Good day everyone. Thank you for joining this online briefing to discuss First Pacific 2022 first half of financial and operating results. The results presentation is available on First Pacific's website www.firstpacific.com, under the Investor Relations section, Presentation page. This results briefing is being recorded and the replay will be available on First Pacific's website in the Investor Relations section. For participants from the media, please note the Q&A session is open for investors and analysts only. If you would like to raise questions, please contact us when the briefing finished. Today we have our Executive Director, Mr. Chris Young, our Chief Financial Officer and Associate Director, Mr. Joseph Ng and Mr. John Ryan, our Associate Director. Another senior executive from the head office of Hong Kong. Over to you, John, for the presentation, please.
Thank you very much, Sara. We reported our half-year numbers at lunchtime today. I hope you've all had a chance to do some digesting of them, in the intervening hours between then and now. Each of the past few reporting periods, we've reported ever better numbers. Again, we've hit some record highs. Our contribution from operations up more than a fifth to a record high. Our recurring profit is up to a record high of HKD 263 million, up by about 25%. We've increased our interim distribution by 17% to 10.5 Hong Kong cents a share.
Our three-year share repurchase program with a budget of $100 million is well underway with about $32 million spent by the end of July, when we reached a blackout period during which we had to suspend such share repurchases. We can expect those will be returning to the market in the days ahead. If we look at the graphic on the top right of page 3, we can see that all of our operating investment companies there contributed to the increase in recurring profit. Looking ahead for the rest of the year and further into the future, broadly speaking, all of our portfolio companies are expecting stronger earnings moving forward. Now a brief look at our cash in the bottom right-hand graphic on this chart.
We have more cash at the end of June than we had at the beginning of the year, thanks to the dividend and fee income coming in, a relatively low- net interest expense. Our newly appointed Chief Financial Officer, Joseph H. P. Ng, can speak to how that might change in the second half of the year in the higher interest rate environment when we turn to the Q&A. We've had very slight new borrowings and net investments. That is mostly our participation in a rights offering by Philex, the mining company, to help finance a mining project in Mindanao called Silangan. Our investment of some $20 million into that rights offering kept our stake unchanged at a little more than 30% in Philex. Of course, we spent some money on share repurchases.
Now, a little deeper look into our cash flow and balance sheet on page 4. A few months ago, we obtained investment grade credit ratings from Standard & Poor's and Moody's. You can see the details here. They both have stable outlooks. At the end of June, our gross debt was about $1.5 billion. Our cash on hand is about $139 million at the end of June. When you look at the debt maturity column chart at the bottom of this slide, you see we've nothing to repay this year and the $360 million or so that's coming due in 2023, in principle, all been taken care of with long-term banking facilities we agreed earlier this month.
Our blended interest cost has risen a little bit since year-end, given the increase in interest rates across the board. The average maturity has shortened a bit to about 3.3 years. The ever important interest coverage ratio is unchanged at 3.8 times, and again, that is our dividend income minus our costs. You divide that by the interest bill. We've got four times more money left over than we have in the interest bill. Now let's have a look over 2 pages to page 6, a snapshot of our gross asset value. One more page, please, Amy. As you can see, our three biggest assets there, Indofood, MPIC and PLDT, our GAV of just under $5 billion at the half-year mark.
When markets are all closed later today, we will very likely be updating this presentation with end August figures so that you've got a more up-to-date number there. For our half-year report, we want the half-year GAV chart there for you. On the next page 7, there are a few details here about sustainability matters which are increasingly important. Not printed on this page is discussions we had yesterday in a two-hour meeting of our corporate governance committee, where we've approved a couple of initiatives and changes to some of our policies. Nothing quite major there, but worth having a look at on our website. Later, we may announce some details of our tree planting initiative in cooperation with some of our companies down in the Philippines.
I'd like to draw your attention to the blue box at top right. Our ISS Governance QualityScore following our annual general meeting and publication of our annual report in April remains at 1, the best possible score. There hasn't been any change recently in any of those other scores. Now let's move to our biggest single asset, Indofood, which at the half-year reported again record high- net sales. That was to be expected. Core profit rose less than it did for the full-year of 2021, up by only 2%. As you can see, they've had some difficulties with costs. The EBIT margin box on the bottom right shows you that the noodles margins, which a year ago were pretty much at a record high, have come down quite a bit.
Other businesses which are more reflective of commodity prices saw the converse, an increase in their margins. Bogasari, the flour and pasta division, saw a healthy increase in their margins, and so did the Agri business. Broadly speaking, we had sales up across the board, except in the Agri business, where volumes were down rather a lot in both the edible oils and fats and plantations business, each down by a third or more. Now, looking to the full-year, Indofood expects continuing strong earnings with the EBIT margin, perhaps towards the bottom of that range of 18%-20% that they expect. Sales growth is continuing very strong at consumer branded products, driven in particular by the Pinehill business in Africa and the Middle East. We can discuss this more in the Q&A, if you like.
All in all, the full-year should continue strong. A very brief look at ICBP, the consumer branded products business on the next page here. Their sales again were at a record high, just like the parent company. Their margins were down, and their core profit fell quite a bit, by 23%. Now let's move to PLDT, which is the largest and highest quality telecommunications and data services provider in the Philippines. Again, we have record high revenues. This is a consistent theme in the companies that we are invested in here at First Pacific. Record high, PHP 97 billion in the first half. The EBITDA was up 8% to over PHP 50 billion, and they're suggesting that EBITDA for the full-year is probably going to be over PHP 100 billion.
That seems to me, looking at numbers over the past decade, to be a very likely record high. Telco core profit is expected to be up 10% or so to PHP 33 billion. At the interim, we saw a special dividend paid to shareholders, which is very welcome here at First Pacific. CapEx at PHP 85 billion is down a bit from the previous year's PHP 89 billion. We expect over the next few years to see the ratio of capital expenditures to service revenues to glide down to less than 40% of service revenues. Now, if we have a very quick look at the line charts on page 12, we can see. Pardon me, page 12. One more page, Amy.
We can see that PLDT maintains its continuing lead in network quality over its competitors, whether it's in the mobile space or in the fixed line. The earnings growth at PLDT is driven very hard yet again by the home business, where sales are up by about a quarter. We expect a similar performance for the full-year. The individual business, which has been mobile phones in the hands of consumers, has had a bit of a struggle, but we're beginning to see signs of turnaround in the second quarter numbers from PLDT there. The enterprise business itself continues to grow strong, with service revenues up almost 10% in the first half.
For fuller details on the performance of PLDT and the other companies, we invite you to look at their own investor presentations or speak to us in the Q&A. You can even ask me to email it to you. Now, let's briefly look at Metro Pacific Investments Corporation. Page 14 reminds us of the assets underneath MPIC. Meralco, the biggest electricity distributor in the country, and increasingly a major generator of electricity too, particularly with its fast-growing ambitions in the renewable space. Then we've got the toll roads business, which is growing very, very fast. We had a major bridge project open in April in Cebu, connecting the airport to the mainland.
Later this year, we will see in Manila the opening of the connector road connecting the northern and southern Luzon highway systems. We're seeing very strong contribution growth from the toll roads business, and that will continue surging on in the years ahead. There we have the biggest water distributor in the Philippines and the biggest hospitals business. Now turning to the next page, we can look at the change in contribution chart on the bottom left. As you can see, toll roads was the biggest contributor to the increase in contribution, followed by the electricity business at Meralco and some others. We expect the earnings growth that we saw in the first half, with core profit up almost a quarter, to continue for the full-year.
I say again, looking ahead, we expect the toll roads business to deliver an increasing proportion of the earnings growth over at MPIC. While not to be outdone, the electricity business has got ambitions to build out 1,500 megawatts of renewable capacity over the next 5-7 years. Those are the two biggest sources of earnings growth at MPIC in the years ahead. Now let's move several pages ahead to page 19, where we've got our Singapore asset, PacificLight Power. A very modern gas-fired power plant is generating far stronger earnings than it did a year ago when it began a turnaround after several years of difficulty. As we can see, core profit in excess of SGD 130 million, whereas a year earlier it was a little over SGD 1 million.
What's going on here? It's a very efficient plant. Demand is growing much faster than supply of electricity, and the outlook over the next few months is fairly positive. Dialed into this call, we've got Stanley Yang, who's on the board of directors. He's in charge of corporate development with us. He can speak to any questions you might have about PacificLight. You might want to bring up this potential solar project based in Indonesia, where we would like to import solar-generated electricity into Singapore from there, but there are some regulatory and trade matters that need to be addressed there before that could go ahead.
Now we'll wind up with the operating companies on page 20 with a brief look at Philex Mining, which saw a decent increase in operating revenues because mostly of higher metal prices, offset a little bit by lower metal production. Gold price up 3% to almost $1,900. Copper price up again, still quite high, to $4.38. The full-year numbers might not be quite as strong if metal prices do not sustain at the level that we saw in the first half. The outlook for this company very much hangs on the Silangan project, which was mentioned very briefly at the beginning of this presentation. They've got some additional financing in place after the stock rights offering.
In the meantime, a study continues how they can keep the Padcal mining operation to extend beyond 2024 by looking at potential ore bodies in the environs of that mine, which would be used at the mill there at Padcal. Now, all in all, to recap, we've got record high recurring profit. The contribution from operations is at a record high. We've got a fairly high base from the second half of 2021, so I don't know if we can promise again a 25% or so increase in our earnings. The outlook is very, very positive, and you can see that in the 17% increase in our distribution to shareholders at the interim.
We're very positive about the outlook for us, for our operating companies, and, that winds up the initial introduction to this discussion. Sara will now,
Yes
Moderate the questions.
We are now ready for questions. If you have any questions, you can raise your hand. We will let you know when you can unmute your device, or you can put your questions in the chat bar. Thank you.
How is that going?
Go ahead.
While we're waiting for the first question, my colleague Peter Lin from the treasury department reminds me that the new net investment in the first half was not Philex, that was in the second half of last year, but it's the investment in Voyager Innovations company underneath PLDT, which has got the biggest online banking business in the Philippines called Maya. Right. Now we have Sara, can you read the question please?
Yes. The first question is coming from Jeffrey of CLSA. His first question is, the first one is the dividend payout ratio. I understand you're still aim to have a 25% dividend payout for the full-year. For the interim, we have a 22% payout. The last time we had a 22% payout in the first half was in 2013. My question is, does the payout in the first half have any indication that the management may possibly be cautious for the second half 2022 earnings outlook? The second question from Jeffrey is, for the investments at the head office level in our previous briefings, we learned that investments will be made alongside underlying entities like PLDT. Can you give us any update about those investments on where we are at?
Um-
For the payout.
Well, I mean, it's Joseph here. Maybe I try to tackle the first one. You are quite right that the 25% payout is set on a full-year basis. Or the kind of 22% payout is for the first half is actually representing a 17% growth in the dividend per share basis, as compared to 0.09 HKD last year first half. Even in the first half of 2021, we paid 0.09 HKD. I think that's not 25%. I think a little bit lower than that. I think 23%-24%, I thought. As far as we're concerned, the 25% is more for the full-year.
The second part of the question is that, does that indicate kind of that we have a little bit of caution on the second half? I think generally it's not incorrect to say that the macro situation out there is not very friendly. I mean, there are so many volatilities in the market. Interest rate will be going up, and that will be clearly affecting all the operating units as well as the headquarters companies. Inflation is out there. I mean, the G7 country is recording 6%-10% inflation. I think Philippines itself is recording 6.4% inflation as well. At the end, all this will affect all the operating units in terms of increase in fuel cost, electricity cost, and on consumer side, the kind of disposable income.
All this will affect all the operations that we are in. It is actually the trend, and try to be a bit cautious, but we are still quite optimistic about the second half because of the nature of business that we are in. Kind of stable footprint under Indofood and all the infrastructure operations, the telcos, the power distributions, water distribution and toll operations in the Philippines. As John put it, I mean, the first half we have excellent first half numbers, 25% growth in the group gross profit. We are quite confident that on a full-year basis, we will still deliver a very impressive set of numbers.
That said, I mean, all these volatilities are affecting us, and we need to be cautious in addressing all these factors before we kind of make a final decision. We'll see the final numbers for the full-year and set the final dividend payout ratio.
Okay, Stan, please could you reference the second question about HO investments?
Sure. I think the question was how we're gonna be investing alongside our group companies. On the first example, there was a $20 million investment into Voyager. Voyager being the parent company of the Maya platform. It's a business, fintech that was started by PLDT, and over the years had brought in additional investors, including KKR and Tencent. We invested into the series C round, which coincided not too shortly thereafter of the launch of the digital bank, Maya Bank.
With this, because this was a license that the business got late last year and worked hard and quickly to get it up and launching and running, that was a good entry for us and an opportunity to build into this very high- growth area. Other investment areas that we're focused on include at the head office renewables through a Singapore project which has been mentioned before. It's a sub-sea cable from Indonesia into Singapore where we're looking to develop a solar project. This is part of the EMA's request for an opportunity-seeking proposals to invest into this area.
One of the key hurdles would be securing the licenses and including the export license from Indonesia that could then allow the power to be sold into Singapore. It's a project that's ongoing. It's one that will take time to get the regulatory approval, but one that we believe that in terms of an opportunity and an area that we want to get into looks very promising. We're working at that.
Thank you, Stan. The following question is about the performance of Pinehill. To remind, Indofood subsidiary, ICBP, bought a collection of noodle companies in the Middle East and Africa, for just under $3 billion in the summer of 2020. It was a very, very big transaction, and it has had significant consequences for Indofood. It's propelled them onto the global stage. It's cemented Indomie as a global brand. Indofood is now, by all accounts, one of the very largest instant noodle manufacturers in the world, again, at a global scale. If you're looking at the presentation on page 8, where you've got the revenues and earnings and profit of Indofood portrayed over time, you can see that the acquisition in 2020 significantly boosted both revenues and profit.
Now, in the first half of this year, Indofood reports that the revenue at Middle East and Africa rose about 30% in the first half of the year. About 90% of that is Pine Hill production. They saw both growth in volume and in prices. Looking ahead to the rest of the year and going forward, the expectation is for continued strong performance by the Pine Hill companies underneath ICBP. While I'm speaking about Indofood, there's a question about the interest costs at Indofood. Remember, they recently did a 10-year and 30-year U.S. dollar bond. That is the vast bulk of their borrowings. That's, of course, at a fixed rate, it's just under 4% all-in blended for those two bonds.
If they're going to see their interest costs rise, it would be more an effect of a foreign exchange movements. Let us recall that Indofood raised that money on the understanding that the interest payments will be made from its very significant US dollar income that it gets following the acquisition of Pinehill. Now back one step to pandemic-related work from home at PLDT. That effect on PLDT's performance for its various businesses like the individual and home businesses has faded away now with the lifting of COVID restrictions in the Philippines. Chris, would you add anything more to that?
Yeah. I think it's a positive impact, but I think the question is it driving PLDT's performance? I don't think it is. But yes, it had a positive impact, I think, in particular regarding its home business, where during the lockdown period, there was a strong demand for broadband, and particularly fiber. PLDT has the most extensive and highest- quality fiber network in the country. Yeah. A positive impact, but I think it's not driving performance at the moment.
Thank you, Chris. Joseph, could you please address the tax rate?
Well, I'll address the interest impact on Pacific and the holding company.
Okay.
I think that's the first part of one of these questions. I mean, for the first half of 2022, actually our interest bill come down a little bit because we did some liability management exercise in the fourth quarter of 2021. We bought back some bonds, expensive bonds paying a bit more than 5% interest coupon and using some cheaper bank loan. So that helped us to save a little bit interest in the first half. Then we start to feel the heat actually in the second half after June 30 event. I mean, it's not a secret about what's happening in the market about what U.S. Fed is trying to do, right?
We start to feel the hit in the second half. But we need to bear in mind that while in our debt portfolio, as of now, we have roughly 64% of our debt is actually in fixed rate. There's roughly one-third, the remaining 36% or one-third is in floating. We're kind of quite well-positioned. But that said, I mean, we still have something like 36% or $500 million thereabout kind of bank borrowing that we're subject to floating rate. Depending on the extent of the increase in the second half, and more importantly, going forward in 2023, we'll kind of have a close watch and close monitoring on this. That ties to one of the points that I made earlier about all these macro factors.
Macro volatility factors that would affect us in the next couple of months in 2022 and moving into 2023. We have more visibility when we get to the fourth quarter. We get a taste of it and also see how that would affect all the operations come 2023 budget and as well as the budget at the headquarters level.
Thank you, Joseph. Stan, could you please address the question about PLP and the growth prospects there?
Sorry, can you read the question? Is it just asking about general growth?
Contribution from PLP was very strong. Can you tell us a bit more about this investment and its growth prospects?
Sure. So the growth in the first half and the profit performance was a result of a few factors. One being the demand in Singapore. The power demand continues to steadily rise. With that rise in the generation demand, there is a fixed capacity in terms of the existing gas players in the market. Over time, what used to be an oversupply situation has narrowed. The other factor that has benefited PLP is that in terms of its gas profiling, they were able to restructure the gas supply arrangements and put it on a much better foot.
As the LNG situation in terms of supply has impacted prices elsewhere, in Singapore, there's been an element of pass-through to the consumer, coupled with the demand. When you take the two together, that has significantly improved the non-fuel margins or gross margins of the business. That has driven the profitability of PLP. Going forward, the factors that will continue to push demand is the steady economic growth and you know, as a proxy, Singapore's power generation has generally followed GDP growth over the years.
Adding to that, are a couple things. One is the government's push to really build out into the data center space. It's an area that there was a moratorium which only opened earlier this year, which was uplifted. With that, because of the type of hyperscaler and customers, they're gonna need a lot more generation capacity and hence the focus on the government and EMA, the regulator, to look for imported solar and renewable energy into the market. We see that as a factor in terms of pushing the demand further and the growth prospects for PLP and the overall gas demand.
Thank you, Stan.
On the tax point, I think Richard will handle that.
Okay. I try to address the question on effective tax rate in first half, which seems to be lower than the usual rate. I assume this is talking about the effective tax rate from the consolidated P&L perspective. Again, First Pacific operate mainly in the Philippines, Indonesia, and Singapore. The tax rate in the Philippines is about 25%, and in Indonesia is about 22%, and in Singapore is about 17%. Given our major operating company again is located in the Philippines and Indonesia, it is typical to see that our so-called effective tax rate should be somewhere around 22%-25%, which is the tax rate in Indonesia and the Philippines.
However, to address your question, if you look at the first half 2021, the effective tax rate is actually about 25.7%. However, in the first half of 2022, the effective tax rate actually reduced to about 22.5%. I guess the main reason is, as John and Stan pointed out before, PLP has a very good performance in first half 2022. Actually, in US dollar term, if you refer to page 19 of the presentation, PLP contribute a profit of about $95.6 million. However, this $95.6 million won't attract any income tax in Singapore because PLP historically has been operating at a loss, and PLP accumulate quite a huge amount of tax losses.
If you adjust this $95 million from the profit before tax, and then you recalculate the effective tax rate, you will be able to arrive at the effective tax rate after excluding the PLP non-taxable profit, again at around 25%, which is roughly similar to the first half in 2021.
I think, Richard, it's also worth noting that the tax losses will continue to have effect for-
Yeah.
Probably another 1 or 2 years.
Correct. Yes.
Thanks, Richard. Are there any questions? I think we have answered all the questions. Thank you. As there are no more questions, may I invite our Managing Director and Chief Executive Officer, Mr. Manuel V. Pangilinan, to give his closing remarks, please.
Well, first of all, thank you to all of you for joining us this afternoon, to hear the first half results this year of First Pacific. I think, addressing one of your questions about the full-year, we are cautious about second half prospects, earnings prospects, because of a number of reasons, supply chain difficulties, inflation pressures, interest rates going up, and of course the impact on consumer spending, and raw material prices which will affect, I think, in the food although the earnings will continue to grow this year, albeit maybe not at the same pace as last year.
We're seeing headwinds also for PLDT, particularly the wireless side, not so much in enterprise or the home broadband, which continued to grow in double digits for the second quarter and the first half. Meralco's electricity sales continue to be strong at mid- to high-single-digit growth, underlined by revival in commercial and industrial demand increasing for the first half of this year and continuing through July and August. Residential sales are flattish because you know, it has probably hit its limits because of the pandemic and the lockdown. We're cautious about Philex because metal prices have softened a bit, so that will impact if it continues, it'll impact on second half earnings picture of Philex.
Overall, looking at the full-year, First Pacific's profits will be better than last year for the second half, and we expect full-year profitability to be set at record highs, record historic highs for First Pacific for the full-year 2022. Thank you. Thank you so much. Yeah.
That's a great note to end on, Manny.
Thanks, Manny. Thanks again for joining today's online briefing.