San Miguel Corporation (GSMI) Earnings Call Transcript & Summary

Good afternoon, everyone. Welcome to the combined 2023 full year results analyst briefing. I am [ Jaco Doliante ]. I will be your moderator for today. A few reminders before we begin. [Operator Instructions] Please be reminded that this webinar is recorded. Allow me now to introduce our panelists for this afternoon. We are joined here today by Mr. Ferdinand Constantino, SMC CFO and Treasurer; Mr. Noji Alindogan; San Miguel Food & Beverage Inc. CFO; Mr. Albert Sarte, Petron Corp.'s Deputy CFO and Treasurer; Ms. Chesca Tenorio, VP and Head of Corporate Financial Planning. Also joining us on Zoom, we have Mr. Paul Causon, San Miguel Global Power Holding Corp.'s CFO. We would also like to knowledge the presence of the following: Ms. Tina Garcia, SMFB, Investor Relations Head, and other key executives of the group. I now turn you over to Ms. Chesca Tenorio to discuss the SMC Group's financial and operational results.

Good afternoon, everyone. Welcome to the 2023 Full Year Combined Analyst Briefing of San Miguel Corporation, San Miguel Food & Beverage, Ginebra San Miguel and Petron Corporation. First, let me highlight our full year 2023 performance with the following key messages. On your screen, you'll see embedded in our core purpose and strategy, SMC has taken major strides in its sustainability journey in 2023, accomplishing several notable milestones impacting our organization, structure, operations and strategy. SMC's full year 2023 performance was characterized by healthy operating income and EBITDA growing by 34% and 24%, respectively, despite macroeconomic uncertainties, mainly driven by the full year consolidation of Eagle Cement, coupled by our ongoing efforts to streamline our operations and supply chain. Despite the tough market dynamics and global inflationary pressures, SMC saw a strong volume performance in 2023, as the fundamentals and underlying demand drivers of our businesses remained very solid and robust across all our product offerings, especially in our businesses including beverage, fuel and oil, infrastructure and most -- more so in our cement business. As a key takeaway, investments in manufacturing capacity expansion in our group, our renewed focus on product mix and streamlining of operating efficiencies and value chain are the key themes you're seeing in 2023 that significantly improved the margin profile for the whole SMC Group in 2023. First, allow me to share a snapshot of a main driving force now of our group. Sustainable business is a fundamental and integral part of our group strategy. In 2023, we drove forward the implementation of our sustainability agenda, making major strides in sustainability journey to accomplish the following milestones. First, we committed to the 10 principles of the United Nations Global Compact in May, becoming a signatory of UNCG. After submitting our SEC 17A sustainability report in April 2023, we published our very own first comprehensive sustainability glossy report in June last year. In July, we established a Sustainability Committee within the SMC Board of Directors with former Justice Teresita de Castro as its Chair. Also in July, we conducted multiple management training programs on ESG for San Miguel leaders, culminating in a session for the Board Sustainability Committee in November 2023. Alongside this, we made our first disclosure in the Carbon Disclosure Project, or CDP, and engaged Sustainalytics to assess our ESG risks. In October, we kicked off SMC's new vision and purpose, along with the aligned vision and purpose of each of our major subsidiaries. And by December 2023, we got management's approval on SMC's decarbonization road map. The result of our Sustainalytics and CDP engagements are highlighted. SMC's Sustainalytics risk rating showed major improvements in 2023 to 40.2 from 59.2 in 2021. While we're still categorized as severe, it is now only 0.2 above the high risk level and a 19-point improvement from the 2021 rating. As explained, this is partly due to the inherent risks of the industries that we are in, combined with our demonstrated ability to manage these risks. SMC's CDP score in 2023 improved by 1 to 2 levels, resulting in a score of D for climate change, C for carton products, C for soy, C for palm oil and D1 for timber under the forest category and C for water security, scores that are now within the range of our Philippines peers and the Asian region. Previously, we were all rated failed to disclose. So this is a very good improvement for us and a key thing to highlight for 2023. So moving on now to our financial highlights. SMC generated consolidated revenues of PHP 1.4 trillion in 2023. The lower Dubai crude prices that impacted Petron and decline in Power businesses -- in Power business revenues led to the 4% decline in total revenues. This was partly offset by strong volume performance from SMB, GSMI and Infrastructure, coupled by the significant contribution of the full year consolidation of Eagle Cement. Conversely, consolidated operating income surged by 34% to PHP 144.5 billion. This notable increase was driven by aforementioned strong volumes across the board, with the contribution of Eagle Cement. Despite year-end results for the food business trailing behind 2022 figures, the business still delivered substantial contributions in the fourth quarter. Net income for the consolidated group increased by 67% to PHP 44.7 billion, also on account of recorded foreign exchange gains for 2023 against losses in 2022. Consolidated EBITDA, important to note, stood at PHP 205 billion. This is 24% higher than the prior year level, resulting in a margin improvement to 14% from only 11% last year. Let me now discuss the performance of each of our businesses. Tina, you can take on food and beverage.

Thank you, Chesca. San Miguel Food & Beverage delivered a year of steady top line growth, despite challenging macroeconomic conditions, particularly in the first half of the year. The group's consolidated sales for the year ended 2023 amounted to PHP 379.8 billion, reflecting a 6% increase from 2022. All business segment delivered sales growth driven by better volumes and prices. Consolidated EBITDA was up 7% to PHP 66.8 billion. Overall EBITDA margin slightly increased to 18% as compared to 17% in 2022. Consolidated income from operations for the year amounted to PHP 48.4 billion, 1% lower, as the growth in volumes and prices were not sufficient to offset rising input costs and operating expense increases. Net income jumped 10% to PHP 38.1 billion, the highest net income figure achieved by the group since SMFB's consolidation in 2028 -- sorry, 2018. San Miguel Brewery. San Miguel Brewery sustained its growth and recovery in 2023 with consolidated sales of PHP 147.3 billion, up 8%, driven by higher volumes and selling prices in both domestic and overseas markets. Domestic sales climbed 8% to PHP 131.7 billion on back of a 3% growth in domestic beer volumes, plus a price increase effective March 1, 2023. Improved results were supported by effective marketing campaigns, expanded sales initiatives as well as the resumption of tourism activities, fiestas and festivals. Revenue from its international operations, on the other hand, rose 7%, as volumes increased 6%, driven by robust demand for its San Miguel global brands, including Red Horse, across all markets that resulted in overall growth, particularly in South China, Thailand and exports. The Beer business' consolidated EBITDA was 9% higher than 2022 at PHP 39.1 billion given the increase in sales volume and average selling prices, with EBITDA margin slightly up at 27%. Beer's consolidated net income was up 16% at PHP 25.3 billion. Ginebra San Miguel recorded another record-breaking year, which coincidentally marked its 10th year of continued growth. Revenues grew 13% to PHP 53.6 billion as a result of higher volumes and selling prices. 2023 total volumes recorded a 4% growth from 2022, as the Spirits business implemented initiatives to sustain strong brand equity through creative, consistent and relevant messaging. This was complemented by consumer promos in various marketing programs on ground that made consumers experience its brands better. Distribution coverage was likewise further broadened last year. In 2023, the Spirits business saw EBITDA increase 41% to PHP 9.4 billion, as income included the onetime income from the sale of Don Papa rights. EBITDA margin expanded from 14% in 2022 to 18% in 2023. Income from operations grew 14% to PHP 6.8 billion, while net income was up 55% to PHP 7 billion. The Food business delivered PHP 178.8 billion in revenues, 2% higher than the previous year, driven largely by increased pricing to cope with the rising input costs, backed by aggressive marketing efforts to boost demand. It is worth noting that all Food segments, except for the Protein segment, sustained top line growth. The Animal Nutrition & Health segment saw a 5% increase in revenue driven by higher selling prices, which helped offset the decline in volume due to the lingering effects of African swine fever and hog feeds and the avian flu and layer feeds. Despite challenging market conditions marked by high inflation and reduced consumer spending, the Prepared and Packaged Food segment demonstrated resilience with a 3% revenue growth. Strategic price adjustments played a significant role in sustaining revenue growth, despite a decline in overall volumes. Meanwhile, the Flour segment capitalized on the favorable trend of easing wheat prices, employing a competitive pricing strategy that boosted volumes and enabled it to achieve a 15% increase in revenue. On the other hand, the Protein segment, which consists of Poultry & Fresh Meats businesses, experienced a 3% decline in revenues. This can primarily be attributed to Poultry, which grappled with capacity limitations early in the year that hindered volume growth. Although this was substantially addressed during the year, the influx of imported chicken created an industry oversupply that exerted downward pressure on chicken prices and impeded revenue growth. The performance of fresh meats reflects a deliberate strategy to keep hog operations at the minimum to manage the impact of ASF on the business. For the meantime, the Food Group has been importing pork to supplement the needs of the Monterey Meatshops. Although the Feeds, Prepared and Packaged Food and Flour segments delivered strong revenue and income growth, the overall performance of the Food business was adversely affected by the challenges faced in the Poultry segment due to the latter's significant contribution to the overall Food business. EBITDA was 9% lower to PHP 18.3 billion, as marginal top line growth was offset by the impact of higher raw material prices and direct costs of new facilities, particularly depreciation and manpower. Income from operations amounted to PHP 10.2 billion and net income at PHP 6.6 billion. While lower than the previous year, these figures still surpass pre-pandemic levels. Chesca?

Thanks, Tina. The San Miguel Yamamura Packaging Group recorded revenues of PHP 38.4 billion in '23, 4% better than the previous year's level. This was driven by the sustained demand of glass containers, plastic crates and pallets from the Food and Beverage segments, complemented by the continued growth of its operations in Australia. Operating income reached PHP 1.9 billion. This is a significant increase of 16% against 2022 on account of enhanced operational efficiencies, coupled with cost containment programs. Consequently, the group attained an EBITDA of PHP 4.5 billion. That's a 7% increase from the previous year's level, with a margin improvement to 12% from only 11% in 2022. Moving to the Power business. San Miguel Global Power Holdings Corp. posted relatively flat generation volumes year-on-year due primarily to the extended outage of the 1,200 megawatt Ilijan Power Plant from June 2022 to June 2023, while it underwent retrofitting works to improve its fuel efficiency and reliability, and as it awaited a substantial completion of an adjacent full-scale LNG terminal that has been told on a long-term basis. SMGP sold 8% lower offtake volumes in 2023 because it ceased to supply 617 megawatts contract capacity to Meralco, following the suspension and eventual termination of the pertinent power supply agreement, anchored in a favorable decision from the higher court. It has, however, been able to secure several emergency power supply agreements that allow the contracting of its available capacities and to operate the Ilijan Power Plant using commercial LNG on a fuel pass-through basis. Consolidated revenues were at PHP 169.6 billion, that's 23% lower from prior year, as fuel tariffs went down with an equivalent decline in coal prices. This averaged only $172.79 per metric ton in 2023 compared to $360.19 per metric ton in 2022 in terms of gC Newcastle index prices. However, SMGP was able to improve its gross margins by 43% on contracted volumes, as it worked out a transition to full fuel pass-through arrangements for most of its bilateral customers and with the fuel prices going significantly lower. Operating income and EBITDA reached PHP 32.5 billion and PHP 43.8 billion, respectively. Consequently, with improved margin and turnaround from ForEx loss to gain in 2023, net income surged to PHP 9.9 billion, a significant increase from the PHP 3.1 billion net income reported in 2022.

Yes, I'll be reading for Petron, just subbing. I'm not the Petron IR. Petron's consolidated revenue slipped to PHP 801 billion in 2023, despite higher volumes, down 7% from last year's PHP 857.6 billion, reflecting the continued price correction of the extraordinary elevated levels in the oil market. The average benchmark to buy crude as of full year 2023 closed at USD 82 per barrel, still down 15% from the 2022 average. This was primarily driven by the strong performance in its Philippine operations, while Malaysia continued to deliver steady growth. Petron's volumes amounted to 126.9 million barrels in 2023, 13% higher than last year's level, fueled by the significant growth in its jet fuel and LPG sales, backed by higher production at its Bataan and Port Dickson refineries. EBITDA grew by 36%, while consolidated operating income reached PHP 30.7 billion, a notable 60% leap from last year's level. This was primarily driven by its continued efforts in optimizing assets and resources, capturing continued demand recovery and response to market volatility. Petron posted a consolidated net income of PHP 10.1 billion, growing by 51% from PHP 6.7 billion in 2022. Back to you, Chesca.

Thanks, Tina. Okay. For SMC Infrastructure, SMC Infrastructure delivered a remarkable performance in 2023, posting consolidated revenues of PHP 34 billion. This is 17% higher year-on-year. This was mainly brought by the sustained growth in from all operating toll roads, reaching a combined average daily traffic volumes of 1 million vehicles, and that's up 8% from the previous year's level, complemented by the continued increase in travel activities. Driven by the robust volume growth, operating income surged 25% to PHP 17.7 billion, coupled by the continued cost management initiatives as well. Net income also posted a 33% increase to PHP 11.4 billion. EBITDA amounted to PHP 27.6 billion, that's up 16% from last year's figure, with margins still maintained above the 80% level. For our cement group, comprised of Eagle Cement Corporation, Northern Cement Corporation and Southern Concrete Industries, the group registered a fourfold growth in consolidated revenues to PHP 37.2 billion in 2023 mainly due to the consolidation of Eagle in 2023. Operating income likewise posted robust growth amounting to nearly PHP 6.0 billion, while net income reached about PHP 4 billion. Despite the challenges in the market of the cement industry, the business continued to deliver strong performance through various cost containment initiatives and significant improvement in the cost of major inputs. The cement business recorded a remarkable increase in EBITDA from PHP 532 million in 2022 to PHP 9.5 billion in 2023. Moving on to our consolidated balance sheet picture. SMC's consolidated total assets as of December 31, 2023, ended at PHP 2.5 trillion, while total liabilities reached PHP 1.8 trillion. Stockholders' equity stood at PHP 665 billion. Consolidated cash balance stood at PHP 261.4 billion, while interest-bearing debt amounted to PHP 1.4 trillion. This translated to a net debt level of PHP 1.1 trillion. Current ratio as end 2023 was at 1.12x against 1.21 as of December 31, 2022. Total debt to equity registered at 2.7. Interest-bearing debt to equity stood at 2.11 compared to 2.12 as of December 31, 2022. To conclude, we have several slides just to share some highlights and updates and outlook for our business or our group. SMC concluded yet another year with high marks. Our portfolio continues to grow as the projects continued to progress. Here are some of our key business highlights in 2023. SMC Infrastructure's Manila International Airport's land development and ground improvement works are ongoing and progressing really well. Overall progress for the land development work is at 77%, while airport development work is estimated to commence in 2025. The railway component percentage accomplishment for the MRT-7 is at 68.7%, while the detailed engineering design and site development for the depot is still ongoing and on track to upgrade by end 2025 or early 2026. Third, the inaugurated of the battery energy storage facility in Limay, Bataan held on March 31, 2023, paved the way for the planned integration of about 1,000 megawatt hours of best facilities in the grid. Out of the total capacity, 470 megawatt hours across 15 sites have achieved completion, and 340 megawatt hours of ancillary services procurement agreements with the National Grid Corporation of the Philippines for 11 best facilities have been secured. And fourth, in October 2023, one of SMFB's several integrated food complexes was inaugurated in Hagonoy, Davao del Sur as part of our larger push for regionalization, boosting food security nationwide, which started with an expansion of our Food and Beverage businesses in the last couple of years. For year-to-date 2024 business updates, we are very pleased with the growth performance of our business in 2023, amid the challenges on inflationary cost pressures, reflecting the results of effective management initiatives and programs implemented across the group. And we remain positive that we can sustain our growth this year. Let me highlight the following update so far for 2024. Last Feb 27, Japan Credit Rating Agency, or JCR, affirmed SMC as a foreign currency long-term issuer rating of A- with a stable outlook. This is the same rating given to the Republic of the Philippines. SMC SAP consortium, of which SMC owns 33% stake, won the bid for the NAIA rehabilitation project. The notice of award was granted by DOTr last Feb 16. We highlight that NAIA's positive cash flows currently will be immediately value accretive to SMC. Meralco PowerGen Corporation and Aboitiz Power Corporation have entered into agreements with San Miguel Global Power and its subsidiaries for MGen and Aboitiz Power to jointly invest in and acquire a 67% stake of SMGP's gas-fired power plants, namely operating 1,278 megawatts Ilijan combined cycle gas power plant owned by South Premier Power Corp; the adjacent under construction 1,320 megawatts combined cycle gas power plant owned by Excellent Energy Resources, or EERI, and land owned by ilijan Primeline Industrial Estates. Upon the completion, MGen and Aboitiz will collectively own 67% of the relevant assets through Chromite Gas Holdings, which is a 60-40, respectively, split. SMGP will retain the remaining 33%. The deal also involves the acquisition of the LNG import and regasification terminal owned by Linseed Field Corporation, which processes LNG for SPPC and EERI, and has a capacity to service additional third-party customers. Lastly, our portfolio is highly valued, managed and strategized with our cash flow generation and projections. So as guidance, our consolidated EBITDA guidance for 2024 is a growth between 8% to 15%. Further, we remain confident in our ability to efficiently manage its business and continue to deliver sustained -- sustainable value, amidst market uncertainty. We are very optimistic that the country's robust macroeconomic fundamentals and our strategy, anchored on our sustainability agenda will remain supportive to sustain our growth momentum this year. The journey to becoming more sustainable is not straightforward for any organization, particularly not for one as big as -- and as diversified as San Miguel. For 2024, we will continue to work on defining our road map that will ensure that our sustainability goals are achieved. We are committed in setting the standards, so that the others follow. The big issues facing the world today from climate change to social inequality demand that businesses redefine their societal role. So that brings us to the end of our presentation. We thank you for your time and attention, and we will be glad to take questions for now.

[Operator Instructions] We have a hand from [ Aaron Uy ].

Congratulations on your results. I have a question. On your -- on the San Miguel reported net income of PHP 45 billion, can I get some color on this? Because if you combine the net income of Food, Petron and Power, it will be around PHP 58 billion, but the reported figure is only PHP 45 million. How is this so?

There are eliminations. I think you're aware that as a parent company, we also have our own debts. So you have to deduct some of the interest expense incurred by the parent, which we have borrowed in order to help finance many of the projects that we have mentioned. So you should include the parent company numbers also.

Okay. Got it. And sir, do we use the PHP 45 billion as the recurring income for 2023?

Well, I think, yes, we can do that. Most of it is recurring income, except for the ForEx. The ForEx GAAP reversed from a loss to a gain. And then also, we have the one-time income of Ginebra of about, I think, close to PHP 1 billion for the sale of the Don Papa assets.

Okay. Sir, what's your ForEx gain?

You have the number now, Chesca? I think around PHP 22 billion, if I recall correctly.

No. That's 2022. ForEx gain is around -- hold on.

PHP 3 billion.

Around -- close to PHP 5 billion.

PHP 5 billion.

PHP 5 billion, okay.

So from a loss of 2022 to a gain in 2024 -- 2023. Jaco, I think there's a question regarding the Ilijan Power Plants, the other LNG plant, in relation to the venture with MGen and Aboitiz Power.

Yes. We have a question from [ Maria Margarita Antoinette Lee ]. What is the rationale for the sale of Aboitiz Power and Meralco for the SMCGP power plants?

Paul, you -- can you react to that?

Thank you for that, sir. If I may take on that question. So from the perspective of the new investors, I would think that their intent is -- or their rationale is to have a foothold in an integrated LNG to power solution, which I think is very crucial right now in terms of energy security. And at the same time, it's also vital from a power -- from an ESG perspective. So these are also -- these 2 investors are likewise power players and would like a foothold on an existing facility, which we have in the case of the assets that are under discussion. From our perspective, this is basically intended -- the transaction is intended to unlock the value from our greenfield assets in the form of the new 1,320 megawatt gas plant that is nearing completion and has -- and is fully contracted over the long term and also, at the same time, unlock as well the value for our existing power plant in the form of the Ilijan Power Plant and the project sites. In the case of Ilijan, it's also contracted. So the transaction basically gives us an opportunity to realize the economic value embedded in these assets that are not currently reflected in the balance sheet of these companies.

We have another hand from German de la Paz.

Can you hear me?

Yes.

Yes. And congrats on the results. I have several questions. First on Petron, may I ask what are you seeing in terms of refining margins on a year-to-date basis this year? And then second, I noticed that although full-year sales volumes last year grew 13%, Q4 only grew by 2.9%. May I ask why that is? And I also noticed a quarter-on-quarter decline compared to Q3. May I ask for more color on that also, considering that Q4 is seasonally the strongest? And then if I may also ask how much were the inventory losses for Q4.

Okay. Thank you for that question. I think I'll answer first the last question. Well, in terms of the fourth quarter, the reason why it was actually lower compared to the third quarter was because there was a huge correction in crude prices for the fourth quarter of 2023. So from around $93 in September, it actually went down to an average of around $77 per barrel. So there was a $16 correction in the fourth quarter of 2023, which resulted to inventory losses. So for the year, we actually incurred an inventory loss of $3.9 billion, and bulk of that would actually be attributable to that particular correction in the fourth quarter. Now the -- for the first question -- sorry, your question was sales volume grew by 13%, but...

2% for the last quarter.

2% for the last quarter. Was that...

That's the question, yes?

Yes, sir Albert. 2.9% for Q4 year-on-year compared to 13% for the full year.

Okay. So Q4 was only 2%. Well, given the decline in inventory losses, we also sort of deliberately tried to hold back on production just to ensure that we don't incur inventory losses -- huge inventory losses. But nonetheless, the full year performance was still, as you said, 13% growth versus 2022. And then the first question, again, can you repeat the first question?

Yes. My first question was on refining margins on what you are seeing for -- on a year-to-date basis. And also for Q4, I noticed a quarter-on-quarter decline in sales volumes in Q4 compared to Q3. May I ask why that is, considering that Q4 is seasonally the strongest supposedly in terms of sales volume?

Well, okay, in terms of refining margins, we're seeing actually a slight correction compared to last year, wherein we saw very robust refining margins. But nonetheless, what we're seeing today in terms of actual refining margins are nonetheless better than pre-pandemic levels, and we expect that to actually hold until the rest of the year, but not -- it would not be as strong as what we saw last year. But nonetheless, given the margins that we're seeing now, it's still a very healthy margin that will be good for the company. Now in terms of just briefly year-to-date performance, we're seeing actually very good numbers, again, year-to-date, or even March year-to-date. Sales volume continue to grow. We're seeing double-digit growth in consolidated sales volume for Philippines and Malaysia. And refining margins, as I said, is actually still quite healthy. So I think for the first quarter, we should be showing good numbers, but there should be a slight probably reduction in the second quarter given that we're actually going into 1 anchor maintenance or a total plant shutdown sometime in April as part of the preventive measures. So that would be for 45 days for Manila and then around less than a month for Malaysia in May.

We have a question from [ Mark Gangcuanco ]. A few -- several questions for GSMI. What is the volume growth of GSMI for full year 2023? How is the first 2 months of GSMI in 2024 looking like? Is it reasonable to expect higher dividends for GSMI this year? Or will it be capped at PHP 2.5 cash dividend per share for the rest of the quarters of 2024? Will GSMI implement another price increase this year? And lastly, will GSMI continue to be listed on its own? Or are there plans to completely fold it in FB for possible cost savings and synergies?

Yes. Thanks for your question, Mark. And I think we're also getting questions from [ Condos Constantinos ], so let me just combine both GSMI-related questions. The volume growth of Ginebra last year was mid-single digits. So it has maintained its good, steady volume growth that it has experienced over the last 5, 6 years. So it's a testament to the brand building as well as the operational excellence that it has achieved over the last 5 or 6 years. The first 2 months of the year has seen a price increase. It was implemented in early February. So we are seeing its continued volume growth, despite that price increase. I would say that the first 2 months have tracked so far higher than what we experienced in the whole of last year in terms of volume growth increase. So let's see if that can still be the main throughout the balance of the year, although that we are -- remain very bullish on Ginebra given its market positioning, which continues to grow. Now in relation to the dividends, I think the payout ratio at PHP 10 per share annual dividends versus what it earned last year equates to something like 40% or 45% payout ratio. So there is room for Ginebra potentially to higher those dividends if we are to increase its payout ratio over time given that the business has middle to no leverage, and it has CapEx requirements that can service primarily by its cash flows. In terms of the last question, if it is still our plans to keep Ginebra listed, as of the moment, it is still our plans to keep it listed. We continue to look for ways to further improve its coverage and its liquidity, so that its value can be fully realized given that the valuation of Ginebra right now is still below what it should be.

We have a question from [ Jiren Zang ] for Power. Regarding the recent deal on Ilijan Power Plant with MGen and Aboitiz Power, what would be the expected proceeds of the deal? And what would be the use of proceeds for this? Any time line for the closing of the deal?

Okay. Thank you for your questions. There are several items there, so let me go through it one by one. So with respect to the expected proceeds, the enterprise value expect at $3.3 billion with equivalent proportionate value, subject to adjustments at closing date. So with respect to the use of proceeds, the company expects to use it for general corporate purposes, which include the reallocation of capital to our existing expansion plans and projects and also the repayment of our maturing obligations. And then lastly, with respect to the time line, the transaction is subject to customary regulatory approvals, the power industry being a highly regulated industry, and that will include the review and approval by the Philippine Competition Commission. On the time line with respect to these required approvals, I would say that closing should be within the year.

We have a question for Food and Beverage. Can you provide us some color on the recent situation of the Food segment, particularly the challenges in Poultry? Has the problem been all resolved? And how should we expect the recovery of the business in 2024, both in terms of sales volume, prices and profitability? Number two, excluding the sale of Don Papa rights, how should the GSMI core earnings have looked like? And number three, could you provide the outlook for the alcoholic beverage businesses in 2024 in terms of demand and input cost trend?

Okay. I'll try to remember your questions. In terms of Poultry, as what Tina had described in her script, we saw better prices in the first half of last year, but the volume is a bit more challenged. And I think the -- we saw the reverse of that in the second half of last year, where volumes have recovered. But given the demand and supply situation in the Poultry business, we saw ASPs trend over. So we have a full year ahead of us. It is hard to really call how things will be for the Poultry business given the nature of that business. But suffice it to say, I think what we have seen and is encouraging is that the raw material pricing for some of our key inputs have trended lower. If you compare the second half of last year to the first half of last year, we've seen key raw material prices trend lower. So if that continues, and hopefully it does, we will see margin improvements as long as ASPs hold up. And ASP is really, as you can imagine, really predicated on how supply and demand picture looks like for the industry. So let's see. Let's -- we're hopeful that it's going to be a better year when you account for the full year for the Poultry business. Now in terms of the Don Papa rights, as Sir FTC have mentioned, it was about PHP 1 billion in terms of net income after tax for its impact in terms of GSMI's core earnings. So core earnings would have been about PHP 6 billion, give or take, if you exclude the sale of those rights. I think you have talked about the outlook for the Alcoholic Beverage business. The largest cost component of Ginebra and Beer continues to be excise taxes. And there is regularly planned excise tax increases for the current packaging. So that's something that we are managing through the medium term with our own price increases. The excise tax increase that we are experiencing in both businesses have been steady over the last couple of years, so it makes us manage the business a little bit better in that sense given there is clarity on those 2 key inputs item for both Ginebra and Beer. But on the demand side, we continue to be bullish on the businesses. I think last year was particularly challenging for the consumer given that inflation rates were higher. There was a lot of increases in terms of their own purchasing basket. So we're mindful of the fact that the best would be to be stable, oil prices continue to be fairly stable as of the moment, and inflation seems to be tapering off for the Philippines, which bodes well for the Filipino consumer and its ability to spend on discretionary items like beer and spirits.

We have another hand from [ Cheenee Cheng ].

Can you hear me?

Yes.

Great. I just would like to get more clarity on the Power business, that particular transaction with MGen and AP. I know Paul just now gave some detail on it, but it's not very clear to us exactly how much cash proceeds inflow is potentially going to come into the power company. So can you provide a little bit more clarity on that? And also one more thing. This particular joint venture, if I can call it that, is also going to buy the Linseed Field Project. How much is that Linseed Field Project? How much investment will that be? Yes. Maybe just these first question for now, yes.

Paul?

Thank you for your questions. Well, I did answer it previously because I clarified the amount I gave, which is $3.3 billion to be the enterprise value. And since effectively, the new investors are acquiring 67%, then the net proceeds can be calculated from that as being the equivalent proportionate value for what they're getting into. That is, of course, subject to certain valuation adjustments throughout the course of the year, which is customary in any M&A deal as we approach closing date.

We have another question for Power. Is the company's policy to call the USD perpetuals at first call date?

Definitely. That's been our -- not only our policy, but our practice ever since. And we have a perfect track record in terms of redeeming -- effectively redeeming any perpetual securities that are due for a step-up, whether that's in the past or it's with respect to those that are due for a step-up this year.

A follow-up for Food. Food has been seeing supply constraints for poultry for quite some time. When should we expect capacity for poultry farms to meet demand?

Yes. I think that's one of the key initiatives of Sir RSA in terms of the country's food security. We are embarking on an integrated poultry complexes, the first one being in Davao, and that's really meant to improve the capacity of the company as well as the industry to meet the growing demand of the consumers in terms of poultry. If you recall, poultry is the cheapest form of protein that one can buy. So it is an important part of our food security and it's an important part of also keeping the food basket that the Filipino consumers buy at a very attractive price point. So we are doing our part to meet the demand picture, which we feel quite bullish on.

On top of that, has GSMI continued to take market share in 2024? Are you gaining traction in your premium offering? Or is that segment still very small for you? You have also spoken about doing more partnerships in GSMI for toll manufacturing. Any update on that? And can you also update on any changes or expected changes in the regulatory environment, mainly excise taxes?

Yes. GSMI continues taking its market share in 2024. It's still quite early, but I think based on our last estimates, GSMI's market share for the entire spirits industry in the Philippines was 45% based on the surveys we gave. And we are hopeful that, that continues to grow toward 50%. And as you can imagine, the largest part of that product offering is our traditional red product, which continues to take up a bulk of our product offering as well as the revenues. Although we continue to develop other products, GSM Blue, given its flavors has been very popular amongst a new subsegment of the consumers, particularly the younger consumer set. That has grown quite admirably to be second in our portfolio for GSMI in totality. One can argue that it appeals to a wider set of consumers, including premium consumers that use it as a mixed drink. But aside from that, I think we also have launched and is gaining traction, the 1834, which is a premium gin product. And hopefully, that also grows quite well in terms of the on-premise channels that it is also net to cater to. So we continue to explore other ways to grow the business. We won't preclude the fact that we can enter into more partnerships, including other tolling arrangements, which would further grow our business. If you also recall, even if we have sold the Don Papa rights to Diageo, we continue to toll for them in our facilities in Visayas, which contributes to our continued income growth. So if you believe in that product globally, then it also benefits Ginebra given that we do earn a tolling fee from it.

We have a question for infrastructure. May we know the funding plan for the airport NAIA? How much is the total project cost and percentage split in equity, debt inherent in the funding plan? And who is advising you on the matter? May I inquire the IRR, the QR boundary from the NAIA concession agreement and estimated payback period, group synergies expectations with the NAIA project?

Kristina, remember, we are a minority in that budget. We only own about 33% of the whole project. We have other partners, including Incheon of South Korea. But just to give you a flavor, the BDO is already committed for the initial funding of the project, so don't worry about the funding. It will be there available. At the same time, we're already planning, together with our partners, how we will take over the things that we have to do. The good thing about this project is the government has already defined what they want and what they want to be done. If you recall that based in the media reports, we need to give immediately PHP 30 billion to the government and then PHP 2 billion per year thereafter for 15 years. The total project cost, we are still finalizing it. But in terms of CapEx, at this time, we need to provide about PHP 122 billion in the next few years. So rest assured that given the knowledge and leadership of Ramon Ang, it will be a good project not only for the group, for our partners and especially for the country.

We have a hand from German.

I just have a few questions left. First, may I ask how much is the parent net debt as of end 2023? And then second, how much is the onetime gain from the transaction with MGen and AP? And then lastly, may I ask again how much is the current dividend payout policy of GSMI? And do you plan to increase this even further?

Okay. For parent net debt, we are at PHP 547.111 billion. That's for the parent net debt, PHP 547.111 billion.

For the benefit of time, we have -- we're down to our last question from [ Andrew Sandong ]. Could you share major debt financing transactions, including bonds, bank loan and preferred shares that San Miguel Corporation and SMC Global Power plan to do during the year?

Well, as I mentioned, definitely, together with our partners, we will raise funds for the requirements of the NAIA rehabilitation. In the case of the airport in Bulacan, we have already provided to raise those funds to complete the land development up to next year. That's about $2.2 billion. At the same time, there will be some fund raising for refinancing of some of our debts, I think, including Petron for the refinancing project.

Thank you to our panelists for providing informative answers to our queries. Unfortunately, that's all the time we have. For those who have further questions, you may address it to us via e-mail at [email protected]. Thank you, and good day.

Thank you, thank you.

Thank you.

Thank you.

Thank you.