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Edited Transcript of AP.PS earnings conference call or presentation 31-Jul-19 7:00am GMT

Q2 2019 Aboitiz Power Corp and Aboitiz Equity Ventures Inc Joint Analyst Briefing

Makati Aug 28, 2019 (Thomson StreetEvents) -- Edited Transcript of Aboitiz Power Corp earnings conference call or presentation Wednesday, July 31, 2019 at 7:00:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Cosette Canilao

Aboitiz InfraCapital, Inc., - COO & Senior VP

* David L. Rafael

AboitizLand Inc. - President & CEO

* Emmanuel V. Rubio

Aboitiz Power Corporation - COO

* Francisco Victor G. Salas

Aboitiz Equity Ventures, Inc. - Assistant VP of IR

* Jose Emmanuel Uytiepo Hilado

Union Bank of the Philippines - CFO, Treasurer & Senior EVP

* Manuel R. Lozano

Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP

* Tristan R. Aboitiz

Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds

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Conference Call Participants

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* Caroline Vergara

Philippine Equity Partners, Inc., Research Division - Research Analyst

* Chesca Bugia-Tenorio

Crédit Suisse AG, Research Division - Research Analyst

* Cristina S. Ulang

First Metro Investment Corporation, Research Division - VP & Department Head of Research

* Elizabeth Santiago

Abacus Securities Corporation, Research Division - Analyst

* Enrique Fausto

Deutsche Bank AG, Research Division - Research Associate

* German de la Paz

Abacus Securities Corporation, Research Division - Junior Investment Analyst

* Jelline E. Gaza

JP Morgan Chase & Co, Research Division - Analyst

* Rafael Alfonso Javier

BofA Merrill Lynch, Research Division - Analyst

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Presentation

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [1]

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(presentation)

Again, to our analyst briefing. Today, we're going to present to you the first half 2019 financial and operating results of AEV and strategic business units. So we're going to present to you the performance of power, followed by banking and then food and then infrastructure and then land and then the consolidated performance of AEV, and then we're going to cap off with a Q&A.

I'd like to introduce to you, in the order that they will present today, our presenters. From left to right, we have presenting for Power, we have AboitizPower's Chief Operating Officer and incoming CEO, Mr. Manny Rubio. And then we have, presenting for our Banking unit, UnionBank's Neovia Chief Finance Officer, Mr. Toto Hilado. And we have, for Food, we have Pilmico's Chief Operating Officer, Mr. Tristan Aboitiz. We have, for Infrastructure, AIC's Chief Operating Officer, Ms. Cosette Canilao. We have for Land, AboitizLand's Chief Executive Officer, Mr. David Rafael. And finally, presenting for AEV, we have AEV's Chief Finance Officer, Mr. Dmi Lozano, who will present the consolidated financials.

And now without further ado, I'd like to call Mr. Manny Rubio to present for Power.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [2]

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Thank you, Judd. Good afternoon, a lot of familiar faces. And as you've heard, there's no scheduled drill today, so if you hear the alarm, I think that's for real, right? So...

Okay. So as usual, I'll begin with a report with EBITDA. It's one of our key financial indicators. Our beneficial EBITDA declined by 9% year-on-year. The 7% decline was primarily due to higher costs of purchase power. The western prices were exceptionally high throughout the first half. We bought replacement power due to outages and contracting ahead in preparation for incoming capacity, particularly for TBI. We bought replacement power for contestable customers while waiting for capacity to come online. The remaining 2% was due to lower revenues from Therma Mobile or TMO.

Last February, the plant went on preservation mode. However, it started to deliver power again to the grid on April 26. Meanwhile, our distribution unit posted a decline in EBITDA due to lost margins from the decommissioning of the Bajada Power Plant in Davao.

As mentioned last quarter, a significant portion of the purchase power was due to the derating of TV facilities from lack of steam supply caused by Typhoon Usman last December. We have recovered the lost capacity since then. EBITDA margins declined from 29% to 25%, largely due to higher costs of purchase power, partially offset by fresh contributions from Hedcor Bukidnon or HBI and the fresh unit of Therma Visayas Inc., the coal plant in Cebu.

Please note that due to the adoption of PFRS 16 in 2019, first half EBITDA included upward adjustment of PHP 161 million. The group's core income decreased by 19% as a result of the 9% decline in EBITDA, coupled with the increase in interest expense, depreciation and amortization. Interest expense increased mainly due to take-up of interest expense from the bond issuance in October 2018 and recognition of interest expense from Hedcor Bukidnon and Therma Visayas.

Depreciation and amortization also increased due to the take-up of HBI and TVI, the new plants that we just commissioned. Without the PFRS 16 adjustment, interest expense and amortization would have been lower by 103 million and 72 million, respectively.

In 2018, the peso has weakened substantially from PHP 49.93 end of December 2017 to PHP 53.34 end of June 2018. However, in 2019, the peso was -- appreciated from PHP 52.58 end of December 2018 to PHP 51.24 as of end June 2019. As a result, the group recognized and realized foreign exchange losses in 2018 while it recognized and realized gains in 2019, mostly from the revaluation of U.S.-denominated debts. AboitizPower's net income for the first half was PHP 8.6 billion, which is 5% lower year-on-year.

Investment and advances increased by 73% mainly due to the acquisition of additional shares in GN assets. Cash and cash equivalents decreased by 31% primarily due to the cash used to fund the previously mentioned acquisition. Total liabilities increased by 10% due mostly -- due to the debt related to GN asset acquisition and borrowings of the parent company. As we took up the debt related to the acquisition, our net debt-to-equity increased from 1.2x to 1.6x.

Capacity sales were lower by 6% compared to same period last year. This was due to lower bilateral contract quantities, mainly from TMO, which was -- which were partially offset by growth in ancillary services. The expired TMO contract was renewed in April 2019 at 165 megawatts affecting overall capacity sold factor. The contract is for 1 year with Meralco.

Our total revenue slightly increased by 2% due to higher volume dispatched from energy contracts as a result of new capacity additions from HBI and TVI. Note that our contract mix has shifted to energy from capacity contracts as we continue to grow in the retail market, a question that has been asked in the previous briefings.

Our gross margins declined by 12%, mainly due to previously mentioned higher purchase power costs, which partially offset -- was partially offset by new capacities from TVI and HBI and higher generation of our coal plants. The slight decrease in energy generated was due to the plant outages, both planned and forced. Generation levels were low in the first quarter but improved by 36% in the second quarter, as you can see from the quarterly performance charts on the right.

We bought 1,196 gigawatt hours of purchase -- of power at an average price of PHP 5.07 per kilowatt hour. Note that the time weighted average price or TWAP was PHP 5.47 per kilowatt hour and average peak price was PHP 6.9 per kilowatt hour. Out of the 1,196 gigawatt hours that we purchased, this was due to planned outages and the rest was due to higher contracting or advanced contracting in preparation for TVI.

The first unit of TVI achieved its practical completion last April while the second unit is expected to commercially be available in August. We are actually towards the end of the reliability run. I think the reliability run will end tomorrow, and hopefully, we can declare practical COD on the second unit. Our average price increased from PHP 4.4 per kilowatt hour to PHP 4.57 per kilowatt hour.

Breaking down the contracts, capacity contracts selling prices increased by 2% due -- to PHP 5.09 per kilowatt hour, mainly from higher indices, while the energy prices decreased by 4% due to competitive pressure in the contestable market. The increase in the spot selling prices by 40% to PHP 5.12 per kilowatt hour was due to plant outages coupled with higher demand, so it was a tight supply-and-demand situation in the first half as we have reported during the first briefing.

So here's a quick update on WESM. The first half of 2019 had higher LWAP compared to the same period last year. This was due to the higher volume of capacity on outage, either due to planned or forced outage of baseload plants.

Actual average 2019 load weighted average price was PHP 5.83 versus PHP 3.83 in 2018. We expect spot prices to be lower by second half of this year since most of the planned outages of baseload plants have been moved already to the first quarter, which is the typical trend. The second half prices, however, are expected to be higher than our original forecast.

On the water levels, Magat ended the first half of 2019 at an elevation of 182 meters above sea level, higher compared to the rule curve of 175 MSAL (sic) [MASL]. The lower water outflow requirement for irrigation and higher water inflows brought by the rainfall resulted to higher water levels in the second quarter. We started July with low inflows due to El Niño in some of our Run-of-River power plants. However, we expect typhoon-related water inflows in August, in fact, it has started, up to September, which will bring water levels to be within the rule curve by the end of the quarter. We are actually around 7 meters above the rule curve in Magat.

Here are the operating highlights of the distribution group. Beneficial power sales were up by 5% to 2,842 gigawatt hours compared to the same period last year, which allow -- which also grew significantly. The strong growth was driven by increase in consumption across all segments, up 5% for Residential; 3% for Commercial; and 5% for Industrial.

The group's gross margins decreased from PHP 1.69 per kilowatt hour to PHP 1.53 per kilowatt hour year-on-year. The slight decrease was primarily due to lost margins from the Bajada Power Plant in Davao Light and Power. All our systems' losses were below the regulatory cap of 6.25%, except for Cotabato Light, which ended slightly above the regulatory cap due to nontechnical losses with minimal impact to the bottom line.

Project updates. We continue to push a balanced mix strategy because we believe that long-term energy security and -- of the country can be solved by balancing sustainability, accessibility and reliability of power. Our project pipeline is well on track to reach our target of 4,000 megawatts by 2020. So allow me to update you on the projects that we have commenced.

The Cebu power -- the Cebu projects located in Cebu City, Visayas Island -- well, actually, Toledo and we produced a net capacity of 300 megawatts of coal power, of which 240 megawatts is attributable to AboitizPower. The practical completion of depressed unit was achieved in April 16, and the second unit, as I mentioned earlier, is expected to be COD-ed August of 2019. We will complete the reliability run tomorrow.

The La Trinidad project is located in Benguet, Luzon Island. It replaced Bineng 1, 2 and 2b that originally had a combined capacity of 6 megawatts, with the new facility producing now 19 megawatts of FIT-eligible hydropower, of which 100% is attributable to AP. We are awaiting for the issuance of the Certificate of Endorsement from the Department of Energy. We have declared commercial operations and on the interim is selling to WESM. Once we have received the Certificate of Endorsement, we expect the Certificate of Endorsement to be backdated to the Certificate of Compliance issued by ERC, so FIT would start on the time the COC was issued, and that was issued a few weeks ago.

The Dinginin project is located in Bataan. It will produce a net capacity of 2 by 668 megawatts of supercritical coal-fired power plant, of which 70% is attributable to AP. Both units are under construction, with expected commercial operations in the first -- of the first unit by second quarter of 2020 and the second unit by third quarter of 2020.

In the previous briefing, we reported that the unit will actually be operational by the end of the year, so we were informed that there will be delays in the project, mainly due to construction and arrival of materials on the first unit.

Last June 27, SN Aboitiz Power Magat or SNAP-Magat switched on its first 200 kilowatt floating solar project over the Magat reservoir in Isabela. I'm not used to using kilowatt, but this is just a start, right?

The floating solar facility is made up of 720 solar panels on a circular installation whose design is inspired by the Amazon water lily, held in place by 4 mooring systems. This is the first nonhydrorenewable project of SNAP, which is looking at other renewables and complementary technologies to expand its portfolio. At present, the project's actually providing power to SNAP's facility, so it's providing -- it's covering for the house load. A 10-month stress test will be concluded on the pilot project to ensure that the facility can withstand massive inflows and strong typhoons. We probably can make an assessment on this project if we can actually expand, and we believe we can towards the end of the year once the typhoon season is over. And there's a significant area in Magat where we can actually put these solar panels.

We hope to expand the capacity so that the power generated may contribute to our renewable energy capacity to the country's energy security.

So that's it for AboitizPower. Good afternoon, and thank you very much.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [3]

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Thank you, sir. May I please now call on Mr. Toto Hilado to report for our Banking unit.

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Jose Emmanuel Uytiepo Hilado, Union Bank of the Philippines - CFO, Treasurer & Senior EVP [4]

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Good afternoon. Let me start with some highlights on our performance in the first half of 2019.

So in terms of net income. Net income for the first half was at PHP 4.8 billion. That's 2% higher than last year. It was driven by strong top line revenues attributed to improvement in our net interest margin and the robust growth of higher-yielding loan segments like Retail and SME. We also had higher fee income and trading gains and operating expenses. The growth of our OpEx remained manageable year-on-year. So our strong earnings performance translated to better ROE, ROA and revenue-to-expense ratios. So for ROE, for example, our ROE for the first half was at 10.6% versus last year at 10%, and return on assets was at 1.4% versus last semester of 1.2%.

Now going to the details. Despite margin compression year-on-year, net interest income grew by 4% year-on-year to PHP 9.8 billion as earning assets grew double digit by about 16%. Earning asset growth was primarily driven by customer loans and securities. Net interest margins were lower year-on-year due to higher cost of deposits and long-term liabilities such as our corporate bonds issued in December 2018 to lengthen our maturity profile.

It is important to note, however, that yields have significantly increased, up by about 65 basis points on our assets, as our loans have repriced. Moreover, on a quarter-on-quarter basis, we saw margins improve as assets continue to reprice and our cost of funds began to go down. Given our rate expectations for the year, we are seeing further upside in our margins for the rest of the year.

Total loans went up to PHP 303 billion or up 10%. The higher growth was basically on our credit card business and mortgage loans. Credit cards were up 39%; and mortgage loans, up 31%. Our middle market and SME loans also grew by about 16%.

Now going to deposits. Total deposits declined by 3% year-on-year, but this was by design as we shifted some of our funding sources to other forms of borrowings that did not entail intermediation costs, but our CASA, nonetheless, continued to grow double digit year-on-year to PHP 168 million and our CASA ratio is about 1/3. And peso CASA to total deposits is at 44%. Noninterest income was up 26% year-on-year, driven by fees from -- on the bank side, and trading gains which is up by about 13%.

On operating expenses. Operating expenses were up 15% year-on-year on account of higher taxes and licenses as well as noncore expenses mainly coming from the integration of PR Bank and PETNET, which were not present in the same period last year.

Taxes and licenses of the group increased by 20% due to GRT. On the other hand, if we exclude the effect of the integration of PR and PETNET, the core operating expenses of the bank was only up 4% year-on-year. On capital side, the -- our CET1 ratio is at 12% and total CAR is at 14.4%.

Now going to our outlook for the rest of the year. We expect to sustain the growth of our loan portfolio given the robust performance of our retail and SME segments. We also expect for our margins to further improve as assets reprice, amidst a more stable interest rate environment and a more benign inflation outlook this year. And so as possibilities of a rate cut tighten, we see further upside in our net interest margin. And volume of our T shares loans portfolio have also been normalizing, and we hope to sustain this throughout the year.

Let me end with some updates on our digital initiatives. We expect to transform more of our branches this year, which we call ARK or ARK branches, which is our digital -- digitized branches. We expect to hit about -- to reach about 40 branches by the end of the year. To date, we have about 25 of these ARKs.

In June, we formally launched our innovation and tech company, UBX. UBX is a wholly owned subsidiary of UnionBank, and they focus on our innovation projects such as investments in fintechs, building of platforms as well as providing tech services to our clients. And so far we have introduced 3 platforms in UBX. The first one is i2i, which is our financial platform for rural banks, which have the capability to do interbank fund transfers and where we recently launched our stablecoin, so using stablecoin to transfer money from one rural bank to another.

The second platform is XLOG, that's our logistics platform developed in partnership with Shiptek Solutions Corp., who has the domain expertise in the logistics industry. And the third one is our MSME platform, which we are working on with our fintech arm, and we're partnering with OneConnect, which is owned by Ping An, the largest insurance company in China and, I think, in the world, the platforms and end-to-end digital solution that aims to provide business finance services to MSMEs, so essentially, it's going to be a loan lending platform.

In July, we launched our Data Science and Artificial Intelligence Institute, similar to what we've done for blockchain, where we train blockchain cadets. We are equipping both external and internal hires with necessary skills to power our transformation push, so they will be trained for a certain period and will eventually move into various businesses to help cocreate solutions for our clients.

And lastly, we are honored to have received recognition from our regulator, the central bank, BSP, for our digital transformation efforts. So we got recently an award, Digital Excellence Award and then Outstanding Partner for Digital Transformation and the Top PESONet Bank for 2019. Thank you.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [5]

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Thank you, Toto. And now to report for our Food business, I'd like to call on Tristan.

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [6]

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Thank you, Judd. Good afternoon, everyone. Allow me to walk you through the first half 2019 financial highlights of the food group of Aboitiz, which is comprised of both Pilmico and Gold Coin.

Revenues were up 143% year-on-year on last year's acquisition of Gold Coin and a positive contribution of our flour and feeds divisions. EBITDA jumped 67% to PHP 2.4 billion, again on the fresh contribution of Gold Coin, coupled with the better performance of our flour division. However, our EBITDA margin slid 300 basis points as cost of raw materials grew faster than selling prices, coupled with higher manufacturing and operating expenses locally.

Overall, the NIAT of the Food Group rose by 18% year-on-year to PHP 808 million, despite the challenged performance of our local feeds and Farms divisions. Without contributions from Gold Coin, however, Food Group revenues would have grown only 10% year-on-year; EBITDA would have reduced by 2%; and NIAT declined by 16%.

Focusing on revenues. The Flour division grew 13% year-on-year to PHP 4 billion due to the improved sales mix and growth in volumes sold. Feeds Philippines and Vietnam improved 13% year-on-year to PHP 11 billion on the back of a 7% and 8% hike in selling prices of feeds in the Philippines and Vietnam, respectively, coupled as well with the growth in volume of 2% and 5%, respectively.

Our Farms division's contribution fell 13% from last year to PHP 1.5 billion as selling prices weakened by 3% due to the natural cyclicality of pork prices and the decline in volume of 9% year-on-year due to the impact of PED decision on breeder farm, which happened in the first quarter of this year. Gold Coin contributed PHP 20 billion or 55% of the total Food Group revenue. Without Gold Coin, again, Food Group's revenues would have still been up 10% from last year.

Turning now to EBITDA. Now the contributions of the Flour division and Gold Coin contributed to the 67% improvement in EBITDA. Our Flour division surged 3x compared to last year to PHP 430 million on the increased contribution from our byproduct segment. Gold Coin contributed PHP 971 million or 41% to full group EBITDA. And without Gold Coin, EBITDA would have fallen by 2% year-on-year.

Meanwhile, our farms and feeds were continuously burdened by the increase in cost of raw materials, coupled with increasing operating expenses. Our Feeds Philippines and Vietnam fell 5% year-on-year on the challenged performance of the local feeds division despite the improvement in EBITDA of Feeds Vietnam.

Feeds Philippines fell 9% from last year despite the gain in IO ICF on the back of a 19% and 22% increase in manufacturing and operating expenses, respectively, mainly contributed by our toll milling operations.

Furthermore, EBITDA from our commodity trading stepped into the red in the first half of this year due to thinning in margins due to the combination of higher costs of wheat and a good local corn harvest this year as well as a high cost of soybean mill, which has rolled over into the first quarter of 2019 from previous year's purchases.

The bottom line of trading was further dragged down by a higher interest expense, again driven by the growing working capital requirement of that division. Our Farms division dove 51% year-on-year, following a 50% drop in gross profit per kilo.

Looking now at net income. Our Food Group's first half NIAT increased 18% from last year following the EBITDA improvement of flour and the fresh contributions from Gold Coin. The 3% growth in our flour's EBITDA was slightly tempered by a PHP 38 million increase in interest expense for the division. And the jump in borrowing costs were as a result of higher interest rates and working capital requirements. Meanwhile, Gold Coin contributed PHP 234 million or 29% to the total food group NIAT. Excluding Gold Coin, again, Food Group NIAT would have fallen 16% from last year.

Allow me now to provide you guys with some brief updates on recent company news. A significant highlight for the Food Group in the first half of the year, last May 2019, we successfully acquired the remaining 25% stake in Gold Coin Management Holdings for USD 120 million from the Golden Springs Group. Today, Gold Coin is under the full ownership of Aboitiz through the Food Group, and this means that we have gained full control over the business and a 100% share in profit starting June of 2019. Now we believe the combined synergies and best practices of both Gold Coin and Pilmico strengthens our position as a key regional player in the food industry.

Continuing with Gold Coin. We are proud to announce the hiring of our new CEO for Gold Coin, Hubert de Roquefeuil. Hubert joined us and was installed as Gold Coin President and CEO effective July 2, 2019, so fairly recent. Hubert brings with him a solid background and years of proven experience in the food industry. He was the former Chief Executive Officer of Neovia, a French-based animal nutrition and feeds production company, with operations in over 26 countries and around 70 production facilities in total. We believe that Hubert has the right experience to lead the company forward and to take -- and to unlock the value that we see in the Gold Coin organization.

Some project updates by month as we move forward in the year. For August, we have an update on 2 currently going projects here in the Philippines. We are expecting to finish and have this up and running by the end of August 2019. Both are intended to provide renewable energy to our businesses in Tarlac. The first one is a project actually that we conducted together with our sister company, APX. We installed solar panels on our Tarlac feed milling facility that aims to provide an annual energy output -- Manny, correct me if I'm wrong, I'm not used to power speak, an annual energy output of about 1,140 megawatt hours, right? That facility is expected to lower our -- the energy costs related to feeds production in that facility by around PHP 850,000 per month.

Meanwhile, we are also installing a biogas facility in our Farm 4. It's the second of 2 biogas facilities being constructed this year, with 1 that just finished in May of 2019. Each of the facilities is capable of producing about 626 megawatt hours of energy output annually, which is enough to lower our total energy consumption by approximately PHP 1 million a month.

In the same month, again, August, we're expecting to finish 2 projects in China. We have a [floating line] under construction in Zhangzhou, Southern China. This has a 9 ton per hour additional capacity. This adds -- sorry, 9 tons per hour of additional capacity to cater to the strong demand in the region. Meanwhile, in Southern China, we have an additional 9 tons per hour feed mill hog line that's under construction, again, to increase -- to cater to increasing demand in Dongwan.

For November of this year, we are expecting to finish our meat fabrication plant here in Tarlac. This has a capacity of about 346,000 heads per annum, equivalent to about 1.3x of our current hog production. For us in Pilmico, this is a really big step that we are undertaking in our efforts to integrate the business forward along the value chain. We're quite excited about this development.

Also, another floating line is expected to be constructed in Dongwan, Southern China. It has an additional 5 tons per hour capacity, which again is designed to increase to the catering -- to cater to the increasing feed demand for fish feeds in that region.

Lastly, for December of 2019, we foresee an additional 5 tons per hour fish feed line additional capacity in Ha Nam, Northern Vietnam, just in time basically to -- with what we anticipate will be bullish farm gate prices of pangasius as demand for the fish really has increased over the past few months.

We also have a project under construction, which is expected to be finished by early next year. In March of 2020, the third feed mill line in Iligan is expected to start operating. It should add an additional 20 tons per hour worth of capacity to our feed mill production here in the Philippines to cater to the demand of the VisMin region and, basically, hopefully offset the increase in OpEx that we've incurred in this year due to tolling. Thank you very much.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [7]

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Thank you, Tristan. And now to report for our Infrastructure division, I'd like to call on Cosette.

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Cosette Canilao, Aboitiz InfraCapital, Inc., - COO & Senior VP [8]

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Thanks, Judd. Good afternoon. So I'll start with our highlights of operations for water. Can we go to Slide 4, please?

Yes. So we provide water and wastewater services in Batangas, with sales of around 8 MLD, to Lima Technology Park under Lima Water. Our EBITDA grew by 5% versus the same period last year, and that's on the back of a 9% growth in build volume.

We're now -- we've commenced our rollout of CapEx to initiate operational efficiencies in the -- in our plant. And we're currently talking to PEZA to shift our tariff freights to a progressive one to hopefully promote smarter use of water.

Next slide, please. So we recently concluded our master plan and to support the expansion of Lima Technology Park, we see our volume increasing to 19 MLDs starting next year -- and next slide, please. And to support that, like what I mentioned earlier, we are undertaking several expansion in CapEx to both make our operations more efficient.

Now for Apo Agua.

Apo Agua is a 330 MLD bulk water project for Davao City, and we've already accomplished -- we've already acquired 97% of the rights of way we need for the construction of our raw water facilities and water treatment plant, hence, construction as well as -- of both plants as well as the access roads are in full swing.

Next, please. So we want to share with you that we've been cited by the asset as one of the best Philippine utility deals.

Next, please. For our airport projects, for Tagbilaran and Laguindingan, after almost 1 year since we've been issued an OPS for Tagbilaran, we've received a clearer direction from the government, and we're still continuing our discussion and how to fit our unsolicited proposal with the current regime. So the initial CapEx for both project is still at around PHP 5.5 billion. And hopefully, when we take over the airports, we want to grow it to 3.9 initially in 2020, and after the concession period, to about PHP 18 million.

We want to create a platform of reference for the airports and -- for both airports, and we are going to do that with our partner, daa International. daa is the operator of the Dublin airport and as well as a smaller airport also in Ireland.

Next, please. Now our wealth of experience in utility management as well as our expertise to find solutions for power requirements makes our -- the entry into the common power business also a natural transition for us, and we're aiming to be a part of that one with our partners.

Next slide, please. So this is just a footprint of our extensive -- of the group's extensive assets and portfolio, which provides immediate strategic value to the telcos.

Next, please. So we have partnered with Frontier Tower Associates, an operator with -- a tower operator with footprints in Myanmar and Indonesia. And we recently signed an MOU with Globe to negotiate technical and commercial terms for the lease of the passive infrastructure. We're currently talking to also to PLDT and also [dito] communication of Mislatel.

For RCBM, there's still an increased demand from residential and nonresidential segments. And production costs as well are under control, and market prices during the year are generally higher compared to same period last year. Likewise, the debottlenecking projects for North Luzon was completed safely and within budget and now delivering results. That's all for infrastructure. Thank you.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [9]

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Thank you, Cosette. And now to report for Land, I'd like to call on Mr. David.

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David L. Rafael, AboitizLand Inc. - President & CEO [10]

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Good afternoon, everyone. I'm here to report on first half performance of AboitizLand.

For the first half of the year, AboitizLand contributed net income of PHP 60 million. It's a 79% decrease from the same period last year. This is mainly due to the deferred revenue recognition of industrial lab sales for our industrial business unit. In terms of residential sales, this amounted to PHP 602 million for the first half of 2019, a 42% decrease versus the previous year. Despite this, still AboitizLand remains optimistic that the promising sales momentum observed in the past few months will continue to carry forward in the second half of the year. Contributing to this is the recent launch of our newest residential development in Batangas, The Villages at Lipa last July 27.

Focusing more on revenues. AboitizLand contributed PHP 1.4 billion for the period, a 28% decrease versus the same period last year. As mentioned previously, this was due to the deferred revenue recognition of industrial lot sales with majority expected to be recognized by the early fourth quarter of this year. Despite this, residential business continued -- unit continued to advance considerably with a 70% increase in revenue, mainly driven by the ramp-up in construction across projects at the Seafront Residences in Batangas and Amoa and Priveya Hills in Cebu. The commercial business also -- the commercial business unit also continues its sustained performance with year-on-year revenue increase of 53%, attributable to the set steady occupancy in our commercial assets in Cebu and the continued momentum of the outlets of Lipa, which started operation last quarter of 2018.

Following the dampened revenues, gross profit and net operating profit were similarly impacted and had year-on-year decrease. Gross profits for the period stood at PHP 577 million, a 28% decrease versus the first half of 2018. This decrease also reflects the recent adoption of new accounting standards related to the treatment of commissions expenses as well as leases, with the latter providing no material impact on our profits. Net operating profit at PHP 156 million for the period also decreased versus the same period last year.

Recognizing Southern Luzon and Central Luzon as key growth areas, we are launching 2 new residential projects that will infuse new inventory and broaden our reach to these growing markets. Tapping the markets, The Villages at Lipa, or TVL, is AboitizLand's first upper to mid-market primary home projects in Luzon. We launched it last July 27. The sales performance was very promising. For one day, we were able to sell 112 units or PHP 280 million. The latest addition to our flagship mid-market brand, Ajoya Pampanga solidifies our presence in the growing Central Luzon market, following our launches in Tarlac and Nueva Ecija last year. We will be doing a grand launch of this project on August 10 in SM Pampanga.

Making good on our promise of nurturing communities, 2 of our biggest residential projects, Amoa in Cebu and Seafront Residences in Batangas, will begin turning over houses to vecinos over the coming months. Aside from providing homes to people, growing communities also leads to increased property values.

Our first commercial project in Luzon, The Outlets at Lipa [resonates] continues ramping up its occupancy as more and more stores open. Meanwhile, existing tenants are already enjoying healthy foot traffic, which should only improve with the transport terminal at Lima Exchange opening late this year.

That's it for my report. Thank you.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [11]

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Thank you, David. And now to discuss our consolidated results, I'd like to call on Dmi Lozano.

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [12]

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Good afternoon. I will go straight into the figures. What you can see here in this slide as summary of our financial performance is that AEV recorded consolidated revenues of PHP 102 billion for the first half of 2019. A lot of this growth came from the food group with the inclusion of Gold Coin into our financials as well as improved selling price and sales volume for the flour feeds businesses of the group. This was a 22% increase compared to the same period last year, and the second quarter was a particular improvement over the first quarter. And I will explain this in the other line items in the succeeding slides.

Our first half beneficial EBITDA decreased by 3% compared to our same period last year. The decline was mainly due to the higher purchase power costs from the power group, as Manny described earlier. However, this was partially offset by our food group, driven by the fresh contribution of Gold Coin, coupled with the positive performance of the feeds and flour businesses. Infrastructure also posted the positive contribution as a result of the improvement in cement selling volume and prices.

I would like to highlight the second quarter in particular as this was a 15% improvement over the first quarter. So we're starting to see some of the business units turning around, and also better than the second quarter of 2018. Please note that due to PFRS 16 adjustment that we are now applying, AEV's EBITDA includes an upward adjustment of PHP 323 million. This was due to the adoption of the accounting standard for leases effective January of 2019, which essentially treats rental contracts as finance lease agreements.

On a consolidated basis, our EBITDA declined by 5%. The group's core income decreased by 16% as a result of this decline in EBITDA, coupled with increase in interest expense, depreciation and amortization.

Let me just go into a little bit of detail there. Interest expense increased mainly due to the following: First full half of -- full first half, sorry, of 2019 interest expense on debt availed during second half of last year, mainly coming from the AP bond issuance, retail bonds, and debt [availed] for the expansion of food, infrastructure and power business. So these are mostly CapEx. We also have new interest expense on debt availed during the first half of 2019 for AP dollar loan, this was for the GNPower acquisition, and the AEV retail bond that we did last month, and loans also for infrastructure and power, again, for furthering their expansion, and in the case of infrastructure, debottlenecking for the cement business.

The peso has appreciated compared to last year. In the first half of 2018, it depreciated by PHP 3.41. So it ended the first half last year at PHP 53.34 versus PHP 49.93 in December 2017. But it has appreciated by PHP 1.34 as of June 2019. As a result of this improvement, the group recognized nonrecurring gains of PHP 78 million for the first half versus last year's loss of PHP 467 million, mostly from the revaluation of our U.S. dollar-denominated debt. This brought net income for the first half of 2019 to PHP 9 billion, which translates to an 11% reduction year-on-year. The earnings per share as a result of that are PHP 1.59 per share.

On the balance sheet side, on a consolidated level as reported in our AEV-consolidated FS, cash and cash equivalents was lower by 25%, primarily due to cash used to fund the GN assets acquisition and the purchase of the remaining 25% of Gold Coin. Consolidated assets though increased by 3% as we continue to build investments in greenfield projects and through some of these acquisitions.

Total liabilities were higher by 10%, mainly due to the increase in long- and short-term borrowings from both -- or from all of power AEV and the infrastructure businesses. As we've taken up additional debt in the first half, our net debt-to-equity has increased 1.3x. The increase mainly through the net debt of the parent is due to the PHP 5 billion -- PHP 5.2 billion retail bonds we issued in June 2019.

So in summary, despite the sustained pressure on most -- to our bottom line that we have experienced across all of our strategic business units on a quarter-on-quarter basis, we continue to be bullish on the growth of the Philippine markets and the region, in particular. As a result, we keep working hard to be ready for all the opportunities and to take advantage of them within the Philippines, but also expanding beyond our borders. And we've seen that with the food group, and hopefully, soon also in our other business units.

So thank you. And I think we're moving to the Q&A.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [13]

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Thank you to our presenters for today. Before we move on to our Q&A session I just wanted to remind everybody to please kindly complete your feedback forms. I believe that Mark gave them to you at the registration table. So this is very valuable to us. We really pay attention to the feedback that we receive from you.

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Questions and Answers

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [1]

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And then I think before we go on to the Q&A session live here today, I just wanted you to know that this is a live webcast. So in the course of the presentations today, we received a number of questions. So I'll read them out first. We have a question for AboitizLand, and then a question for Aboitiz InfraCapital. And then some questions already for AboitizPower.

So the question for land is, can you talk to us a bit about your efforts to build your recurring income business? And the second question for land is asking about your current -- what is your current land bank. So those are the questions for AboitizLand. And let me read first, also, the question for Aboitiz InfraCapital. Can you give us an update on the NAIA project? All right. So those 2 questions first? Yes. So David.

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David L. Rafael, AboitizLand Inc. - President & CEO [2]

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Can you hear me? First, the first question with respect to recurring income, I guess, that's one area that AboitizLand needs to improve on right now. Our recurring income is really quite small. It's really coming mostly from our 2 commercial businesses in quality outlets in the ones that we just recently opened in Lipa in the Lima Technology Center as well as our existing outlets in the MEZ in -- it's an industrial park in Mandaue. So it -- as you saw in the figures, it doesn't really contribute a very significant amount. But we certainly -- it is in our plan, it is within our strategy to grow this recurring -- this part of our business. We've got plans to do it, maybe in Lipa, with the Lima Technology Center. We now have plans where we will be slowly evolving that industrial park into a more new industry-type city, where we will have more commercial use and residential use. So perhaps maybe by next year, we will have new projects to announce that will address -- as well -- this recurring business need, as well as maybe in Cebu, we also do have plans for maybe an office building in Mactan. So we will be -- we are making efforts to try to address this need.

Regarding our land bank, the second question, most of our land bank is in Cebu. I don't have an exact number. Maybe my rough estimate is about -- maybe about 700, 800 hectares there in Cebu. So we do have plans to develop a big portion of that. Hopefully, by next year, we're planning a fairly sizable project in Cebu by sometime next year, but the bulk of our land bank is really in Cebu.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [3]

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Okay. Thank you, David. Thanks. And now, the question for AIC.

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Cosette Canilao, Aboitiz InfraCapital, Inc., - COO & Senior VP [4]

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Yes, for the NAIA project, I guess, it was published that DOTr, the government wants for all airports to follow the Clark O&M template. And while fundamentally very different, the Clark project and while the NAIA project, our proposal, we're trying to find ways on how to manage the substantial capital expenditures and also the expansion needed for -- the immediate expansion needed for NAIA within the template of the Clark O&M. So we've submitted, we've complied with the government's deadline, and we're continually discussing more on how we treat the project-specific differences between Clark and NAIA.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [5]

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Yes. Thanks, Cosette. I'm just going to read out some of the questions from the live stream. It says here, I want to ask if there was any replacement power booked for PEC [nung] April to May? If so, how much? And why was Unit 2 COD delayed versus Unit 1?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [6]

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Yes, the first question. On PEC, no, we did not provide sufficient power. It fell under the -- considered the outage to be part of the excused or allowed outage allowance. On TVI Unit 2 -- you all know, we've been experiencing issues with the commissioning, particularly on vibration of the bearings. But all of those, we believe, have been dissolved. We've worked closely with our EPC contractor, Hyundai Engineering, and equipment supplier, Baker Hughes-GE. Unit 1 is running and has been running for quite some time. And as I said, we expect the 28-day reliability run for Unit 2 to end tomorrow. And hopefully, we can declare a practical COD soon after.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [7]

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Sorry. Last question. So this last question, it says the energy generated during commissioning of both Units 1 and 2. Can it be used to satisfy the PSA commitments to decrease replacement power?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [8]

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When we were running -- or when we were stable with Unit 1, and Unit 1 is contracted with VECO, right, yes, we started supplying VECO already after declaration of practical COD, and we implemented the contract price. But we're also governed, as approved by ERC, on the settlement for commissioning power, which is actually variable fuel recovery only. And we supplied VECO a portion of the commissioning output from TVI Unit 1 charged at fuel recovery. Unit 2 is actually WESM -- oh, no, sorry. WESM supplying our RES.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [9]

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Okay. Thank you, sir. So we can now entertain questions on the floor. So there are 2 microphones on both aisles. Just come up. Jelline?

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [10]

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Jelline Gaza from JPMorgan. I have 3 questions on power. First is with the Meralco CSB bidding. Are you interested to participate? And if yes, which specific plants and contracts? And how will that impact your existing PSA with Pagbilao.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [11]

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As you well know, Meralco issued a TOR for 3 competitive selection process invitations: One 1,200 megawatt brownfield. That's how they term it. Another one, 1,200 megawatts greenfield, and a 500 megawatt mid-merit. We submitted our letter of intent and bought bid documents for the 1,200 megawatt brownfield and the 500 megawatt mid-merit. We did not buy or submit -- we did not submit a letter of intent for the 1,200 greenfield because we believe that the terms are -- we won't be able to comply with the terms and conditions specified in the TOR, right?

As regards the contract with -- the existing contract of Meralco with Pagbilao, it is going to expire December 2019, but both Meralco and TLI have submitted an application for -- actually, an extension for 3 years with the ERC. And this is not -- and I learned that there's another supplier who also did the same whose contract's also going to expire in December 2019. So we're waiting for an ERC approval on that manifestation, hopefully before the issuance of -- or the conduct of the CSB. That's for 250 megawatts.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [12]

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Sir, Manny, just to understand, how are you thinking with regard to your bid for the 2 contracts? Will that be for a portfolio? Or the -- will you apportion to a specific asset?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [13]

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Well, the specification of the TOR for the CSB's actually -- they term it to be financial when we inquired about definition of financial. It's -- the way they are doing this is that it's not going to be plant-specific. So yes, I think it's going to be portfolio. But we -- the contact of the bid's still in September. So we're still reviewing, really, the details of the TOR, and we really haven't made any decision on how we're going to structure the offer.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [14]

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Sir, just a follow-up on the 3-year extension. Is there any provision on the Supreme Court ruling that governs PSA extensions? Because I understand in the ERC version of the CSB, there's a 1-year cap, whereas in the DOE, there's none. So how are any -- based on your legal team's interpretation and your discussions with the ERC, how do you interpret that?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [15]

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Good question. We believe that the request for -- or the application for extension is valid because this -- the contract was actually signed before the issuance of the CSB rules.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [16]

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So the contract really provides...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [17]

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Yes, the contract provides for an extension. There is a provision in the contract that allows extension.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [18]

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Okay. Understood. But how -- I mean, do you have a drop-dead date wherein you'll say, "Oh, if we can't get the PRC approval extension by this time, we're going to bid for -- I don't know."

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [19]

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Well, we are still expecting that ERC will issue a ruling on the extension application. But then, of course, since we bought the bid documents for the brownfield, I think we're also expecting and using that as contingency.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [20]

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I understand. My other question relates to TVI. I understand that it has been delayed, and -- TVI Unit 2, even Unit 1. Do you have any update or clarity on the liquidating damages? Like, I understand that part of the big replacement power in the first half 2019 was due to this delay, or partly due to this delay? What's the basis of the liquidating damages? Will it be pegged on the purchase power that you...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [21]

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Actually, there's currently an ongoing negotiation with our provider. We believe that they've already capped on the LD amount. So that's it. They're maxed out. They're maxed out, so we're just negotiating on how much can we allow the for the (inaudible) to deduct on that maximum amount based on extension of time or excused extension.

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Unidentified Company Representative, [22]

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The LD is based on delays. So it's not based on how much...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [23]

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Not consequential.

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Unidentified Company Representative, [24]

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So we really count the days of delay which [are excusable].

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [25]

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So what's the maximum number of days? And so far, where are we in comparison to that?

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Unidentified Company Representative, [26]

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Like, what is the maximum delay that would have allowed us to get the LD in full? Is that your question?

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [27]

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Yes.

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Unidentified Company Representative, [28]

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We're way past that already.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [29]

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So what happens to the uncovered days?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [30]

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What is uncovered days?

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Unidentified Company Representative, [31]

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So meaning, if we bought -- so let's say, for example, let's say, if we're delayed for 360 days and the LD caps at 200 days, what happens to the balance, 160 days? It's something that we end up bearing.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [32]

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Okay, I understand. Which is the purchase power, yes. And my last question relates to the replacement power. How much did you purchase in terms of gigawatt hours in first half '18?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [33]

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I mentioned it in my report. You have the details again?

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [34]

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I think the number mentioned relates to first half '19. I'd like to know the first half '18, just as a comparison, yes, if you have.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [35]

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No. Yes. I'm sure first half '18 is lesser because there's -- the outage in first half of 2019 is really significant, right? And there's also a mandate from DOE to schedule all outages that were scheduled before the election to be done before the elections in the first 4 months. And there was a lot in the water in the reservoirs in some of our impounding hydros in 2018 compared to 2019.

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Jelline E. Gaza, JP Morgan Chase & Co, Research Division - Analyst [36]

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So that's also the case for 2Q '19 versus 2Q '18, at least for the water?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [37]

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Yes. More or less, yes. Ping.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [38]

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Ping Javier. Just on power. I have 3 questions. Quick [land]. I just got the sense 1H was a bit more noisy, but can we consider all the noises behind us for the rest of the year?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [39]

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Noise, you mean outages?

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [40]

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Outages, geothermal, water levels. And they are now behind us in a way, I hope, most of it?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [41]

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Well, we've fixed most of the issues, we believe, on the plants that went on forced outage in the first half. Although we have another forced outage in TSI recently, but something that we're addressing now. But we have replacement power in Mindanao, and we are using our allowable outage days in TSI.

Yes, for water, I think there would be more water in the reservoirs compared to first half. All our impounding hydros above the rule curve. Most of our maintenance outages were actually completed in the first half. PEC, the one that went on outage, we are operating it in a way we believe we can carry through until the next scheduled maintenance in January. So yes, hopefully, most of the forced outages that we experienced in the first half, we won't experience in the second half.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [42]

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Yes. My second question is on GNPD. I just want to get a sense -- and maybe if you can remind us, how much, again, has it been contracted at the moment, the contract mix has to open access and captive, et cetera?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [43]

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First 500, yes. The first unit is contracted close to 500 megawatts, almost fully contracted. The second unit is not contracted, not yet anyway. But we're looking for contracts. But we -- as I said, we justified the unit just -- we'll be able to achieve our returns based on (inaudible) because of the efficiencies that we have.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [44]

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And how does that relate to the CSB issues?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [45]

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GNPower, I believe, I did not...

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [46]

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For the 500?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [47]

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The CSB for Meralco? I'm sorry.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [48]

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For the uncontracted one, they will be -- you would basically earmark that for potential CSB bidding.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [49]

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Yes, yes. That or WESM. We expect -- I think what happened in the first half is giving us an indication of WESM prices in the next 3 to 4 years, right? You've seen those prices, one plant goes out, 2 plants go out, maximum price right away. And we're hitting the secondary cap on the third or fourth day, sixth day of high prices. So yes -- and Atimonan just being offered for CSB. I don't think -- we believe it won't be available by at least mid of 2024. So we're expecting prices to be higher in spot compared to the last year or 2.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [50]

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But the ideal would be to have it contracted?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [51]

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Of course. But it depends. If it's just open access, it's always benchmarked against WESM.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [52]

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And the 500 target market there is the mix between [Arcoa] and captive?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [53]

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The 500 on the first unit?

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [54]

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Yes.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [55]

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Most of it are actually regulated. Yes. Not all. I think all are actually regulated. A little bit.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [56]

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Sir, my third question is actually on that small floating solar. I want to ask [land] what is the price level to make it investable?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [57]

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Depends really. Well, as we actually continue to look for better and cheaper technologies, the price trend is really going down. And we're seeing prices being offered at the moment anywhere from PHP 3.55 to PHP 4 for solar. So I guess, that gives you an indication on -- not this one, but how much solar -- power from solar is actually being sold to the market.

So I think -- and if this is the one that we are -- SNAP is going to focus, there's no land, right? And we have an agreement with MIAA just on -- to continue with some sort of an arrangement. So because land is a significant component of the cost, no, especially if you have to convert it from agricultural to industrial. So this is actually -- this is an advantage over land-based solar.

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Rafael Alfonso Javier, BofA Merrill Lynch, Research Division - Analyst [58]

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And one last piece. Just your thoughts on LNG.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [59]

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Well, our position on LNG is that we'll -- it's always wait and see, no? At the moment, the Department of Energy still has not released any definitive policy or direction with regard to Malampaya gas, no? I think that's a critical component with regard to pricing, who's going to operate Malampaya after the expiration of the contract, right? Yes, so as far as we're concerned, we're always open for opportunities on LNG, but there has to be a policy from government to really drive it.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [60]

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Thank you, Ping. Do we have any other questions from the floor? Yes, Cristina.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [61]

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Sir, can you give us an idea of how big is the attributable capacity now of AP, all, total? And by year-end, what's the predicted?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [62]

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Actually, by the time we commission Unit 2 of GNPower Dinginin, it's close -- it's about 4,300 megawatts. 4,380 net attributable, I think that's the exact number.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [63]

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Now and then by year-end.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [64]

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Now? We'll give you that number, Cristina.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [65]

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Later, (foreign language). And then sir, how big is the portion that is -- that faces expiry of contract and that needs to be recontracted?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [66]

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In TLI, it's 250 megawatts contracted to Meralco, which we have applied for an extension for 3 more years, so again, depends on what the -- how the ERC is going to rule.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [67]

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Sir, that's all?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [68]

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Yes -- no, the expiring in -- with Meralco. But the open access accounts are being churned 2 years, 3 years, no? The reason why I highlighted Meralco, because that's regulated, and that's a different terms and conditions compared to open access. But for open access, it's always benchmarked to SN. So we don't really look into the churn rate as far as open access is concerned, no? But with Meralco, yes, the 250 megawatts.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [69]

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And sir, how much of the capacity is good for open access?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [70]

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Well, all our existing capacity can be offered to open access if we want. But again, as I said, it's -- for us, WESM is becoming a more viable option given the price signals we've seen in the first half.

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Unidentified Company Representative, [71]

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Although, if you look at the slides, no, anything that you see here that's energy contracts, pretty much, that represents our exposure to retail.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [72]

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And going forward, would that be the direction? And should I be expecting you to do less of the contract?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [73]

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Yes. Cristina, there will also be contracts expiring from the regulated customers other than Meralco distribution utilities. And when they go to CSB, that's a -- actually, a focus that -- our focus as well. We believe we'll get better terms and longer terms, longer tenure -- tenures on those contracts. Of course, open access and ancillary services, no? We're waiting for the start of the co-optimized market in WESM, and that's going to be another venue for selling ancillary other than to NGCP.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [74]

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Sir, the first half is like really a disappointment. And as I've heard, somebody was asking if the noise are done with. Sir, I just would like to know if the second half -- I'm not asking for any guidance, no, maybe just a validation of whether I'm thinking right in terms of what to expect, that the first half could be your trough and the second half could just be an offset, such that there won't be really any growth this year.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [75]

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Well, as I've said, we've done most of our planned maintenance, right, and those that went down, we believe we've addressed the issues as far as reliability is concerned. So we expect higher availability of our units. And although the typical price trend in WESM second half would be lower because of the generation from hydros, we expect that the prices in WESM will actually be -- is going to be higher than our initial forecast or budget or if you want to call it that, no?

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [76]

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Which is a bit negative.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [77]

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No, because we can sell to WESM which we have excess.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [78]

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You don't have much requirement for replacement.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [79]

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Yes. We -- In fact, we will -- we are a net seller.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [80]

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Okay. For cement, sir, I'm just wondering, what are your thoughts on why there's some mixed result actually coming from various cement players? Yours is a positive one. Then there's another big one showing negative result. And then there's another smaller one also on the same track as yours. Sir, what seems to be the continuing challenge in the cement industry given the tariff and the second quarter being a peak construction period? And did the cost actually have improved?

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [81]

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Well, definitely, the prices have improved when you compare it year-on-year. At least from our side, we were looking at numbers that probably have gone up anywhere between 5% to 10% depending on the particular product. And I think that's true for the whole industry. So I don't think -- I'm not sure which results you're looking at, right, but some of the other listed ones...

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [82]

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For Holcim and CEMEX.

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [83]

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Well, CEMEX seem to be pretty good, at least compared to what they did before. I haven't really looked at the Holcim that closely. But again, from a price point of view, the numbers are better than last year. That's despite imports continuing to be quite strong, right? So if you look at the market, we estimate that 15% to 20% of the market is still coming from traders, right, or importers. So it's still a strong flow of imports. So that's not really what's driving it. I think their costs have gone up. So that has helped the prices overall go up.

On the volume side, people have been expecting a lot of growth, but the reality is a lot of this is driven by government spending. And in the first half, the delayed budget has really put a damper on the expected strong growth because of the Build, Build, Build. So now that has already been enacted, that should be good for the second half. However, during elections, there's also an election ban on a lot of these infra projects. So between the delayed budget and the election ban on projects, really, the first half didn't see, at least from the government investment side, as much as we would have expected or we would have wanted. But chances are if we're -- if things go well, then a lot of this will be pent-up demand that will start to kick in here in the third and fourth quarter.

So I mean bottom line, the volume still went up despite that, and we expect the volume to really pick up over the next couple of years. The Build, Build, Build seems to start -- have already a little bit of traction, and we're starting to see more of that. And then prices have also improved to levels where they were maybe 2, 3 years ago. And a lot of these companies, if you look at their numbers, you'll also see that many of them have been working on efficiency projects, our debottlenecking, and that's also starting to show dividends already and improving efficiencies, lower cost of fuel, lower cost of power.

So overall, between prices improving, volumes stabilizing and, hopefully, improving moving forward and better efficiencies, I think generally speaking, you're seeing better performance across the industry.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [84]

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Sir, I don't know if I missed the first half P&L of your cement company. Were you able to share how much?

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [85]

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Well, we -- what we usually talk about is the -- what the contribution is to us, right? So we don't have the -- because we also have -- but the -- let's see -- I'm sorry. I think I have it here. One sec. Oh. Sorry, I can't read it from here. Judd, can you read (foreign language)?

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [86]

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Yes. It's this last bullet here on the slide that's in front of you today. So it's a contribution to AEV at PHP 249 million as of the first half of 2019.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [87]

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So which means it started making money since second quarter.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [88]

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Yes.

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Cristina S. Ulang, First Metro Investment Corporation, Research Division - VP & Department Head of Research [89]

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(foreign language) Gold Coin. Just I heard you have your share. You're going to be owning the whole of Gold Coin the second half. I'm just wondering how much was the full year income of Gold Coin last year. Full year as a stand-alone company, 2018.

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [90]

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Yes, do you guys have -- Judd, do you have that number there? Top of mind? Yes, we can get back to you with that number, no?

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [91]

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Yes. Thank you, Cristina. I'll just read in a related Pilmico question, and then I'll call on Chesca, no?

So it's asking here 2 questions for Gold Coin. It says, "Aside from Vietnam, are we expanding the international scope of Pilmico, especially in areas where Gold Coin already has a presence on, and then if you now have plans for an IPO?"

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [92]

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In terms of Pilmico scope?

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [93]

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Yes. Are you expanding your presence internationally, especially in areas where Gold Coin is already present?

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [94]

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Well, I mean, the way we've decided to move forward, really, is that any expansion outside of the Philippines, really, will be a Gold Coin-related expansion. We have been looking at several projects which would lean on the expertise that we have in Pilmico for the region. So I mean as you're aware, we're in businesses like for flour milling, swine farming, that sort of thing, which Gold Coin does not do today. And so we have been exploring opportunities like that across the countries that Gold Coin is currently in. But eventually, the idea would be that those would be Gold Coin projects, right, backed, of course, by the support of Pilmico.

Just to throw something, there's been a wrench kind of thrown in some of those plants given kind of the development in the region with ASF, no, because one of the real projects we've really been exploring are related to swine farming. And we've kind of had to put a hold on that for the meantime to see how this thing develops regionally, no?

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [95]

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But a lot of the -- I think maybe part of it is also our existing plants in Gold Coin, we have quite a few of the countries we are expanding in, right? We mentioned...

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [96]

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Oh, well, yes, yes, yes. I mean so this is notwithstanding what was mentioned earlier, right, where we are definitely looking to expand production capacity in several of the countries that we're in, China, definitely, Vietnam, and as well as kind of fine-tuning the current operations, right, because we're definitely not close to a utilization of like 100%, right? So there's still a lot of volume that we can ramp up in the countries that Gold Coin caters to, and we will continue to expand in the markets where we see opportunities, no?

And then I think there was a second question regarding an IPO.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [97]

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Yes.

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [98]

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Yes? No, I mean we're not thinking about that yet. I think we're really looking at kind of the operations at the moment.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [99]

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Okay. All right. Thank you, Tristan. Chesca. Yes.

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Chesca Bugia-Tenorio, Crédit Suisse AG, Research Division - Research Analyst [100]

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On AP, yes, really quickly, related to the previous questions. If I could just get the blended price that you've had in the first half. And basically, those are mostly all contracted. And since I assume some of those contracts may be -- of the RES contracts may be expiring, if not end of this year, if there is a material expiring contract with open access, how much would that be? And how much of that would actually be more expiring in 2020 and...

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [101]

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Yes, so this chart, I think, might answer your...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [102]

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Yes. So the price is actually blended across, no, [shedding] energy. So that's contracted either -- mostly for open access, that's energy and -- yes. And capacity is deregulated and spot is spot, no?

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Chesca Bugia-Tenorio, Crédit Suisse AG, Research Division - Research Analyst [103]

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And how much of that was different from the first quarter? So -- or how much -- or if not first quarter, how much can we see that changing by the second half? Meaning you guys would be exposed more at these spots.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [104]

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Probably, capacity, we won't see much change for the second half. We don't have significant capacity contracts expiring in 2019. For energy, I don't have the number of how much would be expiring? Do you have that?

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Unidentified Company Representative, [105]

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No. We don't have it.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [106]

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No, we don't know. Again, Chesca, the option is it's either we continue with renewing in open access or we sell to spot, no. Since the contracts in open access vary anywhere from 1 to 2 years, mostly, that's the term today.

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Chesca Bugia-Tenorio, Crédit Suisse AG, Research Division - Research Analyst [107]

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Will those mostly expire by next year?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [108]

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I would say it would be...

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Unidentified Company Representative, [109]

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I guess the way that you can look at it, there's a portion of it that's expiring at any point in time, right, because we've signed on things at staggered moments. I mean somewhat right now, if you put it in megawatts, we probably have around like 900 that's in RES, perhaps maybe on any year at any point in time 1/3.

But to your question, so I'm not exactly sure of this year's renewing. I'm not sure how many we've already renewed in the first half and what's remaining for the second. But if your question is, do we expect the energy average price to continue to be like this for the second half? Is that your question?

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Chesca Bugia-Tenorio, Crédit Suisse AG, Research Division - Research Analyst [110]

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Yes, yes.

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Unidentified Company Representative, [111]

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So it kind of also really depends on what we decide to do, right? Because as Manny said, there's CSP unregulated that's expiring. We can opt to shift it to regulated. If the spot is like this, we can opt to...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [112]

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Sell spot.

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Unidentified Company Representative, [113]

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Sell it to spot, okay? If we end up recontracting it to RES, it will probably end up still the same with a different mix of people looking like this. So it really still depends on where we end up building it off.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [114]

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I think, Chesca, the important thing, really, is what happened in the first half is giving price signals to generators or to RESes. But prices in WESM will just be at that level for the next 2 or 3 years or even higher, no? Demand continues to grow, right? There's no new capacity except for San Buenaventura and the expansion in AES, no? But they're already in and yet we're still seeing high prices in the spot market.

And so really, the -- every time there's a volume that's available for recontracting, we always compare spot for 2 -- 1 or 2 years [or] contracts, which is better, right?

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Chesca Bugia-Tenorio, Crédit Suisse AG, Research Division - Research Analyst [115]

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Or maybe if it can give me more color, at a certain time when you do actually, for example, decide on renewing a RES contract as a RES contract, does it peg it to the current WESM price at some point, meaning you just put a 15%, 10% discount or a premium?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [116]

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Yes. In fact, we're walking away from a number of contracts that at prices we believe are going to be lower than WESM.

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Tristan R. Aboitiz, Pilmico Foods Corporation - Chief Operations Officer of Animal Feeds [117]

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So just to answer the question that I couldn't answer earlier regarding the 2018 income of Gold Coin. The full year was USD 19.4 million, 2018, 19.4.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [118]

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Okay. Thank you. Carol. Yes.

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Caroline Vergara, Philippine Equity Partners, Inc., Research Division - Research Analyst [119]

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Carol from PEP. I just have a quick question on Republic. Are you building any new capacity in the next few years?

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [120]

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It's a two-part question -- or answer, sorry. Because part of when -- we've been talking a lot about debottlenecking for the last couple of years. And by the way, that's on tail end already. By the end of the year, that should be all complete.

Part of the debottlenecking, a big part of it was really improving efficiencies, et cetera, but actually, part of it was also unlocking some capacity that we could have but were not able to do in the past. So our -- generally speaking, our capacity is 7.5 million tons. At the end of all of this, it could jump up to about 8.5 million to 8.8 million tons. So that's part 1, because that's not really adding a new line, but it's expanding the existing capacity because of the efficiencies and some of the facilities that weren't running at optimal level. So that's the first level. And we're working on at least 2 after projects that we're preparing for -- to begin by end of the year or next year. But these are longer term because these would then be basically greenfield projects. So definitely, there are plans underway. And one of -- and it's across the board. We're looking at all of the 3 regions for additional greenfield capacity. But the final decision hasn't been made. So I don't want to give a number yet until that's done. But the first phase, which is the debottlenecking, that should be completed by if not end of the year, early next year.

And because we do see the need, right, I mean the demand is growing, and there's really no or limited new supply. So -- and the imports continue to still have a large part of the market. So we really feel there is a need for new capacity. So it's a big part of our thinking. It's just finalizing the -- or pulling the trigger on that new expansion.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [121]

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Okay. I'll read out one question for UnionBank and then you're next. Okay. So I have a question for UnionBank here. It says, "What is UnionBank's strategy in terms of growing its CASA business? And does the current market present a lot of opportunities to grow this?" And then after that.

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Jose Emmanuel Uytiepo Hilado, Union Bank of the Philippines - CFO, Treasurer & Senior EVP [122]

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In terms of strategy, for the retail side, our strategy is to direct the individual clients to our online platform. And actually, we recently launched about a month or 2 ago the ability for a client to open an account online without going to the branch so even your KYC is done through the app. So you upload your document and then it's the system that will determine if it passes the KYC. That's for the individuals.

For the corporates, we are approaching it on the cash management service side. We recently launched our new product for cash management which we call the portal, and we continue to add more and more features in our portal as a way of attracting corporate clients through the CMS product. What was the last question?

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [123]

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I think that was...

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Jose Emmanuel Uytiepo Hilado, Union Bank of the Philippines - CFO, Treasurer & Senior EVP [124]

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The opportunities or something?

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [125]

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Yes. Does the current market present a lot of opportunities to grow this business?

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Jose Emmanuel Uytiepo Hilado, Union Bank of the Philippines - CFO, Treasurer & Senior EVP [126]

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Well, in terms of opportunities, in terms of increasing the CASA, if you -- it's partly a -- a big part is also if the system continues to grow, if, for example, M3 continues to expand. But recently, we've seen that money supply has been growing at single digits. So that means the system is not growing so much. So all banks are competing for a scarce resource while loans continue to grow. But I think as the BSP has committed to bring down reserve requirements, moving forward, I think there will be more liquidity in the system. And we think that our approach will not yield immediate results, but for the medium to long term, I think our digital approach will give us more opportunities in increasing our CASA at lower cost than having your usual brick-and-mortar.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [127]

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Yes. Thank you. So yes, it is.

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Elizabeth Santiago, Abacus Securities Corporation, Research Division - Analyst [128]

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Elizabeth from Abacus Securities. I just have a few questions about Apo Agua, the backwater project in Davao. What's your expected completion date for the project? And how much -- could you give us an idea of how much the tariff freight and margins would be once it's operational?

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Cosette Canilao, Aboitiz InfraCapital, Inc., - COO & Senior VP [129]

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For the first question, the first drop of water would -- will be in June of 2021. That's the target date. As to the tariff, we're still -- there could be some negotiations with -- well, as for the tariff, I think it's around 13%, but let me check on that one.

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Jose Emmanuel Uytiepo Hilado, Union Bank of the Philippines - CFO, Treasurer & Senior EVP [130]

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And there are provisions for adjustments also.

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Cosette Canilao, Aboitiz InfraCapital, Inc., - COO & Senior VP [131]

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And there are provisions for adjustments in the contract. So -- but at signing date, that's the tariff there.

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Elizabeth Santiago, Abacus Securities Corporation, Research Division - Analyst [132]

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And the 330 MLD, will this be available within -- as in immediately within first year of the operation?

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Cosette Canilao, Aboitiz InfraCapital, Inc., - COO & Senior VP [133]

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Yes, that's correct.

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Elizabeth Santiago, Abacus Securities Corporation, Research Division - Analyst [134]

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And then on RCM, so you cited lower production costs, higher demand and higher prices as the reasons for the improvement in the net income contribution. Which of these 3 would be the most -- would account for most of that effect?

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [135]

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Well, definitely, the volume is the least because, as I mentioned, while it has gone up a little bit, there still have been some constraint in the first half. I think overall, it will be the -- the prices have to be the biggest. But the efficiencies, at least for us, play a big part. It's almost the same, I think, for the 2 of them. But the nice thing about efficiencies, that's permanent, right? We have reduced our cost. That will continue to be the case and will improve, in fact, as we finish all the debottlenecking for the rest of the year. The prices, really, it's market-driven. So there can be some volatility there.

So in terms of importance for us, I think the -- improving our efficiency, making us more resilient in the face of pricing pressure is probably one of the most critical aspects of the future for Republic Cement.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [136]

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Thank you, Elizabeth. I think we have time for one more question. So yes, Enrique. Those are a lot of hands.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [137]

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Enrique from Deutsche. So first, on the cement business. Could we get a number for what 2Q volume growth and ASP growth was?

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [138]

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Well, volume growth is close to flat, maybe up to 2% maybe is a number that we were looking at, so relatively flat but slightly up. The pricing, again, it depends on the product mix, but basically, it goes -- ranges from 5% to maybe 5% to 8%, depending on the particular product range.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [139]

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Okay. That's for 2Q or is that first half?

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [140]

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That's the whole first half, sorry. And that's in comparison to the year -- I mean the year-on-year comparison.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [141]

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Year-on-year. All right. On power, I just wanted to ask about the competition in RES. So based on the pricing, it looks like competition is still intense. Do you think that things will start easing in terms of competition second half or maybe next year? Or will things still get more intense until 2021, 2022 when things are actually really tight?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [142]

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I think the number of players will still be the same, right? But I think the pricing will obviously now be, considering the WESM price that you've seen in the first half, no, well, for sure, for AP, we've adjusted their forecast based on capacities that are -- that have been committed before, but we haven't seen, actually, anyone breaking ground, no, other than San Buenaventura and AES, no, apart from the new capacities that we'll be bringing in.

So -- well, the activity will, I think, surely be -- will still be the same. But I think WESM price forecast will play a significant factor in the price offers.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [143]

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Okay. Just on the -- this is more on just what happened in the first half. I noticed the GNPower Mariveles plant had some issues. There was -- after the earthquake, there was a transmission issue and then something about boilers. Is that something that is completely resolved? Will we see more of that? Or...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [144]

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No. Okay. We -- 2 units -- well, actually, the whole Bataan -- the Bataan Peninsula went black right after the earthquake, no? And we started 1 unit -- actually, 2 units started. But soon after we started 1 unit, we experienced vibrations. And we were, I think, I believe, down since then. But we have been running. And I think we got synchronized 2 weeks ago. Yes. And we believe we've resolved the issue.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [145]

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That's -- and all of these plants are within the allowable downtime for those because these are mostly DU-based contracts, right?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [146]

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Actually, the contract of -- the contracts of GN -- GMCP, GN Mariveles, is quite different, no? Supply is actually optional as far as the supplier is concerned, no? So it's -- the DUs can actually trade, no? And we can also opt to supply depending on the price.

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [147]

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More flexible. It's an old -- one of the older set of contracts.

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Enrique Fausto, Deutsche Bank AG, Research Division - Research Associate [148]

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Okay. Just the last bit on the -- you mentioned something about TSI being down. Was that just in July? Or what's really happening there?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [149]

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Well, we had vibration, and the plant tripped in July '19. We believe it's a bearing issue. Could be longer than our outage allowance of 30 days. But there's replacement power available in Mindanao, so we are not really that concerned as far as that unit is concerned.

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Manuel R. Lozano, Aboitiz Equity Ventures, Inc. - CFO, Corporate Information Officer & Senior VP [150]

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And I have a question before you go. So Manny, related also to the contracts and the like. No one's asked about how has demand been for power the last and the...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [151]

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The demand is quite strong, no? If I'm not mistaken, demand in WESM was registered around 9 -- 8%, no? Yes, above 8%, no? And from a forecast of 5.5%. So that's quite high. And the peak, actually, forecasted by Meralco in one of the meetings with ERC was 11,400. I think we broke that. The peak was around 11,500 megawatts.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [152]

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Okay. You know what, actually, when I said that this is going to be the last question, I noticed there were so many hands yet from the audience, and our executives are already here. So maybe you can take about 2 more questions from the -- is there anybody who hasn't been able to ask a question yet? Any more questions from the audience? Yes.

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German de la Paz, Abacus Securities Corporation, Research Division - Junior Investment Analyst [153]

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I am German de la Paz from Abacus Securities. A few questions for AboitizPower. First, considering the impact on margins of the purchase power, do you still plan to over-contract ahead of the COD Dinginin 1 in Q2?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [154]

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Actually, Dinginin, the difference between the -- our situation when we had the outage, that the contracts in RES -- in open access are deliveries we have to make on -- upon signing of contract, no? The effectivities right on signing. While on Dinginin, it's a forward contract. The delivery is actually on the delivery of the plant. And then in TVI Unit 2.

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German de la Paz, Abacus Securities Corporation, Research Division - Junior Investment Analyst [155]

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Okay. So no need to over-contract. Okay. Regarding IMO 2020, I just want to ask if you have any plans on altering your mix in terms of coal sources in order to limit the impact of higher freight costs.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [156]

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I'm sorry, I didn't get that.

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German de la Paz, Abacus Securities Corporation, Research Division - Junior Investment Analyst [157]

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IMO 2020, sir. Do you -- I mean from what I understand, is that the sources your coal is -- part of it is from imports, and then part of it is from domestic sources.

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [158]

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No, all our coal is actually imported today from Indonesia, sources from Indonesian mines. We're not sourcing locally. IMO 2020 will, I think, have an impact on pricing but not that significant. In fact, at the moment, prices vary depending on who you ask, on what the impact is on the fuel or on the modification on the vessel itself, no? Even the vessel owners are still grappling with the issue on how they're going to address that. Although it's going to happen, we have a range -- an idea of how much that's going to be on a per ton, but it's a significant portion of that because our capacity is also passed to the consumers. So as far as we're concerned, we -- I think it's something that we can manage to pricing.

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German de la Paz, Abacus Securities Corporation, Research Division - Junior Investment Analyst [159]

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Okay. So last question, until when can we feel the impact from the Bajada Plant on the distribution segment?

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [160]

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Bajada has been decommissioned. We've taken that out, no? So starting from the time we decommissioned it, the rate attributed to Bajada won't be there.

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Jose Emmanuel Uytiepo Hilado, Union Bank of the Philippines - CFO, Treasurer & Senior EVP [161]

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So the loss margin is lost.

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Unidentified Company Representative, [162]

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It's like the new normal. (foreign language) That's how you look at it. The new normal, there's no more Bajada. So there's no until when because it's the new normal.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [163]

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Thank you very much, German. Are there any questions that are nonpower-related in this audience today because...

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Emmanuel V. Rubio, Aboitiz Power Corporation - COO [164]

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I'll stay behind, anyways.

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Francisco Victor G. Salas, Aboitiz Equity Ventures, Inc. - Assistant VP of IR [165]

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Any more questions? Okay. Because if there are no further questions, our resource speakers, they're going to stay here for a bit more right after we close the session. So you will have the opportunity to have their undivided attention with the questions that you have.

So once again, I'd like to remind everybody to please complete your feedback forms. These are very important to us.

Thank you, everyone, for come -- joining us here today, and thank you for our presenters for today. Thank you for your time, no? So thanks. We have refreshments outside. We'll have a chat later after this briefing. Thank you.