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

Good afternoon. Welcome to the 2024 First Half Earnings Results briefing for Aboitiz Equity Ventures. My name is Jacqui De Jesus, and I will be the moderator for today's briefing. Before we begin, please allow me to go over the house rules. [Operator Instructions] And lastly, this briefing will be recorded. By joining this session, you consent to your name, voice, image and chat comments being recorded for use and dissemination. If you do not consent you may leave the session. Our program will flow as follows. To present for the Food Group, we have Ebbie Mabatid, CFO of the Food Group; to present for land, we have Dave Rafael, President and CEO of AboitizLand; to present for infrastructure, we have Cosette Canilao, President and CEO of Aboitiz InfraCapital; and finally, to present the group's consolidated financials, we have 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. So to kick our session off here is the video from our Food Group. [Presentation]

And now let me turn you over to Ebbie for the performance of the Food Group.

Good afternoon, everyone. Thank you for joining us today. Now let's dive into the financial highlights of Aboitiz Food's first half of 2024. So we're pleased to report that we concluded the first half of the year with a net income after tax of PHP 1.38 billion, reflecting a turnaround 14x year-on-year. Similarly, our EBITDA saw an increase of 88%, year-on-year, reaching PHP 3.5 billion. As a result of our EBITDA margins improved significantly rising by 410 basis points compared to the first half of 2023. This increase was driven primarily by the strong performance of our commodity-based businesses, our Philippine Flour and our regional Agribusiness unit. The key factors contributing to this success is the improved margins driven by the decline in commodity prices and the strategic measures we've implemented to maintain and grow our market share. On the revenue front, Aboitiz Foods revenue was slightly behind last year, with a 5% decrease year-on-year. This decline is mainly attributed to changes within our trading division, the shift in business model led to a reduction in sales volume, which in turn impacted overall revenue. Zooming in on revenue. Aboitiz Foods revenue decreased by 5% year-on-year to PHP 42.5 billion pulled down by both our Food & Nutrition and Agribusiness units. The Food & Nutrition business unit contributed PHP 8.2 billion in the first half of 2024 which is down by 10% compared to the same period last year, dragged down by our Trading and Farms division. Our Trading division revenue declined by 54% due to a strategic shift leading to reduced sales volume. The Farms division revenue decreased by primarily because of a drop -- 15% drop in the hog transfers for our repopulation program, although partially offset by higher hog selling prices. Our Flour revenue increased by 5%, driven by a 17% rise in sales volume and thanks to the strategic pricing adjustments that afforded lower input cost, allowing us to lower selling price for our customers. This not only helped stimulate demand, but also enabled us to improve our market position. The Agribusiness unit's revenue slightly decreased by 3% despite a 4% increase in volume, mainly due to lower selling prices and aligned with decreased input costs and market conditions. Now turning to the Aboitiz Foods EBITDA. For the first half of 2024, our EBITDA increased by 1.9x, reaching PHP 3.5 billion compared to the same period last year. While almost all divisions showed strong performance relative to the first half of 2023, the most significant growth was observed in our Agribusiness and Flour businesses primarily due to easing commodity prices. The EBITDA contribution from our Flour division surged by an impressive 14-fold increase over last year. This substantial growth was driven by higher operating profit has driven operating profits resulting from sustained declines in wheat prices. Additionally, improved control over our operating costs and more efficient management of working capital played a crucial role in this exceptional performance. Our Agribusiness unit also saw an improvement in EBITDA rising by 70%. This increase was largely attributed to the favorable trends in commodity prices. Furthermore, the unit benefited from reductions in formulation costs, SKU rationalization and lower production costs, all of which contributed to the overall enhancement in margins. The Farms division achieved a 196% increase and this significant growth was directly linked to an improvement in gross profit driven by higher selling prices of live hogs in the Philippine market. Additionally costs associated with idle farms decreased as we repopulate our second breeder farm in addition to the increased utilization of Breeder Farm 1 and nucleus farm assets. On the other hand, the Meats division continued to impact the group's overall performance negatively. The division faced challenges, including a shortage of internal supply due to swine repopulation and the increase in live hog prices from external sources. Further compounded these issues resulting in a 13% higher negative EBITDA versus the same period last year. Now going to net income after tax. Aboitiz Food's achieved a net income of PHP 1.38 billion over the first 6 months of the year, reflecting a remarkable 14x increase compared to the same period in 2023. This substantial growth was fueled by strong performances in our Flour and Agribusiness livestock units, which capitalized on declining commodity prices and effective strategies to protect market share. Although some segments underperformed overall, Aboitiz Foods finished the first half of 2024 on an exceptionally positive note. Now let's turn our attention to the ongoing expansion projects within our Agribusiness divisions. We're thrilled to announce that the construction of 2 new feed mills in Yunnan, China and Long An, Vietnam is now complete. We wrapped up the commissioning process of our Vietnam mill in April and the river port, which was the final major component was successfully completed in June. In China, we completed the livestock lines in May and the Aqua lines were officially up and running as of the end of July. On CapEx, this year we have allocated PHP 4 billion for capital expenditures to support Agribusiness expansion projects, explore expansion opportunities continue the repopulation program for our Breeder Farm 2 in the Philippines and maintain our existing plants. So far, we have used 27% of this budget, but we anticipate a substantial increase in spending as the year progresses. However, PHP 1.4 billion of the total capital expenditure budget designated for planned expansions will be deferred to next year. Aboitiz Food's is strategically positioned across major Southeast Asian economies and the Southern region of China, tapping into a market of nearly 1 billion people. Our vision is to evolve from our current focus on feed milling into a fully integrated business model that extends to the end consumer in select markets targeting segments less susceptible to fluctuations in input costs. Aboitiz Foods has a robust regional presence in Asia with 29 facilities and offices spread across 8 countries. Our key locations include Manila, Ho Chi Minh City and a pivotal regional trading hub in Singapore, which handles various raw materials such as wheat, soybean and corn. By integrating for efficiency, building expertise on quality and always looking ahead to serve our customers and stakeholders, we are enhancing our capabilities and solidifying our position as the leading force in the Food and Agribusiness industry in Asia. Together, as Aboitiz Foods, we nourish the future.

Thank you so much, Ebbie. And now for AboitizLand may we call on Dave Rafael. [Presentation]

Good afternoon, everyone. So I'm going to present the performance -- first half performance of AboitizLand. So the first half of 2024, AboitizLand remains on track to meet its key financial and operational metrics. Consistently surpassing prior year levels despite a volatile real estate market. This positive performance is attributable to high revenues from new launches and inventory releases from existing projects last year, along with the increased spot sales and a greater number of units sold with aggressive payment schemes this year. Our residential book sales jumped by 54% versus the same period from last year to almost PHP 3 billion. AboitizLand contributed total revenues amounting to PHP 2.1 billion as of second quarter an 18% improvement from the previous year. Gross profit and our core EBITDA of increased year-on-year by 29% and 27%, respectively. Our revenue growth in the first half of 2024 was fueled exclusively by our high-end projects, specifically Priveya Hills in Cebu and Seafront Residences in Batangas. This 83% year-over-year increase reflects the strong demand for these projects, driven by higher sales and site accomplishments in the previous year. We are optimistic about the continued growth of the upscale and luxury residential market in the country as both local and overseas investors drive demand. While our mid-market segments experienced a slight dip in revenues due to challenges with house construction in North Luzon and increased core features, we remain confident in the growth potential for the remainder of the year. We believe we are well positioned to capitalize on the growing preference for horizontal developments outside Metro Manila. AboitizLand managed to conclude the first 6 months of 2024 with PHP 1.7 billion in reservation sales, a 30% increase from the same period last year. May also set the record for achieving the highest book sales value ever reported for a single month. This surge was driven primarily by sales at Slate, the first of the 3 buildings in The Strides at LIMA are mid-rise condominium developments in Lipa, Batangas launched late last year. Additionally, strong sales of Priveya Hills in Cebu further propelled our performance. With ongoing international sales deployments set to expand into new global territories. This year, coupled with attractive payment terms and targeted marketing campaigns for our ready for occupancy units, AboitizLand remains optimistic about achieving its full year targets. In terms of geographical footprint, AboitizLand 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. Their promising trajectory hints at a prosperous future, which bodes well for AboitizLand. With a substantial land bank in our portfolio, we remain on track to achieve our financial growth targets. Throughout the year, we will be unlocking value by harvesting from unreleased portions of our existing projects. Part of our land bank also includes [ pro land ] that we have yet to activate. When the timing aligns with the best interest of the business in 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 various real estate holdings across the Aboitiz Group. Our upbeat sales momentum is not limited to a single market. In fact, we're seeing strong performance across diverse segments, reflecting the strength of our diversified portfolio and our ability to cater to a wide range of customer preferences. Our strategic expansion into Asia and the Middle East continues to yield impressive results, post-pandemic international sales deployments have already generated over PHP 1 billion in sales to date, now accounting for a significant 16% of our total sales. Closer to home, the premium beachfront lots, a Seafront Residences in San Juan Batangas, have been met with strong buyer interest. With 44% of the newly launched inventory from last May already sold. These lags are price of a premium of PHP 60,000 per square meter reflecting their high exclusivity and demand. In Cebu, Priveya Hills Phase 5 B West has achieved remarkable success with sales reaching PHP 1.3 billion. Lot values have appreciated by 23% since launch, now valued at PHP 45,000 per square meter, underscoring strong demand and investment potential of this project. We are excited to announce the upcoming launch of Amber, the second building at The Strides at Lipa, our first mid-rise condominium development in the heart of LIMA Estate in Batangas. The overwhelming success of Slate, the first building launch in late 2023 has prompted us to accelerate the introduction of Amber. With Slate already 85% sold within less than 10 months, we are confident that Amber will continue to capture the strong demand for modern, sustainable and well-designed homes in Lipa's thriving economic hub. Stay tuned for more details on Amber's unique features and offerings which will be unveiled closer to its launch later this year. We are thrilled to embark on a new partnership that will elevate the Foressa Mountain Town experience to new heights, AboitizLand and Asmara Group have recently signed a memorandum agreement to launch an exclusive bar and ristorante at Foressa in Balamban, Cebu. We envision Foressa Mountain Town, as a destination with sophisticated points of interest designed for people to connect and unwind. This partnership marks the beginning of exciting initiatives that will ignite growth and vitality within Foressa. Our shared vision with Asmara underpinned by their appreciation for our master plan is crucial in shaping how Foressa evolves and thrives. This exciting collaboration not only enhances the appeal of Foressa Mountain Town for residents and visitors alike but also reaffirms our unwavering dedication to create the exceptional lifestyle experiences in all our communities. Okay. Thank you very much.

Thank you so much, Dave. And now for the Infrastructure segment, we would like to call on Cosette. Please. [Presentation]

Hello. Hi. Good afternoon, everyone, and thank you for joining us in today's briefing. AIC's first half results reflect our deliberate strategy to invest for the long-term growth as evidenced by our higher CapEx spending for the period. In the second half, we expect to reap the benefits of investments made in prior years. The new developments in our Economic Estates at LIMA and TARI Estates. The sustained recovery of passenger traffic at Mactan-Cebu International Airport and the ramp-up of operations of Apo Agua and the buildup of Unity Digital's to our portfolio are key contributors to a stronger performance in the second half. For revenues, our airports, water and Digital Infrastructure businesses marked a year-on-year growth. However, revenues -- year-on-year revenues for the Economic Estates, currently, the major component of our business are lower due to the nature of the business' revenue recognition cycle. As a result, AIC's consolidated revenue of PHP 1.85 billion is 20% lower year-on-year. Nevertheless, we expect the second half to be better due to the expansions we did at LIMA and TARI Estates. This includes the completion of LIMA Tower One, which is an 11-story pass a registered office building that will cater to BPO and IT companies expanding outside Metro Manila. Incidentally, LIMA entire estates are at the ends of the emerging Luzon economic corridor. Our investments in those locations are expected to drive significant revenue growth and further strengthen our market position. Delving deeper into our financials. AIC's first half EBITDA tracked revenues. All other sectors aside from our Economic Estates posted higher year-on-year EBITDA. Thus, overall year-on-year EBITDA is lower, but we anticipate stronger numbers in the second half as we recognize the revenue sales from our Economic Estates. We registered losses for the first half of the year due to financing costs associated with the debt taken to fund AIC's capital expenditures. While this has temporarily impacted our bottom line, these strategic investments are crucial for ensuring our long-term growth and competitiveness. In the meantime, our airport business continued to demonstrate recovery, delivering a net income of PHP 120 million, and reversing last year's loss. Looking at our business units across the sectors we operate in, the focus has been on increasing scale. For Economic Estates, we ended the first half with additional footprints in LIMA and TARI Estates. We also launched the 40-hectare Biz Hub at LIMA Estate, which is a master plan central business district in Batangas. With this, we now operate the country's largest industrial estate portfolio with a nationwide footprint of over 2,000 hectares. Apo Agua and our Estate Water have made significant progress as well. As of June 24, the combined water production and distribution reached a peak of 282 million liters of potable water per day. The non-revenue water also stands at 5.1%, which is below the industry standard. This demonstrates the ongoing efforts and improvements in water supply and management by our water businesses. For MCIA, our Mactan-Cebu International Airport, sustained tourism growth has translated into increased domestic and international traffic, each up by 8% and 35% year-on-year, respectively. These are already approaching pre-pandemic recovery levels. Flights have also reached 47,000, up by 90% year-on-year. For Unity, our Digital Infrastructure arm, we are pleased to share that 70% of the towers we bought from PLDT and Globe had already been transferred as of June. This translates into nearly 1,800 service points, up over 70% year-on-year. In sum, this strategic focus on scaling up and maximizing our assets ensures that we maximize our resources while being ready to seize new opportunities. On growth, AIC remains committed to the sustained expansion of our infrastructure platforms across the 4 sectors that we are in. For Economic Estates, we expect the sustained growth with the launch of the initial 200 hectares for TARI Estate and the broader offerings under LIMA Estate. There has been an influx of big ticket locators at our Economic Estates. We have welcomed Big E, the company behind the Lemon Square food brand at LIMA Estate, and the Hudson Yacht Group in West Cebu Estate. At LIMA Estate, the ongoing construction by new locators is expected to add more workers to the estate's existing population of 71,000 employees. For Unity, we are focused on driving colocation across our existing tower portfolio. We continue to support the country's drive for enhanced digital connectivity by building new cell towers across the country for the telcos. The ongoing expansions across AIC are focused on building a resilient and diversified portfolio that align with market demands and meet our customers' evolving needs. But those are just for our Economic Estates and Digital Infrastructure businesses. We have realized similar gains for our transport and mobility and water sectors. For MCIA, we continue to enhance our passenger experience. Last June, we launched Cebu Connect as part of our vision for MCIA to be the gateway to the Philippines. With Cebu Connect, we have cut down the domestic transfer time from 60 minutes to 35 minutes. We anticipate more flight frequencies and route offerings because of this. This March, we also implemented a silent airport format, mirroring practices found in major international airports. Last week, MCIA announced its Level 2 airport customer experience accreditation from Airports Council International or ACI World, setting a new benchmark for excellence. This milestone follows last year's historic achievement when MCIA became the first airport in the Philippines to receive Level 1 accreditation. For our water operations, excellence and efficiency are key. For Apo Agua, we continue to explore ways to optimize and improve the sustainability of the treatment process. We also anticipate strong year-end results for Estate Water, supported by the successful launch of its fully off-grid solar power system for the operations in West Cebu. These initiatives are at the heart of our strategy to enhance efficiency, drive innovation and create synergies across our business units. In addition to this significant transformation and expansion efforts, our business units also aim to exceed expectations in terms of sustainability initiatives. Our BUs are committed to integrating sustainable practices into all operations, ensuring that growth is responsible and benefits all stakeholders. Economic Estates has received multiple top awards recognizing the sustainable developments and design of LIMA and West Cebu Estates. Additionally, MCIA is the first Philippine Airport to receive ACI World's prestigious Platinum Green Airport Award. This recognitions testify to our BUs relentless commitment to building a better and more sustainable future. In conclusion, AIC is well positioned for strong full year growth across our business platforms with the momentum of our earlier investments now gaining traction. The developments and expansions in our business units are set to deliver significant returns in the second half of 2024. Our ongoing transformation efforts, as mentioned here, are not only enhancing operational efficiency, but also solidifying our market leadership as demonstrated by notable industry recognition, especially in sustainability. As we navigate the remainder of the year, we remain focused on our goals, leverage synergies and drive our transformation initiatives. Thank you, and good afternoon again.

Thank you very much, Cosette. And finally, let me call on Toto for AEV.

Thank you. Good afternoon, everyone. Thank you for joining us this afternoon. At this point, you have already heard the first semester updates from our subsidiaries, so allow me to end this briefing with an update from the parent company. Building on our success from the first half and maintaining our positive momentum the group beneficial EBITDA grew by 23% year-on-year for the first half of 2024. Our consolidated net income came in at PHP 11.5 billion, which was 10% higher year-on-year. Our power business continues to account for the biggest chunk of our net income at 65%, but it was a strong performance of our Food segment and incremental contributions from Coke Philippines, which offset the temporary weakness in UnionBank. Contributions from the Food Group, which accounted for 13% from the group's income grew by over 10x as a result of the strong performance of its Agribusiness and Flour business, which benefited from lower commodity prices. Meanwhile, our Coke investment continues to deliver double-digit revenue growth, outperforming our investment case and reaffirming our diversification strategy. Our consolidated balance sheet continues to be strong and supportive of our expansion pipeline. Parent level net debt to equity continues to be very manageable at 0.28x, while the consolidated net debt to equity remains low at 0.8x despite the investments in Coke Philippines and UnionBank's SRO. For the first half of 2024, the group's beneficial EBITDA rose by 23% year-on-year. The growth was mainly driven by the strong recovery of our Food Group and the continued margin and volume-driven growth of Aboitiz Power and price contributions from Coca-Cola Bottlers Philippines, Inc. CCBPI continues on its upward trajectory in the second quarter of 2024. CCBPI's revenues rose by 18.8% year-on-year in the second quarter, boosting revenue growth in the first half of 2024, [ but ] by 19.6% mainly propelled by the double-digit volume growth. Both general and modern trade channel has delivered double-digit growth in the first half of 2024, approximately 3/4 of total sales were generated via the general channel, which delivered 17% year-on-year growth as all commercial units showed double-digit growth. Modern trade sales, which grew 18% year-on-year was mainly driven by strong sales for at-home consumption. By brand, Coca-Cola Classic products continued to lead growth, but Royal and Sprite are displaying signs of recovery versus their weak 2023 results. Market share in the sparkling softening category has improved to 74.3% from 73.9% in March 2024. Our balance sheet continues to be under leverage and prime for strategic expansion. On a consolidated level, net debt to equity remains manageable at 0.8x, parent level gross debt marginally moved, while net debt rose to PHP 77.9 billion in June 2024 from PHP 42 billion in December 2023 after the settlement of our 40% stake in Coke in February 2024 and our participation in UnionBank's SRO in May. Even with this current level, net debt to equity continues to be very manageable at 0.28x and consolidated net debt to equity of 0.82x. Lastly, we are glad to share that last June 18, both Aboitiz Equity Ventures and UnionBank were recognized by Fortune, a global multi-platform media company in its inaugural Fortune Southeast Asia 500 list. Fortune ranked the companies from 7 Southeast Asian countries by revenue for the 2023 fiscal year and after an exhaustive evaluation process, AEV was around 59, and UnionBank in 186. This prestigious ranking comes as we continue our great transformation headlining the last few years with major acquisitions and partnerships across Philippines business and the industry. To summarize, we had a strong start for the year with almost all business units showing good growth. We are on track with our diversification strategy. Our consumer market presence continues to expand with the sustained growth momentum of Coke Philippines and the full integration of the Citibank consumer banking portfolio. And lastly, our balance sheet remains strong as we continue to consolidate and roll out our CapEx plans across our SBUs. This concludes our analyst briefing. Thank you for joining us today, and we look forward to seeing you in the next quarterly briefing. Thank you.

Thank you very 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 screens right now. [Voting]

Okay. Thank you so much for answering the poll.

And onto our Q&A. We will start off with the questions we received in advance. [Operator Instructions] So maybe we'll start off with questions for the Food Group. So the first question, reads, what portion of the Food Group's costs are exposed to FX? Can you elaborate on your earnings sensitivity to the weak peso and other strategies that you may have to maintain margins? Ebbie?

Yes. Thank you. Thank you for the question. About 65% of total Aboitiz Foods cost has an FX exposure, of which half can be attributed to the Philippines given the extensive importation of grains for our feeds and Flour businesses. We have a comprehensive treasury policy deployed in the Philippines originally across our basket currencies that helps manage currency fluctuations through an FX policy. Our goal is to fix our raw materials cost to achieve our target margins. Our strategy involves closely monitoring the ForEx market and proactively entering into forward contracts to secure favorable rates for our importation requirements. This approach allows us to mitigate the impact of currency volatility and ensure consistency in our cost structure, ultimately safeguarding our profitability.

That's very clear. The next question still on the Food Group, would you have any updates on the ASF? In relation to this, could you talk about more your strategy on the Meats business?

Thank you. Although ASF continues to be a risk in the swine population in the Philippines, we feel confident that the biosecurity upgrades that are being implemented in our farms will reduce the risk of a new infection. We are repopulating one of our farms and expect production by next year. We continue to monitor aggressively our surrounding areas for possible outbreaks and change our protocols as needed. We are optimistic and supportive of the vaccination program that the DEA has in place, and we believe that this is the right step in controlling ASF. In the meantime, we continue to maintain the highest security standards as well as continue to develop our mixed channel. Thank you.

Moving on to AIC. So maybe Cosette, this next set of question is for you. Question reads, what is causing the weakness in airports?

Well, Asia Pacific, the region is actually trailing recovery versus the recovery in other parts of the world. And in the Philippines, this has been exacerbated by aircraft issues for both PAL and Cebu Pacific as well as the stricter or more stringent visa regulations that we have. But I do believe that, I guess, the recent news you've seen Cebu Pacific already putting in the orders for new aircraft and I think PAL has also announced purchases of bigger airplanes. So we hope that with those new aircraft acquisitions, then more frequent flights -- we will see more frequent flights from the 2 major airlines that we have here in the Philippines. And also, I believe that the government is also closely looking at leveling up in terms versus other countries in terms of relaxing some of our visa regulations to make it easier for international tourists to access Philippines.

That's very clear. The next question is, can you elaborate more on the nonrecurring revenues that caused a drag for the Economic Estate's segment?