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

Good afternoon. Welcome to Aboitiz Equity Ventures Earnings Results Briefing for the first half of 2026. My name is Jacqui De Jesus, and I will be the moderator for today's call. Some reminders before we begin. We have put microphones on mute to minimize background noise during the presentations. Second, questions have been requested from the audience in advance, which we will go through during the Q&A portion. [Operator Instructions] Those not taken up during The Q&A session will be answered via e-mail. 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. For today's call, the CFO of Aboitiz Foods Po Beng Ng, will kick us off. He will be followed by Rafael Fernandez de Mesa President and CEO of Aboitiz Real Estate Group. After him Frocks Roque, Vice President and Head of Investments of Aboitiz InfraCapital will update us with their performance. And then finally, John Rubio, the Chief Strategy Officer of Aboitiz Equity Ventures, will close us out with the group's consolidated financial performance. After the presentation, we will open the floor for Q&A. For questions on the earnings results of Union Bank and Aboitiz Power, which were already discussed in separate sessions, we will be addressing those offline after this briefing. So with that, let me turn you over to Po Beng.

Good afternoon, everyone, and thank you for joining this session. Today, we are presenting Aboitiz full operating and financial results for the first half of 2026. Following the momentum from our first quarter, first half results demonstrate the underlying strength of our core Agribusiness, Flour and Trading segment, which continued to anchor good performance while we navigate ongoing operational headwinds in our downstream operations. To summarize our high-level results, Aboitiz Foods closed the first half of 2026 with a net income after tax of PHP 2.3 billion, an 8% increase year-on-year. Consolidated EBITDA reached PHP 4.7 billion, rising 9% over the same period last year, while margin improved within our core business unit. The overall EBITDA margin moderated by 84 basis points, reflecting the pricing pressures and operational challenges we faced in the Farms and Meats segment. Our top line expansion was supported by our primary growth drivers, which provided the stability to absorb this margin compression. I will now walk you through the detailed segment performance. Turning to our top line. Consolidated revenue for the first half reached 51.6 billion, up 19% year-on-year. This growth was underpinned by a 13% overall expansion in group volume, driven primarily by our Regional Agribusiness and Trading segment. The regional Agribusiness remains a chief revenue driver with sales expanding 22% year-on-year to PHP 42 billion. This volume growth was broad-based, driven by steady livestock feed demand alongside expanded contribution from our Aqua, Pet Food and Specialty Nutrition units. Our Food & Nutrition segment, however, saw a 3% revenue decline year-on-year, reflecting performance diversion across its unit. Trading delivered a strong gain with volume expansion to 47% year-on-year on higher feed weight and soybean milk offtake, supplemented by corn [ integration ]. Flour revenue decreased by 2% year-on-year as we deployed strategic pricing to protect our market share amidst aggressive competition. Meats revenue declined 35% due to a 38% volume reduction resulting from our deliberate decision to rationalize channels, exceeding traditional trade to focus on core retail [ concession cost ]. Farms revenue fell by 29% year-on-year, temporarily constrained by depressed livestock selling price and lower production productivity. Moving to operating profitability. Consolidated first half EBITDA rose 9% year-on-year to PHP 4.7 billion. This result reflects solid operational execution in our core unit, which successfully absorbed the ongoing drag from our downstream operations. Regional Agribusiness delivered a 31% year-on-year increase in EBITDA, fueled by sustained livestock performance in Philippines, Vietnam and Malaysia, alongside margin recovery in Aqua, Pet Food and Specialty Nutrition. Trading recorded a 3.6 fold increase in EBITDA, benefiting from volume expansion, improved margin and warehousing efficiency that offset freight cost pressure. Flour EBITDA grew 13% year-on-year, driven by stronger gross profit from improved product margin. While this Flour gain was strong, we did face severe contraction in our downstream segment. Farms EBITDA fell by 125% year-on-year, pressured by weaker selling price amid a competitive supply environment and elevated production costs. Meats post a loss of PHP 103 million. This reflects the impact of strategic channel rationalization, specifically our shift away from traditional trade as well as lower average selling price driven by soft demand and record level for imports. Building on the EBITDA performance we just discussed, our bottom line results for the first half reflect both operational growth and treasury management. We closed the first half with a net income after tax of PHP 2.3 billion, an 8% increase year-on-year. This was supported by a 2% reduction in interest expenses compared to the previous year, which reflects working capital management effort across our regional business units. In summary, the group results for the first half reflect the combination of operational adjustments in our downstream segment and the performance of our core operations contributing to the financial results for this period. That concludes our update on Aboitiz Foods for the first half of 2026. Thank you for your time.

Thank you so much, Po Beng. And now to present the Real Estate Group, I would like to call on Rafa.

Good afternoon, everyone. Today, I'll walk you through the first half 2026 results for the Real Estate Group. For the first half of 2026, we recorded consolidated revenue of approximately PHP 2 billion, EBITDA of PHP 460 million and a net loss of PHP 37 million, compared with a PHP 4 million net loss in the same period last year. The results reflect 2 different dynamics. Residential returned to profitability with net income of PHP 102 million compared with a PHP 52 million loss last year. EBITDA increased 26% to PHP 203 million. This reflects the work undertaken to improve buyer quality, reduce forfeitures and prioritize ready-for-occupancy inventory. Economic Estates EBITDA declined 27% to PHP 257 million and reported a net loss of PHP 140 million. This is driven mainly by the timing of milestones-based revenue recognition. Industrial reservations activity remained strong, while leasing continued to grow. Economic Estates leasing revenue increased 13%, supported by higher commercial occupancy and scheduled rent escalations across industrial assets. Consolidated revenue declined 11% to PHP 1.98 billion. Residential revenue increased 16% to approximately PHP 1.05 billion, supported by ready for occupancy sales, improved account quality and continued recognition from prior year bookings. Economic Estates revenue declined from PHP 1.33 billion to PHP 933 million. Lot sales recognition was lower, reflecting both the timing of current transactions and a higher first half 2025 base that included recognition from prior year sales across LIMA Industrial, Biz Hub at LIMA and TARI Industrial. This was partly offset by leasing revenue, which increased from PHP 706 million to PHP 799 million. The growth in recurring income remains important. It provides greater earnings stability while land transactions progress through development, collection, documentation and recognition milestones. Reservation sales provide a clear view of the underlying demand. Economic Estates reservation sales increased 70% to PHP 2.26 billion. Industrial reservations nearly doubled, increasing 97% to PHP 2.15 billion. This reflects the continued demand from manufacturers seeking reliable infrastructure, operating support and long-term expansion capacity. Commercial lot reservations at [indiscernible] LIMA declined 54% to PHP 110 million. Interest remains, but softer local investor confidence has extended decision time lines and affected conversions. Residential reservation sales declined to PHP 718 million from PHP 1.89 billion. This reflects both the ongoing sales organizational reset and a deliberate shift towards stricter buyer qualification and ready for occupancy inventory. We accepted lower near-term volume to improve account quality, reduce forfeiture risk and support stronger cash and revenue conversion. Monthly sales momentum has been improving from a low base. Our second half priority is to accelerate sales responsibly while preserving these gains. At the earnings level, the same 2 dynamics are evident. Consolidated EBITDA declined 10% to PHP 460 million. Residential EBITDA increased 26% to PHP 203 million, while net income improved to PHP 102 million from a PHP 52 million loss last year. This reflects better account quality, lower forfeitures and a stronger operating discipline. Economic Estates EBITDA declined 27% to PHP 257 million, while net income moved from PHP 48 million last year to a loss of PHP 140 million. The principal driver was recognition timing. Industrial demand and leasing remained resilient, but several transactions have not yet met the milestones required for first half recognition. Our focus for the second half is to convert the advanced pipeline into recognized revenue, sustain the residential recovery and maintain capital discipline. The first half results should also be viewed within the context of a longer-term strategy that has been underway for several years now. In 2020, we sharpened our focus on industry-anchored townships and accelerated the growth of Economic Estates. From 2013 to 2020, our footprint grew at approximately 4% annually. Since 2020, that growth has accelerated to around 12% annually. By the end of 2025, the platform had expanded to 2,070 hectares, supporting 266 locators and more than 101,000 jobs. Our model goes beyond industrial land. We bring together infrastructure, utilities, talent, regulatory support, commercial services, housing and long-term estate management. As the ecosystem grows, each new locator and complementary development strengthens the platform and makes it increasingly difficult to replicate. Today, Aboitiz Real Estate is the Philippines' leading developer of industrial parks. Our 2,070-hectare footprint is the largest privately owned industrial estate portfolio in the country. We also hold approximately 367 hectares of freehold PEZA-proclaimed land for future growth. Our operating portfolio carries green building certifications from the Philippine Green Building Council. However, our competitive advantage is not land alone. Through the wider Aboitiz Group, we can bring together power, water, construction, financial services, housing and technology around the needs of our locators. This reduces the cost, friction and execution risk of investing and operating in the Philippines. LIMA is the clearest proof of this model. Over 3 decades, it has evolved from an industrial park into a broader economic ecosystem where industrial, commercial, institutional, hospitality and residential uses reinforce one another. We are now applying that experience and developing TARI estate in Central Luzon. At 384 hectares, TARI is the largest privately owned industrial park in the region and is strategically located within the Luzon economic corridor. It provides connectivity to Clark, Subic, Metro Manila and the wider Central Luzon manufacturing net. Existing infrastructure includes 2 50 MVA Aboitiz Power substations and a 6 million liter per day integrated water facility. Over time, the state is also being designed to support renewable energy, electric mobility, circular resource systems and green building certification. TARI remains an emerging estate and transaction time lines can be difficult to predict within a single year. However, the platform is progressing, infrastructure is being delivered and the first locator investments are providing visible proof of execution. The strongest validation so far of TARI is the quality of companies investing there. Coca-Cola Europacific Aboitiz Philippines is developing a 42-hectare facility, its largest investment in Asia and one of its most advanced production sites. Operations are targeted to begin in the third quarter of 2027. Ajinomoto Philippines is developing a 16-hectare facility, representing approximately PHP 9.1 billion, its largest investment in the Philippines, and operations are targeted to begin in April 2028. Construction is progressing across both sites. These investments validate TARI's location, infrastructure and long-term operating proposition. They also help attract suppliers and related industries, strengthening the emerging ecosystem. Our objective to build TARI into Central Luzon's next major industrial platform, applying the lessons from LIMA while capturing the opportunities created by the Luzon economic corridor and the continued evolution of regional supply chains. So to close, our first half results reflect 2 distinct stories. Residential returned to profitability through improved buyer quality, lower forfeitures and stronger operating discipline. Economic Estates on the other hand, continued to deliver strong industrial reservation activity and leasing growth, but earnings were affected by the timing of sales recognition. Our priorities for the second half are clear: convert the advanced pipeline, sustain the residential recovery, continue growing recurring income and execute with discipline. LIMA demonstrates the strength of our integrated model, while TARI represents the next major platform for growth. Thank you, and have a good afternoon.

Thank you so much, Rafa. For Aboitiz InfraCapital, may we call on Frocks, please.

Good afternoon, everyone. I will walk you through Aboitiz InfraCapital's results for the first half of 2026. This update covers AIC's various business sectors, which are airports, water and digital infrastructure. Overall, AIC sustained its growth momentum in the first half of the year. Revenue and EBITDA continued to expand, supported by strong airport operations, while disciplined execution helped improve our position and strengthened the overall earnings of the portfolio. For the first half of 2026, AIC generated PHP 4.6 billion in revenue, up 30% from PHP 3.5 billion in the same period last year. This translated into EBITDA of PHP 2.5 billion, a 26% year-on-year increase, driven primarily by the continued strength of our airports business, particularly Mactan-Cebu International Airport, which sustained healthy passenger traffic growth. Airports contributed 65% of beneficial EBITDA, reaffirming its position as AIC's primary earnings engine. Laguindingan International Airport and Bohol-Panglao International Airport also continued to contribute positively during the period. At the bottom line, AIC's net loss narrowed to PHP 278 million, a significant improvement from the PHP 536 million net loss recorded in the first half of 2025. This reflects stronger operating performance across the portfolio, although reported earnings continue to absorb noncash amortization charges related to MCIA service concession assets. Revenue growth remained broad-based in the first half of the year with airports continuing to anchor overall performance, complemented by steady contributions from water and digital infrastructure. Airports revenue increased 38% year-on-year to PHP 3.4 billion, driven by sustained passenger traffic growth at MCIA. Despite the ongoing conflict in the Middle East, total passenger traffic across our airport portfolio grew 4% to PHP 8.6 million, led by a 9% increase in MCIA traffic to 6.47 million passengers. Water revenue grew by 2% to PHP 590 million during the period. Apo Agua reached a peak distribution of 303 MLD, reflecting continued operational reliability and steady demand. Unity Digital Infrastructure delivered another strong performance with revenue increasing 25% to PHP 660 million. As of June 2026, Unity Digital Infrastructure had approximately 3,070 total tenancies, 513 co-locations and a tower tenancy ratio of 1.30x, reflecting continued portfolio expansion and improved asset utilization. As mentioned, AAC generated PHP 2.5 billion in EBITDA for the first half of 2026, up from PHP 2 billion in the same period last year. EBITDA growth tracked our top line momentum while maintaining a healthy EBITDA margin of 54%. This reflects sustained operating performance supported by continued cost discipline and efficiency initiatives across the portfolio. Airport EBITDA increased to PHP 1.6 billion, driven by continued growth in passenger traffic at MCIA. Water EBITDA rose to PHP 443 million, benefiting from effective cost controls, while Unity Digital EBITDA reached PHP 503 million, reflecting continued expansion of its tower portfolio and tenancy base. At the corporate level, expenses were reduced from PHP 148 million to PHP 78 million, demonstrating the impact of our ongoing cost optimization efforts. The improvement in our operating performance continued to translate into stronger earnings in the first half of 2026. AIC's net loss narrowed to PHP 278 million, a 48% improvement from the PHP 536 million net loss reported in the same period last year. This reflects stronger operating performance across our portfolio. Although as mentioned, reported earnings continue to reflect noncash amortization charges associated with the MCIA service concession asset. The improvement was led by Airports, which posted PHP 51 million in net income compared with a PHP 144 million net loss in the first half of 2025. This reflects the continued strength of MCIA's operations and sustained passenger traffic growth. Water and Digital Infrastructure also reduced their losses year-on-year. Corporate expenses increased to PHP 183 million, primarily due to PHP 55 million noncash write-off related to project development costs. Excluding this one-off, underlying corporate costs remain well managed, reflecting our continued focus on cost discipline. Overall, our first half results demonstrate a strong revenue growth and disciplined execution and steadily improving the earnings profile of the business. To close, the first half of 2026 reflects the resilience of AIC's portfolio and the progress we continue to make across our businesses as we move through 2026. Airports remained our primary growth driver, supported by sustained passenger traffic at MCIA. At the same time, Water continued to provide stable operating performance, while Unity Digital maintained its expansion through higher tenancies and improved asset utilization. Looking ahead, our priorities remain unchanged. We will continue to strengthen the performance of each business, maintain cost discipline and improve earnings as we build a more diversified and resilient infrastructure portfolio. Thank you, and good afternoon.

Thank you so much, Frocks. And finally, for Aboitiz Equity Ventures, can you call on John to discuss the first half results?

Thanks, Jacqui. Good afternoon, everyone. You've heard from our subsidiaries on their respective performances in the first half of 2026. So what I wanted to do is bring these together to provide an overview of the group's total results. AEV delivered another strong quarter in Q2. With that, beneficial EBITDA is up 19% year-on-year and up 9% Q-on-Q, which brings us to PHP 19.9 billion for the quarter. If I take that with the strong performance in Q1, the total first half beneficial EBITDA is at PHP 37.9 billion. This was a 25% increase versus the same period last year. So when you look at it, group performance driven by strong year-on-year improvements across most of our strategic business units that you've heard this afternoon, which more than offset weaker results from Cement and Real Estate. I won't go through the specific numbers in the table, but I just wanted to call out a few, I'll call it, top line. Aboitiz Power, for example, remain the group's largest earnings contributor, which roughly represents about 60% of our total beneficial EBITDA. AP's strong performance was supported by 4 main areas. The first was higher contracted capacity. Second was favorable energy market prices. Third was additional renewable energy capacity that came online. And lastly was contributions from Chromite Gas and CBK hydroelectric complex. If you look at the bank, UnionBank more than doubled its beneficial contribution. This was driven by sustained loan growth across institutional, credit card and our salary loan segments. That, together with our lower funding costs and continued expansion in net interest margins. Lastly, when you heard from Po Beng, our Food and Beverage business continued to deliver solid growth. Beneficial EBITDA, as he mentioned, increased 7% year-on-year, driven by strong volumes and margin expansion in Aboitiz Foods' flour, regional livestock feed and our trading business. And secondly, this is also from higher sales volume and sustained market leadership of Coca-Cola Philippines. Speaking of Coke, next slide, please. So Coca-Cola Europacific Aboitiz Philippines, or what we call CCEAP, delivered another strong set of results for the first half of 2026. Revenue grew 11% year-on-year, which was driven primarily by 8% growth in sales volumes, which is very exciting because that was despite the high inflation environment. Volume growth was driven by a higher number of selling days, but largely due to the continued strong consumer demand across the portfolio. Coca-Cola Original remained resilient, while Coca-Cola Zero Sugar sustained double-digit volume growth. Some new product launches, Sprite Zero and Royal, posted healthy gains from successful marketing campaigns and the launch of the new grape and lychee variants. Hope you all have tasted that. They're really good. Despite softer consumer spending, supply chain risks and persistent inflationary pressures, the environmental context a lot of businesses in the Philippines went through in the first half of the year, at CCEAP, disciplined cost and risk management enabled us to deliver strong year-on-year growth in volume, revenue and operating profit. Lastly, looking ahead, and Rafa mentioned this, CCEAP's new production facility in the Philippines, which is being built in the Philippines' primary economic estate, it remains on track to commence operations in 2027. This will further strengthen our manufacturing capacity, which will support our future growth. For the first half '26 NIAT, if you look at our strong EBITDA growth, that translated directly to consolidated net income after tax, so NIAT of PHP 13.6 billion. This was 65% higher compared to the same period last year. Again, we highlighted some of the SBUs earlier. The strong performance was driven by Aboitiz Power, which contributed PHP 10 billion in NIAT, up 44% year-on-year. UnionBank, PHP 3.4 billion in NIAT, which is more than double last year's level. Aboitiz Foods and Coca-Cola, which together contributed PHP 4 billion, up 10% year-on-year. Lastly, let's go to the balance sheet. When you look at our balance sheet and capital position, this remains very healthy as of the end of June 2026. You look at our consolidated cash. It stood at PHP 86.6 billion, which is broadly stable to the level it was at the end of 2025 at PHP 87.8 billion. If you look at our gross interest-bearing debt, this actually declined to PHP 484.8 billion versus PHP 493.7 billion at the year-end of 2025. This was driven by partial repayment of the bridge financing for Aboitiz Power's acquisition of Chromite. Because of that, our net debt-to-equity ratio improved from 0.99x to 0.95x. This actually represents our strong commitment at the group on balance sheet discipline and financial flexibility. So with that, I just wanted to wrap up with some quick macro thoughts as we look ahead to the second half of 2026. Macro environment, again, like everywhere else, remains tough, but we, with solid momentum, will remain disciplined in our capital allocation and strong execution. We continue to expect improved performance versus 2025 because this is supported by resilient earnings across our portfolio, even as we navigate, what I mentioned is an uncertain macroeconomic and geopolitical environment. To end, our priorities remain clear. We want to focus on 3 things. One is to always continue enhancing operational excellence across our businesses. Number two, as mentioned and as seen, we will further strengthen our balance sheet. Lastly is, this balance sheet flexibility will give us the opportunity and the flexibility to invest prudently and opportunistically in things and opportunities that will generate sustainable long-term value for our shareholders. Thank you for your attention, and happy to take questions.

Thank you so much, John. So we now open the floor for questions. As mentioned earlier, we will start off with the questions we received in advance. [Operator Instructions] So we'll kick this off with questions for Po Beng on Aboitiz Foods. The first question reads as, please help us understand the weakness in the Food business, especially for Farms and Meat. Do we see any positive mitigating factors for the second half of this year?

Yes. I think the downstream profitability is a key operational priority, and we are taking decisive structural action across both businesses. In Meat, we have already rationalized our distribution footprint by exiting lower-margin traditional trade channels to focus exclusively on the core retail and supermarket accounts. This stabilized the unit profitability against market pressures. In Farm, we continue to execute capacity optimization initiative to improve farm utilization and streamline operating costs to align with market conditions. While we do not provide forward earnings guidance or quarter-on-quarter projection, the structural adjustments are designed to stabilize unit economics and protect consolidated earnings in the Aboitiz Foods. In the meantime, our core Agribusiness, Trading and Infra segment continues to perform well, and this provide a strong earning buffer for the group.

Thank you so much. The next question for you would be on costs. So oil prices have been rising again. How much of this will impact Aboitiz Foods margins?

Yes. The rising oil prices primarily impact us through higher logistics and outbound freight costs, particularly within our Philippine operation. While we utilize dynamic pricing and operational adjustments to cushion the impact, full cost pass on is not always immediately achievable across all competitive market. This created a localized and temporary revenue margin pressure. Across the group, we rely on supply chain optimization, route efficiency and strict working capital discipline to manage all these exposures.

Thank you. And then final question for you is on hedging. So are you hedged against the weakening peso? How will the continued weakness in the Philippine peso impact the bottom line of Aboitiz Foods?

Yes, we maintain an active hedging framework to manage currency risk given that roughly 65% of our group cost base carry FX exposure, mainly through the imported grains requirement for our Philippine feeds and flour operation. We utilized forward contract FX purchases to lock in rates and smooth out the volatility. Regarding the bottom line, while peso depreciation increased our landed raw material price, we mitigate this exposure through dynamic product pricing and operational efficiency. While short-term timing lag can create localized margin pressure in competitive channels, our disciplined treasury control and regional diversification helped insulate our overall profitability against future currency weakness.

Thank you so much, Po Beng. Now we move on to questions on Aboitiz Real Estate -- on the Aboitiz Real Estate Group. So these 2 --these next questions are going to be for Rafa. So the first question is, are there potential headwinds or tailwinds that could be brought about by Pax Silica for Aboitiz Real Estate Group?