Aboitiz Power Corporation (AP) Earnings Call Transcript & Summary

Good afternoon. Welcome Aboitiz Power's Earnings Results Briefing for Full Year of 2025. My name is Jacqui De Jesus, and I will be your moderator for today's call. [Operator Instructions] And lastly, the briefing will be recorded. By joining this session, you can send your name, voice, image and chat comments being recorded for use in dissemination. Our CFO, Sandro Aboitiz, will present the earnings results of Aboitiz Power. After the presentation, we will open the floor for Q&A. Sandro, you have the floor.

Thank you very much, Jacqui, and good afternoon to everybody. Thank you for joining us on this Monday afternoon to discuss our 2025 financial results. In the fourth quarter of 2025, Aboitiz Power's beneficial EBITDA came at PHP 23.3 billion, which represented a 35% year-on-year growth driven by a robust generation margins and an expansion of contracted capacity. This year-end strength effectively neutralized first half weakness caused by lower spot prices. With a full year EBITDA to PHP 79.6 billion, which translates to 9% in annual growth. This figure reflects a PHP 3.4 billion boost from ERC-approved ASPA and fit recoveries, both in the fourth quarter of 2025. Our portfolio contribution remains dominated by the power generation segment at 90%, while the distribution utility and the rest segments contributed 11% and 3%, respectively. We are making significant strides in rebalancing our generation mix to ensure the long-term sustainability of our generation portfolio. In December, we energized a 221-megawatt peak Olongapo solar plant and completed the acquisition of the Caliraya-Botocan-Kalayaan or CBK, Hydroelectric Power Complex. CBK was turned over to our consortium about a month ago. This brings the total attributable capacity of our generation portfolio to 6.4 gigawatts. Including CBK, coal generation now accounts purchased about 49% of our total capacity generation mix. Following the successful closing of a 789-megawatt CBK acquisition last December, the Thunder Consortium officially assumed operational control of the asset on February 8, 2026. While the asset transition with no active power supply agreements, the consortium is moving to optimize its revenue stream by securing a long-term tariff, utilizing the specific policy framework designed for the optimal operation of Kalayaan pump storage phases 1 and 2. This acquisition directly supports our long-term mission to provide reliable, reasonably priced power while expanding our renewable energy footprint and stabilizing our generation base. Aboitiz Power continues to execute its renewable energy road map with significant momentum across several key phases of development. In terms of near-term energization, we currently have 147 megawatts of BESS and wind projects under construction with 107 megawatts later for energization within the 2026 calendar year. Strengthening our long-term pipeline, we received official notices of award for 640 megawatts across 5 projects in the GEA-4 auction last year. This diversified allocation includes 3 ground-mounted solar plus integrated storage facilities, 1 wind project and 1 floating solar project. Following the December announcement of the Ubay solar acquisition in Bohol, we are on track to issue another [ opportune ] in April 2026. Beyond our renewable energy portfolio, our transition business group is advancing critical grid stability and baseload projects. These are the 30-megawatt EAUC in BESS project at Central Visayas and the 48-megawatt EMI BESS 2 in Nasipit in Mindanao, both remain on schedule for completion in 2026. The development of 150-megawatt TVI Unit 3 expansion continues as well with a target completion date in 2028. Excluding the recently integrated 789 megawatts CBK asset, which again, we took over in February of this year, the existing 5.3 gigawatt generation portfolio produced 33.5 terawatt hours of energy during the full year 2025. Sustained operational efficiency brought total energy sold to 43.7 terawatt hours last year, representing a substantial 21% year-on-year increase. Reflecting our focus on revenue stability, 37.4 terawatt hours or 85% of total energy sold was sold through by lateral contracts with DUs, with RESs and with NGCP for Ancillary Services through the ASPAs. The remaining 15% of volume was sold to the spot in reserve markets allowing the company to maintain flexibility and capture upside during favorable pricing intervals. If you know, volumes sold to the spot market itself was lower by 37% on a year-on-year basis. In 2025, the last set of our expected new contracts started to deliver at the end of the third quarter bringing our baseload capacity to just about 90% contracted on a nominal basis. If we include CBK as part of the baseload portfolio, we are 86% contracted until CBK is able to secure a tariff, which we are aiming to do so as soon as we can. There are many efforts this year as well to ensure that we're able to close the remaining gap in whatever merchant capacity exists. For the full year 2025, the Power Generation segment achieved a 20% year-on-year increase in beneficial revenue totaling PHP 189.5 billion. This growth was underpinned by a 21% increase in total energy sold, reaching 43.7 terawatt hours. A key highlight of this performance is the strategic shift toward a more stable revenue base through our contracted portfolio, increased revenue contributions from the contracted portfolio successfully offset a significant decline in spot market prices. Average spot revenue declined by PHP 1.58 5 per kilowatt hour compared to the previous year. This decline reflects a broader downward trend in a low weighted average price, a trajectory that is expected to persist throughout the current year. Stability was maintained by 85% of coal energy group bilateral contracts, leaving only 15% exposed to the spot and reserve markets. While, the generation segment achieved a robust 20% year-on-year increase in beneficial revenue, the growth in gross profit was more moderate at 11%. This variance between top line growth and margin expansion was driven by 2 primary factors. The first being compressed spot margins. Despite the growth in energy sold, average spot revenue declined by PHP 1.50 per kilowatt hour compared to the previous year. Profitability was also impacted by an increase in replacement power costs necessitated by various plant outages throughout 2025. In 2025, the Distribution Utilities segment demonstrated steady operational growth underpinned by a 4% year-on-year increase in energy sales volume. This growth was broad-based, driven by higher demand across residential, commercial and industrial customer classes. This segment recorded a full year EBIT of PHP 8.9 billion. Excluding the impact of one-off items, EBITDA grew by 2% compared to the previous year. This same consumption growth provided a stable calendar weight to the more volatile generation segment, contributing 11% of the total benefit of EBITDA for the group. Finally, our RES market share in the RES segment is largely unchanged, resulting in a RES segment EBITDA contribution of PHP 1.4 billion for the year 2025. While AP achieved a 9% year-on-year increase in EBITDA, net income after tax faced a specific headwinds related to asset integration and accounting revolutions. Core NIAT trended slightly downward primarily due to the full year impact of depreciation and interest expense from GNPD, which we started recognition in March of 2024. So 2025, we recognize a full year worth of depreciation interest in GNPD. Excluding the GNPD related accounting impact, core NIAT would have remained fairly flat year-on-year. Earnings were further affected by carrying nearly a full year of interest expenses related to the Chromite acquisition, which happened at the end of January in 2025, without the corresponding full year contribution as those plants require some time to ramp up the full capacity which happened by midyear in 2025. Factoring in ForEx and derivative gains and the partial impairment of GMEC, which was recognized in the fourth quarter 2025, reported net income for the full year 2025 was PHP 19.5 billion, a 43% decrease compared to 2024. Despite the operational headwinds characterized by low spot prices in the first half of the year, we maintain a robust balance sheet, well positioned to fund our long-term growth initiatives. Our financial standing remains resilient, providing the necessary foundation for the -- for our ongoing energy transition. The expansion of our total assets continues to be primarily driven by the Chromite gas volumes acquisition. This growth was partially funded by debt, resulting to a net debt equity ratio of 1.27x as of December 2025. We view this leverage level as remaining within a healthy and manageable range ensuring sufficient headroom for our renewable energy and best pipeline. We maintain a well-structured debt profile, reflecting our commitment to financial stability and prudent risk management. This approach to the balance sheet ensures that the company remains resilient against market volatility while pursuing our '26 to '28 growth initiatives. The majority of our debt carries fixed interest rates, mitigating the impact of global interest rate fluctuations, that is also predominantly denominated in Philippine pesos, providing a natural hedge against foreign exchange volatility by aligning our obligations with the primary currency of our revenue streams. We continue to deploy capital strategically to accelerate our portfolio transition while maintaining grid reliability through our transition and distribution business groups. As of December 2025, we and our partners executed a total of PHP 117.7 billion in capital investments. This outlay includes funding for the 40% stake in Chromite and a 64% stake in CBK, PHP 14.1 billion was spent specifically on our renewable energy -- on furthering our renewable energy pipeline. Moving to 2026, the priority focus of being the progression of the RE and BESS pipeline, specifically for the projects awarded through GEA-4, which are expected to NTP throughout this year. We remain committed to delivering consistent value to our shareholders, balancing our growth strategy with a disciplined capital return policy. For 2026, the company declared a regular dividend of PHP 1.35 per share. This declaration is consistent with the established policy of distributing 50% of prior year net income. A special dividend of PHP 0.93 per share has also been declared in recognition of the impact of the nonrecurring GMEC impairment charges recognized in the fourth quarter of 2025. These payouts reflect our confidence in the company's underlying cash flow strength and our dedication to rewarding our investors. That concludes our formal presentation. Thank you very much for your attention. We will now open the floor to Q&A.

Thank you so much for that, Sandro. Now after Q&A, we will start off with the questions we received online. We received in advance. [Operator Instructions] Okay. So the first question is on Chromite or LNGPH. How much was the core net income contribution and beneficial EBITDA contribution from LNGPH and has LNGPH start recognizing -- started recognizing depreciation and interest expense?

In 2025, EBITDA and NIAT was PHP 9.3 billion and PHP 4.3 billion, respectively. Chromite has already started recognizing depreciation interest. The NIAT of PHP 4.3 billion is before interest expense at the parent, that's related to the bridge financing for the acquisition. But it's after the PPA amortization, which was finalized at the end of the year.

The next 2 questions will be on the GMEC impairment. First 1 is what is the nature of GMEC's impairment? Is there still remaining goodwill or other assets that can be impaired in the future?

So in the fourth quarter '25, we recognized a PHP 13.5 billion impairment in the goodwill from the acquisition of GMEC, which happened in 2016. The impairment assessment considered several factors, including the assets reliability and prevailing market volatility. I would say a key driver of the adjustment was our revised long-term market outlook. As you're aware, 2025, I think, was an inflection point for the market here in the Philippines. We saw spot prices dropped drastically, influence '25 relative to the year before, much further than anyone's expectations. I think as a result of the inflows of new supply and weakening demand and consumption. So our outlook for market price as in the future has changed as we're also expecting a lot more supply to come into the grid over the next 5 to 10 years. So that was probably the biggest factor in the impairment as the change of our long-term market outlook. If you -- GMEC, there's another question here on GMEC contracting, maybe I'll address now as this is part of the -- I guess, part of the [ analysis ] as well. GMEC today is about 90% contracted, the both of those contracts expire in 2029 at which point we'll need to recontract via assets to sure we're still largely contracted. And so I guess -- so I think that's certainly around future contracting end market really led to the adjustment in the impairment test in 2025. So after that PHP 13.5 billion impairment, there's about PHP 26 billion of goodwill related to GMEC still on our books. It's currently the largest source of goodwill in our balance sheet. So while further impairments are not necessarily out of the question, we will continue the best for impairment as required on an annual basis.

I think you've covered the next question already. The contracting situation at GMEC. Just to relay, it's 90% contracted with current PSAs expiring in 2029.

Yes. So again, our goal is to secure long-term contracts, right? But we set the market to be competitive as energy prices and spot market, we're expecting to be low in the next couple of years.

The next 1 is, so beyond GMEC, what is the overall contracted capacity -- contracted level for AP's power generation? What is the expected trend going forward?

So as mentioned in the presentation, from a baseload perspective, we're about 90% contracted on a nominal basis. If you factor CBK into the equation because CBK currently does not have any contracts, although it's not strictly a baseload asset, because of the way it can -- because of the flexibility in its operation, but if you include CBK in the equation, that 90% drops to about 86% until we are able to secure a tariff for CBK. But our goal is to try and close that gap outside of CBK, that 10% to plan and close the gap as fast as we can by participating in the various supply auction that we expect to have and put out this year.

Okay. So speaking of kind of like the incoming capacities for AP, what portion of that will be contracted and how much will be sold to the spot market?

So our strategy moving forward is to build new assets that are contracted. So I think it's unlikely that we will pursue the development of new plants that don't already have contracts in place. Anything that gets built without a contract is probably by exception, and maybe that's limited to the BESS projects because they largely participate in the reserve market. But for new large-scale generation projects, our expectation is to have contracts in place for those assets, so we're not taking any more merchants than we are today.

Shifting topics a little bit here. How do you see the ongoing conflict in Iran impacting Aboitiz Power's operation and long-term growth strategy?

Yes. So that situation is fluid, right, and it's constantly changing. Every day, there's something new. And there are many moving parts here from fuel supply to the cost of the supply to FX and interest rates. We're watching all of that very closely. And in general, our PSAs allow us to pass on the cost of fuel to be -- to our customers. But having said that, we're still, I think, assessing the impact of a prolonged conflict on our long-term plans. At this stage, we don't see any immediate operational disruption, but we're trying our best to remain vigilant here, and we're reassessing our plans as the situation evolves.

The next few questions will be on CBK. First 1 on that is how much debt did Aboitiz Power secured to fund the acquisition? What is the interest rate for this debt?

So the bridge financing, we took out to fund the acquisition was for PHP 34 billion. And we secured the bridge debt at some 5% -- just below 5% in terms of its cost.

The next question is how much do you expect CBK to contribute to profit this year? Would it be earnings accretive immediately, even after accounting for interest expenses? And when will this plan be consolidated?

So we are -- so as a policy, we don't provide forward guidance on earnings. I will say that we do expect CBK to be earnings accretive, but given that at least for the near term because it's a merchant asset. And because the spot market and the reserve market can be volatile, it's exposed to that market in 2026 at least. Although our expectation is that this asset will be earnings accretive in the near term, even before getting a tariff.

Okay. So this is another forward-looking question, but what are the plans for CBK in terms of CapEx? How much are you planning to put into the rehabilitation if any of CBK?

So we definitely are planning to spend some CapEx here, but we're still evaluating the, I guess, the full requirement given that we only took operational control of the asset a month ago. So we're still assessing the full need for CapEx here.

Okay. And then the last 1 on CBK, at least on the send-in questions, how much volumes are sold by CBK on an annual basis? What is the capacity utilization of this plant? How much of this is contracted and how much can capacity utilization improve post rehabilitation?

So this asset is not contracted at all, right, as we mentioned. So the short-term plan here is to sell this capacity of the energy in reserve markets. Reserve market prices have been -- has still been fairly high. So we think there's pretty good opportunity here this year. Historically, the capacity factor of CBK, this is based on actual data, based on actual offered capacity and pumping has been just under 50%. And obviously, we're still evaluating the CapEx requirements here and whether we can improve on that moving forward.

The next couple of questions will be on AP's RE pipeline. So as of December 2025, of the 1.2 gigawatt initial pipeline, 870 megawatts are operational and 147 megawatts are under construction. Do we have a time line on when the remaining 236 megawatts would be operational?

So in our first phase of our RE pipeline build rate, we target 1.2 gigawatts of new capacity. With CBK and when we complete the 147 megawatts already in construction, we would have delivered 1.5 relative to the 1.2. So the next phase of growth after that is really focused on the 640 megawatts of GEA projects, right? So some of those projects will end this year, for delivery over the next 3 years. And then there's 2 gigawatts worth of projects after that, that we are assessing right now and trying to move through the different development stage [ trade ]. If the right conditions are met in terms of financing and offtake in development, then we'll pull the trigger on some of those projects in that 2 gigawatt pipeline.

Next question will be, how will future capacity expansions to be financed? What is AP's target DE ratio?

So we typically finance new projects with nonrecourse project finance with being ratios of anywhere from 70% to 75% because these projects are typically contracted on a long-term basis. Overall, we try and keep our net debt-to-EBITDA ratio below 4x.

Next question is on outlook. Given the abundant power supply coming in, plus weak economic growth, do you see power prices in general continuing to trend lower? What benchmark we use for pricing our CBK attracts?

Yes. So we've all seen a pretty big drop in spot prices, which reflects current conditions in the supply -- on the supply side of the market. We expect, obviously, we'll so far to assess the impact on the market of the ongoing conflict in the Middle East, which could drive fuel prices higher and therefore, spot price is higher, at least in the near term. But I think if current trends hold, then we're still expecting long-term prices to remain fairly soft, primarily as a result of all the new supply capacity that we're expecting to come into the grid over the next 5 to 10 years, right? Where most of that's driven by the GEA auctions. So we're expecting those dynamics to create some pressure on PPA opportunities. When we evaluate opportunities, we're typically looking at a bunch of things, right, including benchmarking against the value of the assets, opportunity plus in the market, prevailing market prices, competition, et cetera. But when we're looking to sign long-term contracts, obviously, we need to be happy with the margin that the contracts will be generating on a monthly basis.

So maybe I'll give you a break. And the next question is on our Distribution Utility segment, which I will throw to Jeihan. So ERC is now working on the rate lease and for Meralco's distribution rates. Can we similarly expect significant adjustments in the rates of Aboitiz Power's distribution utilities businesses in the latter part of 2026? Jeihan, are you there?

Yes. So our distribution utilities are scheduled to have their own resets, starting with Cotabato leg, which is the same time as Meralco Group A and all the way to 2028. We are already working on coming up with the capital expenditure plans and operational expense plans for the next 4 years. And our intent is really to ensure that we are able to work on these plans that will provide stability to the grid and to upkeep -- to have a good upkeep of our services to our consumers. And we are working on -- working with ERC to come up with a fair and reasonable rates for our distribution utilities.

I see a few questions on the Q&A box. So I'll start off with a question on the group's USD borrowing strategy. So what is Aboitiz Power strategy regarding USD borrowing/exposure? Also, what is your strategy given the recent market and geopolitical conditions, I guess, on the borrowing side.

Yes. So the only dollar-denominated debt we currently have is in GNPD and GMEC. Outside of that, all of our debt is denominated in pesos. And up until now, we haven't felt the need to tap the U.S. dollar market, considering the fact that, again, the bulk of our revenue is here in the Philippines and is denominated in pesos, right? So there is no plans at the moment to tap the offshore dollar market for debt. And again, considering the fact that most of the debt we raised here domestically, this project financed at the SPV level to fund new projects.

So the next question, I'll combine these 2 questions because I think these are related. What is AP strategy given the [ real price ] of fuel costs? Do all your PPAs, including the RES contracts have a fuel pass-through mechanism?

Yes. So the answer is broadly yes, right? So the bulk of our -- or if not all of our outstanding PSAs have passed through provisions. If we do sell any fixed price contracts to our RES business, who intercell express contracts to get customers, we typically ensure that, that fixed price exposure is fully hedged either through a financial derivative or directly with some of our suppliers on a physical basis. So we don't really have -- aside from our merchant exposure, we don't have much fuel exposure, otherwise.

That's clear. I see that we have a raised hand from the audience, may we call on Jelline.

I have 2 questions. One relates to the rising Middle East tensions, specifically on the LNGPH supply. Can you comment about current storage capacity contracting with your LNG aggregators? Are you worried about sufficiency of supply? That's my first question.

I think at the moment -- I mean this is, again, an evolving situation. At the moment, for now, we think we're okay. But this is obviously a situation we want to monitor very closely on a day-to-day basis, right? But I think -- yes, I think that we're pretty comfortable with where we are for now at least.

Okay. Understood. My next question is on the Ancillary Service and FIT catch-up revenue recognition in the fourth quarter. May I confirm that the value is around PHP 3.4 billion?

Yes, for those 2 things.

And is this the entirety of the thing? Are we expecting any more with regard to this or any other regulatory related approvals on the tariff?

No. For this -- yes, for the ASPAs and for the FIT, that's the priority entirety of the amount we're expecting.

Understood. And then lastly, on the weather patterns this year. Can you run us through your expectations on maybe El Nino or La Nina patterns and how it might impact your overall generation output for each of the quarters?

Sorry, can you repeat that question, Jelline?

I'm asking about expected weather pattern for this year. If I recall last year, the subject of a La Nina. Are you expecting anything in particular this year. I think there might be a chance of El Ninos, is this something that you are expecting and how it might impact your overall portfolio?

Yes, it's something that -- it's something again that we're watching. There's some expectation that maybe in the second half of the year will experience El Nino. But despite that, for now, I think we still feel that, again, barring any drastic increases in fuel prices as a result of the conflict in the Middle East, but we expect market prices to remain at similar levels to where they were last year.

I don't see any -- okay. So question here on GMEC. For GMEC contracts, are they linked to the spot market prices?

No, they aren't.

Okay. So I don't see any more open Q&A -- questions on the Q&A box. [Operator Instructions] I don't see any more hands raised or any open questions. Last call, please. With that, I think we can close the Q&A session with that. So thank you, Sandro. For the benefit of those who missed the session or would like to rewatch the event, a recording of this briefing will be uploaded on our website. So on behalf of Sandro and entire presentation team, we would like to thank everybody for joining us. For those of you who will join us in the earnings call of Aboitiz Equity Ventures, we'll see you later at 5:00 p.m. and for the rest, we'll see you again in May for the first quarter briefing. Good afternoon.