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

Good afternoon. Welcome to the analyst briefing for Aboitiz Equity Ventures. Today, we are going to report the financial performance for the first quarter of 2024 of our publicly listed company, AEV as well as our non-listed businesses, namely our Food Group, AboitizLand and Aboitiz InfraCapital. My name is Jacqui De Jesus and I will be your moderator for today's briefing. Before we begin, please allow me to go over the house rules. [Operator Instructions] And finally, the briefing will be recorded for documentation purposes. By joining this session, you will consent your name, voice and image and chat comments being recorded for use and dissemination. If you do not consent to the foregoing, please do not join the session. So our program will flow as follows. So to present for the Food Group, we will have Mr. Tristan Aboitiz, President and CEO of the Food Group. To present for AboitizLand, we will have Mr. Dave Rafael, President and CEO. To present for infrastructure, we will have Ms. Cosette Canilao, President and CEO of Aboitiz InfraCapital. And finally, to present AEV's consolidated financials, we have Mr. Toto Hilado, CFO of Aboitiz Equity Ventures. After the presentations, we will open the floor for Q&A. Questions related to UnionBank and Aboitiz Power will be addressed offline after this briefing. And for -- and now I'm on to the presentations beginning with a video from the Food Group. [Presentation]

Let me turn you over to Mr. Tristan Aboitiz for the 1Q results of the Food Group.

Good afternoon, everyone. I don't know about you all, but I didn't hear the volume on that video, it's a shame because it's a great video and the volume is throttling. But anyway, thank you all for joining us this afternoon. Let's begin with the financial highlights of the Food Group for the first quarter of 2024. So the Food Group wrapped up the first quarter with a net income after tax of PHP 533 million, an increase of 233% year-on-year. The increase can be attributed to margin improvements in both our Philippines's Flour business as well as our regional Agribusiness unit, driven mainly by the drops that we have seen in commodity prices over the last 12 months or so. Similarly, EBITDA grew by 517%year-on-year to reach PHP 1.8 billion, again, driven by the robust performance of our commodity-based businesses, Flour milling and Feed milling, right? Consequently, our EBITDA margin saw a significant increase, rising by 376 basis points compared to the first quarter of 2023. In terms of revenue, the Food Group's revenue was behind by about 4% year-on-year to PHP 20.8 billion. And this was primarily due to our changes implemented in our trading division, where a shift in its business model has led to a decrease in sales volume and a subsequent reduction in its revenue. Zooming in now on revenue. The Food Group's revenue decreased by 4% year-on-year to PHP 20.8 billion, pulled down by the lower year-on-year revenue of the Food & Nutrition division, which comprises our Flour milling business, our Farms, Meats and Trading and Agribusiness units as well. The Food & Nutrition business unit contributed PHP 4.3 billion, which was down 5% compared to the same period last year, again, dragged down by our Trading division. The Trading division underwent a strategic business model shift this year, which eventually resulted in reduced sales volume overall, and ultimately, the 56% decline in its revenue compared to the first quarter of 2023. Our Flour milling divisions revenue contributed -- sorry, contribution increased by about 24% and compared to the same period last year, primarily driven by improved sales volume, which was up 39% year-on-year. We've seen demand begin to rebound alongside the decline of our selling prices, right, which we've been using to basically pass on the decrease in our input costs over the last few months. Meanwhile, our Farms and Meats division experienced a 15% year-on-year decline in revenue, as a result of decreased production volumes over the mentioned period. This reduction was due to our ongoing initiatives to repopulate Breeder Farm 2, which is a farm of ours in Tarlac. And lastly, our regional Agribusiness unit delivered a total of PHP 16.3 billion in revenue, reflecting a slight 4% year-on-year decrease. This decrease comes despite a modest increase in volume of about 2% compared to the previous year, which is driven by the livestock segment in the Philippines, Indonesia and Vietnam. The principal reason for the increase in revenue -- for the decrease in revenue, sorry, was due to a drop in selling prices, which again mirrored the decreases that we have seen in our variable cost base over the last 12 months or so. Moving now to the Food Group's EBITDA. In the first quarter, our EBITDA grew 6.9x to reach PHP 1.6 billion compared to the same period last year. Across all divisions, performance was strong compared to the first quarter of 2023. However, the most substantial growth came from our Agribusiness and Flour businesses, driven again by the easing of commodity prices over the last 12 months. Our Flour division's EBITDA contribution saw a 3.6 fold increase year-on-year, driven by higher operating profits resulting from sustained declines in wheat prices as well as better control of our operating costs and working capital requirements. Our Agribusiness margins also saw improvement due to the similar trend in commodity prices. Additionally, benefits stemming from formulation cost reductions, SKU rationalization, along with lower production costs, collectively contributed to an overall EBITDA improvement of 182% year-on-year. This increase more than compensated for the reduction in revenue driven by drops in selling prices across our markets. Our Farms' 70% year-on-year increase in EBITDA is directly linked to the improvement in its gross profit per kilo driven by the higher selling prices that we have seen for live hogs in the Philippine market. Additionally, our idle farm costs have also decreased as we have begun the repopulation of Breeder Farm 2, along with the higher utilization of our Breeder Farm 1 and nucleus farm assets. Conversely, our Meats business remains a drag on the overall Food Group's performance, although showing improvement compared to our performance in the first quarter of 2023. The Meats division faced challenges from a shortage of internal supply due to our swine repopulation efforts as well as increases in our cost of raw materials, as live hog price, as mentioned earlier, have increased over the course of the first quarter. Now turning to the Food Group NIAT. The Food Group closed the first quarter of the year with a net income of PHP 533 million, which was a complete 180 compared to the same period last year. Despite the subdued performance in some of our segments, we have ended the quarter on a strong note. Shifting our focus now to the expansion projects that are underway within our Agribusiness division, the construction of our Yunnan Mill in China and our new feed mill in Long An, Vietnam. The construction of our 2 new feed mill plants progressing smoothly. In Vietnam, we have successfully produced our first metric tons, albeit as a test without any issues, and we are confident that we will be able to commence commercial runs out of this facility in May of this year. In China, we anticipate receiving the production permits which are required for sales activities to begin and are conducting our first production test in May with the commercial runs out of this facility scheduled for June. So, so far, so good. This year, we have earmarked about PHP 4 billion for our CapEx to support the completion of our Agribusiness expansion projects, the repopulation program of Breeder Farm 2 in the Philippines, and overall plant maintenance across the region. As of now, our spending stands at 9% of the total allocation, but we do anticipate a significant increase as we advance through the year. Currently, the Food Group is present across all major Southeast Asian economies and the southern region of China, giving us access to a market of nearly 1 billion people. Our vision is to develop our business from the Feed milling sector today into one that is integrated all the way down to the end consumer in the markets where the opportunities make sense and into segments of the market that are less affected by the volatility related to our input costs. The Food Group has a strong regional presence in Asia with 29 facilities and offices in 8 countries. This includes our offices located in Manila, in Ho Chi Minh City and the regional trading hub that we have in Singapore, which deals in various raw materials, including wheat, soybean meal and corn. So that's it for the Food Group this afternoon. Again, thank you for your time.

Thank you so much, Tristan. And now maybe we move on to Mr. Dave Rafael for AboitizLand. [Presentation]

Okay. Good afternoon, everyone. AboitizLand started the year strong as it met most of its key financial and operational targets and improved year-on-year in spite of a volatile real estate market. This was attributable to higher revenues from new launches and inventory releases from existing projects last year. Our residential book sales jumped by 44% versus the same period from last year to PHP 1.2 billion. AboitizLand contributed total revenues amounting to PHP 1 billion as of first quarter, an improvement from the previous year. Gross profit and our core EBITDA also increased year-on-year by 58% and 54%, respectively. Next slide. We generated -- next slide, please. We generated higher revenue, mainly driven by the high-end projects, specifically from Priveya Hills and Pristina North Residences in Cebu. This stems from the higher sales and site accomplishment last year from previous projects. As we saw a significant uptick from this segment year-on-year, we're optimistic that the market for upscale and luxury residential units in Cebu is poised to grow as local and overseas based Cebuano investors drive the demand. Mid-market segments have also been a steady contributor for our revenue despite some challenges in boosting house construction in North Luzon, along with an increase in core features. We remain confident about the growth of this segment for the year as we believe that we are well positioned to benefit from the shift in preference towards horizontal developments outside Metro Manila. Next slide, please. AboitizLand -- next slide, please. AboitizLand managed to conclude the first 3 months of 2024 with another milestone by recording PHP 1.6 billion in reservation sales, a remarkable 77% increase from the same period of last year. March alone had the highest reservations value that we saw for a month. The surge was driven by the sales from Slate, the first of the 3 buildings at The Strides at LIMA, our mid-rise condominium development in Lipa, Batangas, launched late last year. Additionally, we recorded higher sales in Priveya Hills in Cebu that propelled our sales performance for the court. With the ongoing international sales deployment set to expand to other global territories this year, along with the launch of attractive payment terms and marketing campaigns for our RFO units, AboitizLand is optimistic about meeting its full year targets. Next slide, please. In terms of geographical footprint, AboitizLand is assets in North Luzon, South Luzon and Cebu. These regions hold the potential to emerge as vibrant growth centers fueled by robust infrastructure, rising urbanization and dynamic socioeconomic activities. The promising trajectory hints at a prosperous future, which bodes well for AboitizLand. With a substantial landbank in our portfolio, we remain on track to achieve our financial growth and growth targets. Throughout the year, we will be unlocking value by harvesting from unreleased portions of our existing projects. However, landbank also includes road land that we have yet to activate. When the timing aligns with the best interest of the business and the market, we will be poised to launch them. Part of AboitizLand's strategy is also to become a catalyst in maximizing the value of real estate holdings across the Aboitiz Group. Next slide, please. Today, we continue to reap the results of our early investments in digital marketing and sales competencies. Our proprietary Vecino app has been instrumental in achieving significant milestones in lead generation and sales bookings. As of the first quarter, international sales have gained positive momentum, generating over PHP 200 million in reservations to date. We started our year with a focus on the Middle East. And in the upcoming quarter, we will extend our reach to select markets in Southeast Asia. Our market outlook reveals a strategic shift among developers as we're seeing more launches expanding beyond the confines of megacities, both in horizontal and vertical development. The shift is a direct response to the demand for properties outside Metro Manila, catering to the aspirations of modern homeowners seeking tranquility without compromising urban conveniences. The sustained growth in OFW remittances is a powerful force shaping our market landscape. As remittances continue to flow steadily, we anticipate a positive impact across all product types, especially within the mid-income segment. Lower borrowing costs can incentivize homebuyers, making real estate investments more attractive. To alleviate the financial stress for prospective homebuyers, we recognize offering flexible down payment structures and stretch payment terms as levers that can improve consumer sentiment towards home ownership. Our commitment to excellence will drive us forward. By Q3 2024, we anticipate catching up on construction backlogs for most of our projects. Only a few will spill over the 2025. This targeted effort will position us for sustained growth. By simultaneously addressing backlogs and advancing construction, we project a 50% increase in production in 2024 compared to the previous year. Our partnerships with leading precast construction system, providers will gradually transform our ability to build distinctive and high-quality homes faster and better. While we surge ahead, we acknowledge external factors impacting our industry. Rising material costs and mandated wage increases pose challenges. Our proactive approach involves strategic procurement, cost optimization and talent retention. Thank you, everyone, and back to you, Jacqui.

Thank you so much, Dave. And then now to present for Infrastructure, I will turn you over to Ms. Cosette Canilao. [Presentation]

Good afternoon, everyone, and thank you for joining us in today's briefing. We begin 2024 on a high note with an increase in revenue -- year-on-year increase in revenue, EBITDA, CapEx and total assets compared to last year, reflecting the success of our strategic growth initiatives implemented across all sectors. Note, however, that year-to-date NIAT is lower year-on-year due to higher interest expense from additional debt, which is aligned with our funding strategy. In a snapshot, the first quarter results paid the way for this year's anticipated growth. Delving into the details of AIC's first quarter financial performance. You can see that our airports, digital infrastructure and water sectors registered increases in revenues year-on-year. However, while economic estates dipped, revenues are expected to grow in the coming months with the launching of our fourth economic estate in Tarlac and the expansion of our LIMA estate in Batangas. Coupled with the growth in revenues, EBITDA followed the same trend. We anticipated this trajectory to continue, driven by expansion of economic estates, the ramp-up of Apo Agua's commercial operations, the sustained recovery of passenger traffic volume at the Mactan-Cebu International Airport and the completion of the turnover of Sale and Lease Back towers at Unity. As mentioned, NIAT is lower year-on-year, primarily due to increased financing costs. This is the result of the deliberate move to utilize debt capacity to fuel our growth and expansion plans for this year. For 2024, we are primed to continue shaping the nation's future through the various transformative infrastructure ecosystems we are building today. Transformative infrastructure ecosystems leverage our interconnected businesses and sectors within the Aboitiz Group to create more value and respond better to the needs of the businesses and the communities we serve. Overall, the impact of our transformative ecosystems is evident through the economic impact we have created and continue to create across our 4 key sectors. For economic estates, this means offering a comprehensive infrastructure ecosystem to 235 local and foreign businesses across our 1,700 hectare estate network, with over 100,000 jobs generated across Central Visayas and Southern Luzon. For Water, this translates to ensuring that Apo Agua keeps pace with the needs of Davao's growing economy by producing an average of over 260 million liters per day of clean and safe drinking water out of a capacity of 300 MOT. And with our estate water remaining efficient and keeping nonrevenue water in our economic estates at 4.8%, which is well below the current industry average of 20%. For transport and mobility, this involves contributing to the steady growth of local tourism by servicing nearly double the number of domestic and international travelers at MCIA -- at the MCIA compared to 2 pandemic levels. Finally, for digital infrastructure, we are playing a key role in boosting national connectivity by expanding our network of towers and small cell sites across the country. Moving forward, AIC will continue championing projects that directly offer transformative infrastructure ecosystems to our stakeholders. With our economic estates, we have successfully positioned ourselves as a preferred partner for complete and integrated one-stop shop infrastructure solutions provider. At LIMA estate, for example, we are further improving the quality of life, expanding product offerings, sustaining ancillary services, service enhancements and providing consistent quality service, through various initiatives and collaborations. With MCIA, we will continue improving operational efficiencies and enhancing our customer service, setting benchmarks for airports nationwide through our sustainability initiatives. These initiatives have not gone unnoticed as we received Level 1 Airport Carbon Accreditation from the Airports Council International, the first and only Philippines airport to receive this accolade. Further, we are actively pursuing diverse opportunities to broaden our ecosystem platform. Next week, the launch of our Tarlac estate will solidify our presence in Central Luzon, a pivotal growth region. In addition, we are firm in our plans to extend our reach beyond MCIA as we continue to negotiate for the Laguindingan, the new Bohol-Panglao International Airports. For the remainder of the year, Aboitiz InfraCapital will continue to focus on seizing growth opportunities across the sectors we are in and in firming up our nationwide portfolio with strategic CapEx spending. We will prioritize innovation and technology and seek new collaborations with other avoided strategic business units to enhance our value proposition to our stakeholders. Thank you for letting us share our transformative infrastructure story, and good afternoon to all.

Thank you so much, Cosette. And now to present our consolidated financials, I will turn you over to Mr. Toto Hilado.

Good afternoon, everyone. Thank you for joining us this afternoon. At this point, you have already heard from all our SBUs, and the general message is that we had a good start in the first quarter of the year. Our group EBITDA grew 23%, while net income came in at PHP 4.9 billion, which is 22% higher year-on-year. Our Power business, which accounted for 67% of net income, provided the momentum with almost all their businesses performing better than expected. The Food Group, which accounted for 15% of the group's income, likewise came in stronger than expected with strong performance from its Agribusiness and Flour businesses as they benefited from lower commodity prices. Whilst Infra continues to expand its economic estates has opened its bulk water business in Davao and is seeing good recovery in passenger volume in Mactan International Airport. AboitizLand more than double-digit net income and has registered record sales in the first quarter. Financial Services was the only one which registered lower income year-on-year but with the full integration of the Citibank Consumer Business, we expect lower OpEx and continued growth. Our balance sheet continues to grow, and as I will show later, our financial ratios continue to be supportive of our exciting expansion pipeline. Next slide, please. For the first quarter of 2024, the group's beneficial EBITDA rose by 23%. The growth was mainly driven by strong growth in Aboitiz Power and the Food Group in the first month of operation of Coke Philippines in March. As for our newest investment, this is the first quarter that AEV's earnings reflect contributions from its investment in Coca-Cola Bottlers, Philippines, Inc., which financially closed on February 23, 2024. CCBPI's revenue grew by 20% year-on-year on the back of a 16.4% year-on-year growth in sales volume, reflecting the country's strong underlying market demand and solid share gains in the sparkling softdrink category. Bulk of this growth is attributable to sales and away-from-home channels of Coca-Cola Classic products. We are encouraged by CCBPI's first quarter performance and strong medium-term prospects, and this affirms our investment in CCBPI. The double-digit growth in the group's beneficial EBITDA in the first quarter of 2024 drove AEV's core net income 8% higher to PHP 5 billion, including nonrecurring losses arising from the revaluation of the U.S. dollar cash and liquid financial instruments. Our reported income for the first quarter of this year came in 22% higher than the same period last year. Our balance sheet continues to be strong and supportive of our exciting expansion pipeline. Parent gross debt remained flat but net debt rose to PHP 66.8 billion in 2024 -- in March 2024 from PHP 42 billion in December after the settlement of AEV's 40% stake in CCBPI in February 2024. Despite this, parent level net debt to equity continues to be very manageable at 0.25x and consolidated net debt to equity of 0.8x. To summarize, we had a strong start for the year with almost all businesses showing good growth. We are on track with our diversification strategy. Our consumer market presence will have a bigger footprint with Coke Philippines in our portfolio and the Citibank Consumer Banking portfolio, which as previously reported, was fully integrated with UnionBank this month. And lastly, our balance sheet remains strong as we continue to consolidate and roll out our CapEx plans across our SBUs. It was a pleasure presenting to you this afternoon. Thank you for joining us, and we look forward to seeing you in the next quarterly briefing. Thank you.

Thank you so much, Toto. Before we move on to our Q&A portion, we would like to request our audience to complete a poll that will pop out of your screen right now. [Presentation]

Okay. Thank you for answering our poll. Now onto our Q&A, starting off with the questions we received in advance. So the first question is for Tristan for the Food Group. How is the group managing the recent volatilities of the peso against the USD? Could you talk about the group's hedging strategy against the peso weakness?