercial developments, which is well suited to address shoppers' needs post-ECQ. Focusing more on the performance of the residential business. AboitizLand has scrubbed the impact of the slowdown and restrictions in operations brought about by the current pandemic as revenue hit a 65% decrease versus 2019. Construction, as one of the main factors affecting revenue growth, was mostly affected since activities were down to a standstill during the enhanced community quarantine period. Nonetheless, following the lifting of the lockdown, construction productivity levels has been gradually picking up in all the residential sites with safety protocols being strictly implemented. Revenue sales, on the other hand, has been sustaining its strong performance with 106% increase in sales compared to 2019. This is because of the collective effort of the organization to continuously build up on the momentum performed in the past few months. And as we continue to further improve our digital sales channel, we are optimistic that this will carry forward in the second half of the year. With the people's heightened need for safety as a driver, it has been observed that there is a notable increase in preference for houses and lots over condominiums. As property seekers look to areas outside congested cities, like Metro Manila, for their place of residence, we believe this is favorable to our residential business. For instance, our developments located in Batangas and Central Luzon are well positioned to take advantage of this market shift. Average weekly sales have started to rebound to prepandemic levels, reflecting the impact of innovative selling techniques, such as contactless home buying service. Moreover, with the intent of improving our reach and to be of service to our audience, AboitizLand has also launched a series of webcasts that touch on relevant topics in the context of the new normal from investments to architectural design. Next slide, please. We are looking to a gradual recovery of our commercial business following the shift to MGCQ in Batangas and GCQ in Cebu as our malls are now 85% operational. Our commercial developments, given the open space format, offer a safer and more secure experience for mall-goers as social distancing norms are more easily observed, which will cater to the higher -- to the heightened need for safety. Next slide. Meanwhile, we still remain confident that our industrial business will suffer the least adverse effects from the current pandemic, our industrial parks are in good position to capitalize and maximize on emerging market opportunities, with a healthy pipeline of locators, the industrial business continues to strengthen its portfolio. Additionally, with government initiatives, such as Balik Probinsya, Bagong Pag-asa programs aiming to decongest national capital region and spur growth in new urban centers, our industrial estates, Lima in Batangas and West Cebu Industrial Park and Mactan Ecozone in Cebu are well positioned to aid the national recovery through economic activity and job generation. Lastly, last slide, finally, as we transition to the new normal, AboitizLand has realigned its strategies and organization to focus more on building and nurturing our current assets to be able to deliver more effectively to the needs of our communities. For residential, we will be increasing our focus on the construction progress, turnover and collection efficiency of current [co-serve] projects and efficient reduction in our costs while maximizing output of fixed costs. Commercial is -- we will continue nurturing accounts in the outlets of Lima and offer creative solutions to aid recovery of tenants. For our industrial, we will continue to expand our portfolio of locators and build up on our zone class strategy. And lastly, we will continue to land bank very selectively. Critical transactions will push through. So that's the end of my presentation. Thank you.

Thank you, Dave. And now I'd like to call on Dmi Lozano to present AEV's consolidated financial performance.

Thank you, Judd, and good afternoon, ladies and gentlemen. I'd like to start by flashing some of our key performance highlights. AEV recorded consolidated revenues of PHP 95 million in the first half of 2020. This is 8% lower compared to the same period last year. One of the key drivers here really is the lower demand that we saw caused by COVID-19 across several of our business units. And we've seen that explanation from our different business units earlier. Let's move on to the next slide, so I can go into more detail on the other performance highlights. For the EBITDA, our first half beneficial EBITDA declined by 12%. Most of our business units were impacted by COVID-19 in the second quarter. However, this unfavorable performance was slightly offset by higher contributions from our Food Group. Just to note that if we add back the provisions that UnionBank put in, we would have performed better in the second quarter of 2020 versus the first quarter of 2019 and just slightly behind the second quarter -- sorry, first quarter of 2020 and just slightly behind the second quarter of 2019. It's also worth noting and you saw this in the SBU results that we have seen improved performances towards the latter part of the second quarter as the ECQ has been lifted. For example, in the power sector, we've seen energy demand from both Luzon and Visayas recover from its contraction of almost 30% in April to single-digit contraction by the end of June. We've seen similar returns in cement and also in the demand for mass market loans. Whether this is just a recovery, maybe too early to tell because the pandemic and the lockdowns may have far-reaching effects [Audio Gap] second quarter. If you look at EBITDA on a consolidated basis, it declined by 13% for same the reasons as I mentioned earlier. First half core net income, it decreased by 54% mainly due to the increase after, of course, a decline in the EBITDA, also because of the increase in interest expense and taxes. Interest expense increased by 19% on a quarter -- on a half-on-half basis, mainly due to the retail bond issuances for both AP and AEV to fund our growth projects as well as additional loans for food, infra and power also related to further growth initiatives. Taxes and other items increased mainly due to previously mentioned expiration of the income tax holidays from our power business. And depreciation also increased due to the full year take-up of Therma Visayas, which came online in the second quarter of 2019. Next slide, please. AEV recognized nonrecurring losses of PHP 20 million in the first half, representing foreign exchange losses from the valuation of our dollar-denominated assets, which is mainly our cash that we have at the current level. As a result, net income for the first half was just slightly over PHP 4 billion. This translates to an EPS of PHP 0.72 per share. Moving on to the balance sheet. On a consolidated level, cash increased by 58%, primarily due to the issuance of bonds and availment of short-term loans that we give in the first half of this year. AEV currently has about PHP 73 billion in cash and short-term bank deposits as well as PHP 33 billion in available short-term loan facilities from our partner and our relationship banks. Consolidated assets increased by 6% mainly due to the increase in cash, and total liabilities were higher by 11%. Nevertheless, our net debt to equity remained at 1.2x. During these trying times, our business continuity plans are proving to be very effective and our balance sheets are exhibiting the resilience that we need. Right now, across our group, our focus continues to be safeguarding the health of our employees, controlling our costs, conserving cash, managing the balance sheet and selectively pursuing growth opportunities. While we have seen pockets of renewed economic activities, it's too early to assume recovery for the country and for our businesses. So we will approach the future with the same prudence and caution that we have exercised, optimistic in the future and our ability to deliver value for our stakeholders as we continue advancing [Audio Gap] communities. Thank you.

Thank you very much, Dmi. That wraps up our presentations. And now I'd like to open the floor for question and answer. We have received advance questions from our audience today, and we would like to take them up first.

So our first question today is directed to the Food Group. And the Food Group question is, have you experienced significant supply chain bottlenecks so far this year? And how are you mitigating this?

That's a good question. I think our enemy today are ASF and COVID. But the supply of raw material has not been impacted at all. We have been very good -- we have done very good purchasing on corn and soya meal, which has been reflected in our P&L, especially in Vietnam and in the major other countries. So we were ready. Everybody gets some 3 months in advance. So far, we have 100% of our loans, which are running. But the future is not getting us how many plants could be authorized to run. And this will -- this might change the equation of purchasing.

Thank you, Hubert. The second question is also for the Food Group. And the question is, how sustainable are the year-to-date growth rates you're seeing in Gold Coin as well as in the flour and feeds segments in the Philippines?

I think we're going to spend 6 months to come a little bit ahead of the budget. Despite 2 black swine we have in Thailand and in Sri Lanka, all the country are reaching their best year in terms of volume and profit. So the raw material has been affected already. So there is no risk from that. So yes, we are confident to finish with good years. The Philippine feeds are doing tremendously well. The flour as well. The issue might be with the swine business, but is already taken in the first half of this year.

Right. Judd, if I can just jump in a little bit. I think the answer to this question also is very much related to the first question you asked pertaining to supply chains, right? For as long as we could keep our supply chains up and running as we've been able to do in the first half of this year, I think as Hubert mentioned, the second half looks to be okay. And part of that is also ensuring that our customers, our end users are able to sustain their businesses given the fact that, particularly in the Philippines, the different community quarantines that have been put in place have disrupted that to a certain point. Fortunately, in being considered an essential business has really kind of played to our favor.

All right. Thanks for that, Tristan. We have a third question here for the Food Group. And it's actually what are the steps you are taking to manage the impact of African swine fever on the farms business?

Yes. Hubert, if you don't mind, I can take this one.

Yes. I think you -- it's your business.

Okay, sir. So moving forward, I think what's important is that we continue to enhance the biosecurity level of our farms further, right? And we're doing so through several different ways, which include adding additional drop terminals within our farm operation and implementing a ferry system. This ferry system basically allows for our pigs to be transported off our farm by our own trucks, right? And what this does it limits the amount of trucks that we do not own from entering our farm to ensure that everything that comes in is as clean as possible, right? We also have to continue with the improvements of sanitation of our farms, of our equipment and of our people going in and out of the barge, right? So again, these are typical biosecurity measures that we take. But we have looked at different ways to enhance them over the past 9 months or so, and we'll continue to do so. We've also implemented a skeletal manning complement at our sites, right? And we've requested our team members to remain on site, right, for longer periods of time. This prevents exposure of our team members to the virus outside of our facilities that limits the ability of them to kind of bringing it back on to our farms. With this, it entails scaling down the amount of activity on site. But ultimately, right, this really does help us to address the risk effectively. We're also in the process of completing the netting off of all walkways on site that lead to the entry of our barns. And this is to prevent the entry of insects, like flies and mosquitoes from actually entering our barns. And the reason for this is we have learned and read that they can be vectors of the virus. And then lastly, biosecurity really starts at our feed mills, right? So this is -- again, this is the whole supply chain that we have to manage. And so we've also enhanced the level of biosecurity at our mills. Things like team members not being allowed to bring in their own meals, for example, where we're asking them to buy food at our own cafeteria. And this is to prevent the entry of pork products that we are not familiar with on to our site. We've implemented a clean site and dirty site protocol to limit the movement of people and the exposure of our mills and our feed to people that don't belong in that particular area. We've also enhanced our formulations, right, to include different items known to prevent the spread of the ASF virus. One of these things is formaldehyde. But there are other newer ways of doing this which we're looking into at the moment. And then lastly, trucks, again, entering and exiting the facility are completely hosed down to ensure that they are biosecure. That's it, Judd.

Okay. Thank you very much, Tristan, for that. Our next question is for power. And the question is, what was the average power demand for the second quarter of 2020 in Luzon, Visayas and Mindanao grids? Also, what has been the trend on power demand so far in July? And lastly, any updates on the current power demand situation? So those questions are related. This is for power.

Thank you, Judd. Well, for the second quarter, the average weekly demand for Luzon grid is about 9,300 megawatts, varying from 9,300 to 9,400. And for Visayas, around 1,900 megawatts. Compared to pre-ECQ, this is the first 2 weeks of March levels. These are down by 12% and 11%, respectively. There's no public data for Mindanao, but [indiscernible] demand is now at an average of close to 8% to 10%, right, lagging in terms of pre-ECQ levels. As of second week of July, public data shows that the grids in Luzon and Visayas, on average, had recovered slightly to about 8% lower than pre-ECQ levels. And if we will compare the demand levels versus last year, it's actually almost flat, just 1% below 2019 levels.

Okay. Thank you for that, sir. The next question is also actually for AboitizPower. And the question is, what were the key drivers of significant decline in earnings for generation and distribution?

Yes. As I mentioned, and I guess the reason expressed by my peers, the decline in EBITDA basically is because the impact of COVID-19 to our demand and, of course, the prolonged outage of TSI, which was down -- which went down July 2019 and was just put back to service second week of May. For distribution, still the same, lower demand due to COVID-19. And also, I think we need to mention that additional taxes we incurred because facilities have expired for TSI and GMCP and the additional interest expense from the parent bond and loan that were taken up late last year.

All right. Okay. Thank you. The next question is still for AboitizPower. And the question is, what was AP earnings and EBITDA ex forced outages of TSI, GMCP Pagbilao in the second quarter of 2020 and first half of 2020?

Okay. I guess that's a hypothetical question. So EBITDA ex forced outages and these are TSI, GMCP Pagbilao plants in the first half of 2020 would have been around 2021 flat versus same period as last year. Net income ex forced outages GMCP Pagbilao in 2020 would have been 5.9, 32% versus -- 32% lower versus same period this last year.

Thank you, sir. Next question also for AP. Please specify the earnings impact of each of the factors you mentioned, which resulted in the decline of AP's net income during the first half of 2020, specifically the expiration of the income tax holiday incentives of TSI and GMCP and the additional interest expense from the company's bond and loan.

Okay. I think income tax holiday incentives -- Liza, would you like to answer that?

No. Go, go. Go ahead. Go ahead.

Okay. Expiration of the income tax holiday incentives for TSI and GMCP, total would be around PHP 760 million. Breakdown is TSI is PHP 190 million and GMCP about PHP 570 million, that's beneficial. And additional interest expense from the AP bond is around PHP 410 million.

All right. Okay. And then I have a next question also for AP. Is -- any updates on the insurance claims for delays in TVI and outages in GMCP and DSI? And how much are we expecting? And when could you finally get the claims?

All right. Go ahead, Racquel.

We're pleading business interruption claim -- insurance for both GMCP and TSI. So for GMCP, that's about $12 million. That's about PHP 470 million beneficial to us, of which 25% of that would be collected by August. And then the remainder is expected to be collected by Q3 or Q4 of 2020. Now for DSI, the total BI claim is about PHP 2.2 billion. Of which, we've already collected about PHP 230 million. And the balance, we expected to collect by Q4 of 2020. Now for TVI liquidated damages, negotiation is still ongoing. Thank you.

The process of arbitration has started, although there are discussions happening on the side with regard to an amicable settlement.

Okay. Next question. How much was the GRAM and ICERA that was posted in the first quarter of 2019?

About PHP 970 million. About PHP 970 million.

Next question also for -- sorry, also for AboitizPower, did AP allow off-takers to defer fee payments that were due during the [indiscernible]?

Yes. I think we've allowed that, but only a few have to be available. The rest, installment.

And last on this round, we have AP -- also for AP. How should we think about dividends next year given the earnings drop this year?

Well, the policy is always that has been, that we will give 50% of the net income as a dividend, and that hasn't changed so far. It will be up to the Board to make the decision if they want. But you'll see -- you can see now the trend as regards the earnings so far supported.

Okay. Our next question is...

That is the existing policy today.

Okay. Thank you, sir. Our next question is for UnionBank. This is regarding provisioning in the second quarter 2020. How much higher than what was expected as communicated last -- first quarter 2020 briefing? What factors went into this? Was there a change in the ECL models? And do you expect more provisioning in the second half of 2020?