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

Hello, everyone. Welcome to our analyst briefing. Today, as part of our great transformation and ongoing efforts to improve the delivery of our briefings, we are going to report the financial and operating performance for the first quarter of 2023 of our publicly listed company Aboitiz equity ventures as well as our nonlisted businesses, namely our One Food Group, Aboitiz land, Aboitiz InfraCapital and Republic Cement. But first here as the house rules. [Operator Instructions]. 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. Our program will flow as follows; to present for food, we will have Mr. Tristan Aboitiz, President and CEO of Food Group; To present for land, we will have Mr. Dave Rafael, President and CEO of AboitizLand; To present for infrastructure, we will have Ms. Cosette Canilao, President and CEO of Aboitiz for InfraCapital; To present for cement, we will have Mr. Vara Kalepalli, CFO of Republic Cement; To present AEV's financials. We have Mr. Toto Hilado, CFO of Aboitiz Equity Ventures. At the end of the presentation, we will conduct a Q&A session, where we will address where we will address questions related to AEV and its nonlisted businesses. Questions related to our other publicly listed companies, namely UnionBank and AboitizPower will be addressed offline after this briefing. And at the end of the event, when the Zoom platform closes, a pop-up screen will appear, which will allow you to provide feedback regarding the event. And now on to our presentations, beginning with a video from our food group. [Presentation]

And now to present for Food. I will turn you over to Mr. Tristan Aboitiz.

Hi. Good afternoon, everyone. Thank you for taking some time to be with us this afternoon. So I'll begin this afternoon's presentation with the Food Group's financial highlights for the first quarter of 2023. The first quarter of 2023 had total revenues 9% lower year-on-year, coming from a 14% decline in our Food & Nutrition divisions revenue brought about by a 20% decline in Flour and a 24% decline in our trading divisions, along with an 8% reduction in revenue contributions from our Agribusiness unit. The decline in our revenue contribution from our Agribusiness unit was due to an 18% decrease in sales volume. EBITDA also declined about 82% to PHP 272 million or USD 5 million, and this was driven by 173% and 41% year-on-year slide in EBITDA contributions from our Food & Nutrition business and our Agribusiness unit, respectively. The food group's EBITDA was weighed down by challenges in demand for our products and higher raw material costs. Similarly, EBITDA margins posted a decrease year-on-year by about 498 basis points. These were pulled down by declines in our farms and Flour division's margins. Lastly, following the decline in our EBITDA, our first quarter 2023, NIAT went down significantly year-on-year, finishing at a PHP 534 million loss or negative USD 9.7 billion. The drop was due to the subdued performance in both our Food & Nutrition and Agribusiness business units, as we contrast -- we saw contractions in both of their NIAT contributions. Taking a closer look now at revenue. The Food Group's revenue moved down 9% year-on-year to PHP 22 billion or USD 408 million, coming from the lower revenue contributions across all divisions, except our farms. The Food & Nutrition division contributed PHP 4.4 billion or about USD 80 million in the first quarter of 2023, down by about 14% compared to the same period of last year. Double-digit revenue reductions were seen in our flour and trading units, and these were tempered by a 19% revenue growth coming from our farms unit. The latter's revenue improvement was attributable to a 49% increase in the volume sold, and this was done by selling oversized hubs and increasing the amount of meat that we imported in the first quarter this year. This was, however, softened by a lower average selling price due to the shift in product mix to lower value products. The trading division's 24% year-on-year decrease was driven by a 49% drop in volume. And this was primarily due to a delay in the arrival of vessels carrying feed inputs that are sold by the unit. Meanwhile, our flour division's 20% contraction in sales was due to a 40% drop in volume, and this drop in volume was due to sustained elevated prices and corresponding market contractions in the demand for the products. Lastly, the regional Agribusiness unit delivered a total of about PHP 17 billion or USD 314 million in revenue, which fell short 8% year-on-year, and this was pulled down by both our Agua and livestock segments for the business. We are facing definite demand challenges in various countries for our products. In terms of the revenue contribution of the business units, 77% of the total of the first quarter's revenue was driven by our Agribusiness unit, 20% was contributed by our Food & Nutrition unit and the balance was generated through whole trading in ABAQA in Singapore. This was very similar in profile to the revenue split coming in the first quarter of 2022. Moving now to the Food Group's EBITDA. The EBITDA for the first 3 months of 2023 decreased 82% year-on-year to PHP 272 million or USD 5 million. And again, these were dragged down by the lower contributions of our Food & Nutrition division as well as our agribusiness division, which were down by 173% and 41%, respectively. Both our Flour division and Agribusiness divisions operating profits were weighed down by demand challenges and higher price input costs, which resulted in a lag in EBITDA versus last year's performance. Meanwhile, our trading division's drop in EBITDA was due to both lower volumes sold and a sharp decrease in margins because of lower prices for alternative feed ingredients available in the Philippine market over the first quarter. Meanwhile, our farms division posted a negative EBITDA of about PHP 121 million or negative USD 2 million despite registering growth in revenue. EBITDA was dragged down by higher production costs pertaining to the carrying costs of underutilized farms, the cost of oversized hubs and the increase in meat processing costs as well as provisions made in case of an instance of ASF. Now moving to the Food Group net income after tax. The full group recorded a PHP 534 million loss in the first quarter of this year. That is equivalent to about USD 9.7 million. The subdued NIAT performance reflected the lower EBITDA contribution across all divisions and was exacerbated by an almost 3x increase in financing costs, which were due to increases in borrowing rates as well as higher working capital requirements in the quarter. Now turning to strategic projects that are currently ongoing. We'll start with our Agribusiness division and the construction of a new feed mill in Yunnan in China. The lease of our current [Kunming] plants in the Yunnan province of China expires in April of 2024. So we are constructing a new feed mill with a capacity to produce about 150,000 metric tons of livestock feed per year. This facility can potentially be expanded to produce up to 270,000 metric tons of feed. An additional [indiscernible] production line as well as a mass conditioning line will also be added in the facility to allow us to enter into newer, more profitable segments of the livestock feed markets in the region. Target completion date for this mill was adjusted for the fourth quarter of this year to the second quarter of next year after realignments and schedules with our EPCM contractors. Another expansion for Agribusiness unit. This is a Long An mill in Southern Vietnam, which will give us the ability to grow our presence in the livestock feed business in the southern region of Vietnam. This mill will have a capacity to produce up to 200,000 metric tons per annum, and this can potentially be increased by another 100,000 metric tons if we elect to add a third line. This facility will supplement the production of our current Binh Duong and Dong Nai plants, which are currently at near maximum capacity. As of now, the initial filing work has already been done, and the project team is preparing for the first large packages of equipment for this project, mainly civil and structural works. We anticipate this to be completed in the third quarter of this year. For the farms division and under our Food & Nutrition unit in the Philippines, we continue to grow our brand and channel of meat distribution, which we call the good meat. 2 new physical stores were open in the fourth quarter of last year. This division has grown our -- the good meat store presence from just 1 in the beginning of last year to about 5 to date. The remaining branches, which will be located in Kapitolyo, Pasig and LIMA Land and will be fully operational by the end of the second quarter of this year. The good meat is now available in the Philippines through different digital platforms, such as Lazada, Shopee, MetroMart, Grab and the goodmeat.ph. Furthermore, the group has strengthened its position in business-to-consumer channels for the meats business. With 60 concessionaire stores and a presence of our ready-to-cook meals in over 200 supermarkets such as Robinsons, Puregold, Shopwise MerryMart. These initiatives will allow the food group to develop its B2C channels further and expand the supply chain, ensuring better distribution to all of our customers in the relevant areas. So to recap, here are the key points of the Food Group's first quarter operating and financial highlights. Overall revenue was down due to demand challenges across our regional feed and Philippines flour business, the year-on-year revenue growth in farms, which was brought by its higher volume was erased by the declines in flour Agribusiness and our trading division. Our group EBITDA declined about 82% year-on-year to PHP 272 million on lower operating profit. And we ended the last -- sorry, the first 3 months of 2023 in a net loss position of about PHP 534 million, following the decline in our EBITDA and pulled down further by the doubling of interest rates and higher working capital requirements. Our 2 new feed well expansions of our Agribusiness units. The focus for the first half of this year will be on the final design and construction, while the second half will include equipment installation. The new mills, again, will be fully operational in April of 2024 and December 2023. So that's also the food group. Thank you, and back to you, Judd.

Thank you, [indiscernible]. [Presentation]

Now to present for land, I will turn you over to Mr. Dave Rafael.

Thanks, Judd. Good afternoon, everyone. Key financial metrics as of the first quarter of 2023 showed that AboitizLand is off to a fairly slow start both versus this year's budget and last year's performance. Our residential sales are down by 32% from last year at $801 million. AboitizLand contributed total revenues amounting to EUR 740 million for Q1 2023, a 7% dip from the previous year. This is primarily due to construction-related delays, which I will be discussing in more detail. Gross profit declined by 9%, while our core EBITDA decreased by 7% from the previous year. Our negative residential revenue variance in Q1 2023 is largely due to construction-related delays, particularly in the villages at the [bar]. We awarded quite a number of units, mainly those sold upon launch in late 2019, 2020 to small contractors, utilizing traditional construction technology. The takeover process of these contractors has taken longer than anticipated, which caused delays. Collections year-to-date is also adversely affected by these construction-related holdup. Action plans are already being undertaken in order to recover and allow us to hit regional budget by the third quarter. Year-to-date sales were down by 32% due to 2 reasons; number one, sales take-up in our [indiscernible] projects, especially in the seafront has been much slower due to increasing competition in the area. We will be rolling out some new marketing and sales initiatives to counter this more challenging market environment. Number two; we front loaded a bulk of 4 features from the previous year and recognized them in Q1 2023. 4 features continue to be a challenge due to the continued elevated interest rates. We hope to address this problem of 4 features with a wider application of our recently developed buyer prequalification system, next slide please. True to its promise of innovating ways to lead more families from AboitizLand is committed to carry out initiatives that positively impact its operations. Our property proprietary Vecino app allows us to differentiate ourselves in international deployments as it provides OFWs a reliable tool of checking their investment. Last March, we successfully kicked off our international sales deployment for the year in Dubai. The Dubai deployment is on track to meet its target and allowed us to move our mid-market inventory at a time with high local inflation through international clientele who are optimizing the weak peso. Our partnership with leading precast construction systems, Sumitomo and Mitsui and Connovate led to the reduction of house construction duration by 33%. Our procurement strategy of bulk purchasing and lacking in cost of ownership [lag] materials allowed us to save over $27 million on cost of materials. As part of our data-centric transformation, we are slated to launch 2 digitized services in our operation next year, next quarter, Invent a cloud-based system that will offer different digitized services for property management operations and GAVITI, an automated workflow solution that will streamline the collections process and accelerate cash flow generation. We are confident that embedding these to our organization will further enhance the level of productivity we deliver to our stakeholders. As we innovate to create living spaces that inspire to sustain property value escalation on our projects. are delivering more value to our Vecino's and stakeholders. Boyd by the continued robust market perception of our residential products in Batangas and Cebu, we are slated to launch new project phases in the next quarters. In Lipa, we will launch a cluster of mid-price buildings or MRD, in our highly commended development The Villages at Lipa on the second half of the year to address the housing needs in LIMA economic estates and a response to the growing investor-driven demand in the area. Down south, we will launch a new phase next quarter on our exclusive and luxurous development in Cebu City, Priveya Hills. New enclaves will be launched in Amoa, our highly amenitized residential development north of Cebu City that has been awarded for 2 years in a row as the best affordable housing development in this mean. With the development's master planned with the future in mind, we have a high degree of confidence in the financial and market success of these new project launches. Next slide, please. To summarize, here are key takeaways. AboitizLand is off to a slow start as of Q1 2023, primarily due to delays in construction, collections and lower sales take-up. A number of action plan -- action steps have started to be implemented, that will allow us to catch up to the original budget by the third quarter. We are starting to reap the operational benefits from some of our initiatives across sales, construction, property management and collections. We will maximize innovation as our key competitive advantage and harvest the results of our investments in innovative solutions that will result to improvements in operational efficiency, customer experience and our financial bottom line fueled by a highly engaged organization. This year, AboitizLand will launch fresh inventories as a testament of the strong market perception of its developments, Priveya Hills, its exclusive residential development in Cebu City will see a new phase launch while in Lipa City, Batangas, a cluster of mid-rise buildings will be launched within LIMA Estate. AboitizLand remains confident towards the growth of the business and residential demand for 2023. We will continue on accelerating our activities in international sales, land bank development, project launches and monetization of nonstrategic planned assets. Thank you.

Thank you, Dave. [Presentation]

Now to present for infrastructure, I will turn you over to Ms. Cosette Canilao.

Thank you, Judd. Good afternoon, everyone. So if you could start the presentation. Next slide, please. We are pleased to report that Aboitiz InfraCapital has had a promising start to the year. Let me start with some highlights of AIC's first quarter performance in our transport and mobility sector, Mactan Cebu International Airport experienced more than threefold increase in passenger traffic compared to last year. For our digital infrastructure sector, Unity Digital continues to grow its tower portfolio. We are currently focused on transitioning the 650 tower assets we acquired from PLDT Smart last year. Our economic estates business remains committed to promoting Philippines, the Philippines as an investment hotspot in the Asia Pacific region. We are pleased to announce that the LIMA estate this month obtained presidential proclamation for the inclusion of its 50-hectare expansion into the existing as a special economic zone. Lastly, for our water sector, we are happy to announce that we have successfully delivered the first drop of water to Davao City water district this April. Meanwhile, the efforts of our estate water business to reduce nonrevenue water in West Cebu has earned us the Wise-Water Award from the National Water Resource Board. In the first quarter of 2023, AIC required the capital expenditure of approximately PHP 1.3 billion. This is slightly lower than year-on-year. There are 2 main factors that have influenced this reduction in CapEx. First, our Apo Agua project is nearing completion. And as a result, there are fewer ongoing capital requirements for that [indiscernible]. Second, Unity Digital is focused on the transition of our acquired towers from PLDT-Smart instead of new tower builds. This allowed us to reduce our CapEx while still meeting our business objectives. Although we had a lower capital expenditure during the period, we were able to achieve more than 100% growth in EBITDA year-on-year. This remarkable improvement was primarily driven by the excellent performance of our economic estates. Now we go into more specifics about recent business developments. The quarter 1 -- the first quarter, passenger traffic in MCIA has exceeded expectations, driven by the resurgence of domestic travel and the gradual recovery of key international source markets. Passenger traffic in MCIA has surpassed the 2 million mark, which is more than triple the figure of the same period last year. Domestic traffic has shown a remarkable rebound reaching around 80% of pre-pandemic levels. Meanwhile, international traffic is close to 50% of pre-pandemic levels. But an acceleration is expected in the second half of this year as airlines restart major international routes and aircraft availability improves. We also expect the implementation of e-Visas for key markets like China to enhance the country's tourism competitiveness. The Department of Tourism and other government agencies are leading this initiative, which is expected to boost the recovery of the country's tourism industry. We continue to work on our goal to build the first Philippine airport platform. We look forward to the approval of our submitted proposals for 3 regional airports, namely Laguindingan, Bohol and Bicol. These proposals are currently under evaluation by the ICC-NEDA. Recently, we also responded to the Iloilo government's call for the improvement of Iloilo International Airport with our own proposal to operate and develop it. We believe that we have the right mix of expertise, experience and partnerships to take Philippines airports to the next level by using our platform to make the Philippines an even more competitive tourist and investment destination. Apo Agua recently achieved a major milestone with the delivery of the first drop of water with DCWD. This marks a significant step forward in the completion of the project. It also demonstrates the effectiveness of the project's infrastructure and the company's commitment to providing reliable water supply to the people of Davao City. With the successful delivery of the first drop of water, we are now gearing up for the start of full operations. We are targeting the first half of 2023 to begin supplying up to 300 millimeters of potable water to DCWD daily. Meanwhile, our estate water business has successfully completed the integration of solar power into its sewage treatment plant. This will help achieve our sustainability goals by reducing our carbon footprint and reliance on traditional energy sources. Unity digital infrastructure is establishing its position as a significant player in the local common tower market. We continue to grow our network coverage through the build-out of macro towers and the deployment of small cell poles. Our recent acquisition of 650 towers from PLDT-Smart will also expand our footprint in the Visayas and Mindanao region to a total of 1,000 towers. This improved network coverage and capacity supports our goal of enhancing connectivity in both urban and rural areas across the country. Our economic estates business has been in close coordination with the national government agencies such as the DTI, BOI and PEZA in actively promoting the Philippines as an investment destination to attract global investors, we've implemented initiatives tailored to meet the needs of the global market. We have also localized our campaigns events and promotions in target locations like Japan and Korea. LIMA estate, the leading smart and sustainable industrial development in Calabarzon has been expanding to meet the increasing demand for industrial land. We're happy to share that several parcels of land in our LIMA state industrial expansion in Malvar, Batangas have been added to our existing special economic zone by virtue of presidential proclamation. Recently, we also broke ground on Phase 4 of our industrial expansion adding 96 hectares of industrial land. Our Phase 3 expansion is also well underway. The Block 9-1 expansion area, which covers 47 hectares is now 100% complete, while our Block 9-2 expansion area, which covers around 57 hectares is more than 70% complete and is set to be finished by December of this year. In addition to expansion, LIMA estate has continued to become a more sustainable and ecofriendly industrial estate. We have shifted to the use of electric vehicles for Intra estate shuttle services to reduce carbon emissions. Another initiative is the establishment of a 600 bedroom dormitory facility called The Pods for LIMA locator employees. The activation of bike lanes within the estates encourages alternative transportation options that are healthy, sustainable and eco-friendly. The continued decarbonization of transportation aims to create a more sustainable and livable communities within LIMA estate. The expansion of West Cebu estate is an exciting development for the Philippines industrial sector. We're glad to share that our 39-hectare industrial expansion in Balamban is progressing ahead of schedule and is currently at 50% completion. This will cater to industries beyond maritime, such as automotive, manufacturing and logistics. Phase 2 of the project will start by quarter 3 of this year and has drawn interest from potential locators across many industries. This will give rise to a central business district and commercial lot suitable for office, residential and institutional use. In the first quarter of the year, we have also participated in various industry events and received accolades that cemented our reputation and credibility. This achievement is something that we are proud of, and we look forward to building on this success as we continue to work towards our goals. We were one of the sponsors of the recently concluded the Philippine Association of Water Districts Annual Convention, which gathered thousands of water districts and water industry professionals. During the convention, we showcased the various solutions that our water business employs in its operations, such as the Smart Water Network technology of LIMA Water and the Water Energy Nexus concept of Apo Agua. We are proud to report the success of our estate water team in reducing nonrevenue water across all our economic estates. We have achieved an impressive NRW level in all our estates, such as below 5% in LIMA estate, 6% in MEZ estate and 7% in West Cebu estate. These figures are significantly below World Bank's nonrevenue water benchmark rate of 25%. Our NRW management efforts in West Cebu estate earned us the Wise-Water Award from the National Water Resources board. MCIA, on the other hand, recently won the Routes Asia 2023 Marketing Award in the under 5 million passenger category, vesting more than 200 airports in the region. This award recognizes MCIA's exceptional performance and efforts in implementing recovery strategies for this year. Our economic estates business also recently added another feather to its cap as it bagged the Gold Award for Outstanding Developer for the Industrial Category at the FIABCI Philippines 2022 property and real estate excellence awards. As a gold awardee, we will represent the Philippines in the world Prix d'Excellence awards, which is considered the Oscars of real estate. To recap, we are off to a promising start this year. Our financial metrics for the first quarter of 2023 have outperformed the same period last year due to the recovering economic activity. Our first quarter performance reflects the efforts of our whole team and the fruits of our strategic foresight and commitment to innovation. We have no doubt that our strong start to the year will provide the groundwork for even greater development and success in the coming months ahead. Thank you very much.

Thank you, Cosette. [Presentation]

And now to present for cement, I will turn you over to Mr. Vara Kalepalli.

good afternoon to all. Thanks for taking your time and attending this event. As usual, for Republic Cement, we will not have the financials, but we will share with you some of the information on the market and what we do. Cement market demand for the Q1 has declined by around 8% to 10% in our estimation. Now this is something unusual to have a negative growth for a second consecutive year. Two main important factors as per our analysis, delay in authorization of government projects as well as delay in releasing the money for the government projects. And also the high interest rate environment, as you all know, is not so conducive for the construction sector. This makes housing loans less affordable. Okay. Apart from these 2 factors, I think the bad weather at the beginning of the year and also coupled with the high inflation on some of the commodities has also impacted the market consumption for the Q1. While the good news is that March month has seen some momentum in the market, and we hope this will continue for the rest of the period. And also, we note that the government is committed to spend 5% to 6% of its GDP for the infrastructure projects. We also note DPW hedge has increased its budget by 14% for the current year versus previous year. This -- all this should bring more demand in the coming months. Now another good news is that the energy prices are softening compared to what it was at the beginning of the year. It's almost 50% versus at the beginning of the year. However, you don't see these benefits in our Q1 results because we have normally carry some inventory. And the real benefit of the softening of energy prices will be felt starting from Q2 and fully in Q3. Now we also continue to focus on our operational excellence and cost control programs to improve our cost base. Republic Cement is also committed to its sustainable goals. We are working on waste heat recovery projects and solar projects in order to source some of our electricity requirements from renewable sources. We also continue to invest in alternative fuel facilities to substitute our fossil fuels. And as you all know, we continue to work on our plastic core processing facilities, and we are very well ready to take any opportunities from the implementation of EPR law. Republic Cement also continues to staunchly support the Philippine government's go local and buy local programs and as a proud manufacturer of country's best quality cement used in building a safer, greener and stronger Republic. We go to the next slide, please.

I don't think there is a next slide. Do you have --Thank you very much, Vara, for your presentation. And now -- to present AEV's financials, I will turn you over to Mr. Toto Hilado.

Good afternoon. Thank you for joining us this afternoon. I hope you will give us feedback later on regarding the revised format that we have implemented. So earlier, we had the presentation of AboitizPower and the rest unlisted subsidiaries in AEV, we allocated for an hour. So I would like to start with our key performance highlights. AEV recorded consolidated revenues of PHP 76 billion in the first quarter of 2023. This was 21% higher year-on-year. Consolidated EBITDA was up 38% to EUR 18.9 billion. Net income was up 2% to $4 billion and core net income up 44%. First quarter beneficial EBITDA was 11% higher compared to last year. This was mainly due to the higher contribution from AP due to the contribution of GNPD. Next slide, please. First quarter beneficial EBITDA was 11% -- Can you go to the next slide, please. Yes. So at the consolidated EBITDA was up 38%, once again, driven by our power business. The group's net income was up 2% year-on-year at $4 billion. But if we take out the nonrecurring items, core income grew 44% year-on-year. But in terms of core net income, we recorded PHP 4.6 billion 44% higher year-on-year. This was mainly driven by the increase in the consolidated EBITDA, partially offset by the increase in noncontrolling interest due to higher earnings of the power business. Let's now move on to our balance sheet. On a consolidated level, cash and other cash items decreased by 11% mainly due to dividend payments last March, debt servicing and participation in our bank's SRO. Total assets are slightly lower at EUR 795 billion, the same with liabilities of EUR 345 billion. On our debt ratios, debt to equity was flat at 1.3x and net of debt at 0.7x. As we move into the second year of our great transformation, we continue to lay a strong foundation for our agglomerate feature. To achieve this we are fostering a culture of growth and adaptability. Creating a agglomerate premium requires a relentless focus on value creation and synergy. Our success will be determined by our ability to ensure that all our companies are adding significant value to each other and to the group as a whole. This requires us to constantly identify and leverage the synergies between our products, services, technologies and talents. By doing so, we can create a multiplier effect on the value of the company so the parts of the conglomerate multiply with each other instead of just adding up. Our conglomerates group of companies now becomes a glomerate synergy network of companies. To summarize, here are our key takeaways today. Our first quarter results were promising -- it is the product of our team's unwavering dedication and relentless innovation, our net income after tax was sustained but our core NIAT was up by 44%, reflecting the underlying strength of our power and banking businesses and resilience of our portfolio. We have deployed a significant part of the JERA proceeds to M&A deals, which has started contributing to our bottom line specifically our banking and infra business. As we move into the second year of our great transformation, we continue to have a strong balance sheet that will allow us to take advantage of investment opportunities as we continue to execute our plan to diversify and become the country's first agglomerate. Thank you. Back to you, Judd.