First Pacific Company Limited

Manuel V. Pangilinan - Managing Director and CEO Paul F.

Wallace - CFO Stanley H. Yang - EVP, Group Corporate Development Joseph H.P.

Ng - EVP, Group Finance John Ryan – EVP, Group Corporate Communications Sara S.K. Cheung – VP, Group Corporate Communications

Karl Choi - Bank of America Merrill Lynch Mark Webb - HSBC Pauline Lee - Value Square Angus Chan - UBS

Good day everyone and thank you for joining us today to discuss the First Pacific 2014 Full Year Financial and Operating Results. We hope you have been able to get a copy of the results presentation which is available on First Pacific's website at www.firstpacific.com.

For today's conference call, we have with us Mr. Manny Pangilinan, our Managing Director and CEO; Mr.

Paul Wallace our CFO and other senior executives. At this point, I would like to turn to Mr.

John Ryan from Group Corporate Communications for his presentation.

Thank you, Sara. I will run through this in fairly rapid order to leave some room for you folks to ask questions of Manny and the other folks at the table.

So turning to page 2 on the presentation, the major M&A developments in 2014 of course was the investment in Goodman Fielder. That closed last week.

The total consideration we paid is round about US$540 million. Our corporate development executive, Stanley Yang can talk about that later and Joseph Ng, who is Head of our Treasury, can discuss any aspect of financing that you may want to raise.

Now the value of our assets rose by a little over $1 billion last year, by the end of December we were a touch over $9 billion asset value of First Pacific. Now with the final dividend agreed by the Board to put to shareholders at the AGM the dividend yield and payout ratio is described on the bottom right of the page.

Our payout ratio is about 36% and the dividend yield is round about 2.7%. Now if we turn to page 3, there is a brief summary of our 2014 results, recurring profit was essentially flat at around $324 million.

Contribution from operations had a similar minus 1% movement here under $463 million for the year. Now profit attributable to owners of the parent was down by quite a bit and that was due mostly to $188 million write-down of value of Philex.

Paul Wallace, our CFO can speak to that in so far as he has worked at Philex for two years before coming to First Pacific again. Now our recurring EPS is at $7.55 versus $7.87 and the proposed final dividend is US$1.67 and thus said the payout ratio is 36%.

Our gearing is not much different at 0.45 times consolidated, but of course the important numbers is the head office figure at 0.56 times. Now turning to page 4, there is a breakdown of the contribution that is worth drawing your attention to.

Most of the overall change can be due to currency movements and a small decline in the contributions from PLDT. Indofood had yet another year of record high earnings, but the currency translation meant that contribution fell by about 1%.

MPIC again had record high earnings and their contribution increased by about 13% and so on down the list. FPM Power representing PacificLight in Singapore saw a slight increase in its negative contribution to head office.

Our dividend income as you can see in the chart on the bottom right hand side was little changed from year earlier, it is a bit over $300 million at $304 million. Our gross debt is unchanged at year end $1.75 billion similarly for the net debt at $1.2 million.

Now, if we turn to page 5, there is a brief outline of PLDT's year in 2014. Essentially it was a year of transformation, which we will see continue in 2015.

We've got as many telcos have seen a decline in traditional sources of revenue, particularly international voice and text messaging which is gradually being replaced by data intensive services like data and network broadband and mobile Internet. Going forward, let's look at Goodman Fielder on page 15.

Now we've only just begun to own half of this company jointly with Wilmar a week ago, so this is very much a historical description here on page 15. Sorry, that's the wrong page number there.

Page 6, this is essentially the shape of the company as it has come into our hands. You’re all probably aware that our key goal here is to expand the Asia Pacific businesses while stabilizing domestic operations and regaining market power versus that duopsony in the supermarket business there.

Now on the next page, there is an outline of what's been happening at Indofood. Nearly all of its businesses had strong growth, particularly in the consumer branded products.

And as you can see, the eye catching illustration on this page is the very strong increase in sales over the past five years at Indofood. We expect another strong year in 2015 there.

The next page portrays something similar from Metro Pacific. The historical contributions of its four soon to be five main businesses has shown staggering growth in the seven years since 2008 and we expect continuing earnings growth in 2015; demand for the basic services that it offers remain strong.

The gains that we expect to see next year are notwithstanding continuing difficulties in the regulatory space. I'm sure Manny can speak to that if you would like to hear more detail going forward.

Now let's turn to Philex, the last of the major operating companies. Essentially 2014 saw greater production of ore, but at lower grades and lower prices.

So its earnings for the year were essentially flat and this picture is illustrated in the production cost and price illustrations on the right hand side of that page. The focus for Philex going forward of course is the major new development in the south of the country, the Silangan Project in Mindanao.

We expect some significant milestones to be achieved this year as we move towards production in a few years' time. Now on page 10, there is an outline of goals for 2015.

I won't tire you by reading all of them. Overall, for the First Pacific Group we've got strong organic growth in MPIC and Indofood and we've got some very important transformations going on at PLDT as it moves from traditional telco businesses to digital world; at Philex developing its new project down in the south, and of course Goodman Fielder our newest major investment project.

Now what follows are a few pages on contributions, summary and statement of financial position and so on. But this really brings to an end the narrative portion of this conference call.

And if you are ready for questions, we're ready to take them.

Sure, couple of questions. First with Goodman Fielder, I just want to find, sort of get a few, you mentioned that your goal is to get back to, for this business to get back to earnings growth this year, any more color on some of the particulars, especially for investors that some of the, maybe yardsticks that we can look upon as you execute on your turnaround plan and more color on what exactly you plan to implement, that will be very helpful?

And then second, can you just talk a little bit about the Singapore power plant business, how has it been doing year-to-date, any improvement in profitability? Thanks.

Sure, first on Goodman Fielder, the transaction as many of you are aware just closed last week and in terms of how the business as we would see it would perform, I think one aspect was how we see it year-to-date and bear in mind that Goodman Fielder's fiscal year is the June 30, one. But basically, as of year-to-date they were tracking quite close to the management's estimate on an EBIT earnings before interest and tax basis.

And so, that turnaround, whilst the bread segment was still quite challenging they were able to get positive and in a way over-delivered on the budget relative on dairy and some of the APAC businesses and so we feel that the fiscal year 2015 remains on track. I think now that the transaction has closed, there is new change at the leadership.

Scott Weitemeyer of Wilmar Sugar is now the Chief Executive Officer and one of the aspects of the transaction was a long wait period, it was since July we had quite a number of regulatory approvals. Having said that, we did meet with management quite regularly and as part of that we were identifying areas where we felt could be improved and with the support of the new shareholders those changes and improvements we are on the execution path to implementing them.

I think that going forward we identified quite a number of synergies on procurement, on logistics, and being able to open markets both within the core markets of ANZ and the pacific islands, but also up into Asia where longer term we see lot of opportunity given the food safety issues and the demand for quality products that Goodman could play in the long term aspects under our ownership. And so, this is something where we're quite positive about.

We do expect this year to perform as expected and I think that would follow close to where brokers were seeing it, but that going forward we would see significant improvement once our inputs goes on growth drivers as well as improving the efficiencies and margins would come into play.

And just to add a point about the Singapore power plant, I think that others that I spoke to over the last 12 months I think we said that we were sort of a year or two years behind where we thought we were going to be and I think that's still the case. It is extremely challenging an environment.

The regulator has made some changes to the rules in the last 12 months which is maybe even more competitive and there seems to be an impact from current low gas prices. We are forecasting to show losses again for 2015, but smaller losses.

But it is going to take a couple of years before we get to breakeven or profitability point of view.

Okay, thanks.

Hello, good evening. Just two questions, just on Metro Pacific, just in terms of the regulatory environment particularly in connection with Maynilad and it is winning the arbitration, but not being able to implement some of the rise, rate rises, how do you think that's going to pan out this year and when do you think the environment will start to improve?

That's the first question. Secondly, just in connection with the head office costs, those sort of have sort of trended up a bit, I know there's been a lot of sort of transactions and some other items going too that that has just inflated, more specifically the normalized costs we should expect going forward at the head office level.

From the regulatory side, particularly with respect of Maynilad Water, we - yes we've had some difficulty of getting the arbitrary award implemented by MWSS by Manila Metropolitan Waterworks System and on account of the fact that they are not, they said that, they have now said that the implementation of the Maynilad Water decision is contingent on the Maynilad Water because Maynilad Water lost they find it difficult to implement a tariff increase on our side on the West Zone and a tariff reduction on the East Zone. So, we've had to take steps to call on the undertaking of the republic in respect of any losses that Maynilad may incur as a result of the delay in implementing the tariff.

And so that obviously has caught the attention of the Department of Finance through Secretary Purisima. And the latest news we've gathered and this is unconfirmed, but fairly, I would say fairly reliable is that the economic cluster of the cabinet has met and are inclined to enforce the arbitrary awards for both concessions in the case of Maynilad to allow a tariff increase and in the case of Maynilad Water to enforce or implement the tariff decrease.

Now, however, the Department of Finance apparently has not been fully informed about two things, about the fact that we, Maynilad Water has voluntarily submitted to government a proposal to implement the tax adjustment over a period of three years rather than implementing it in one go, and at the same time we are hearing that there might be a unbundling or a separate implementation of the tariffs as it pertains to the corporate income tax and to the tariff as they pertain to other items in the arbitration proceedings. We have sent word that it is an all or nothing for us and that the tariff which is really quite modest 3 pesos and 6 centavos per cubic meter to implement to the extent of 1 peso and 2 centavos per cubic meter per month.

We cannot afford to unbundle the 3 pesos 6 centavos as to one component and the other component. So, I think that’s with the Department of Finance at the moment, but I think it’s in a way it’s a big step forward in a positive direction.

As well today, we were told that the Subic Bay Metropolitan Authority, the Board met and has approved the terms of the lease agreement relating to the power plant of Meralco that has long been on the burner, been on the burner since 2011. So that is probably one of the last steps that we need to obtain to proceed with the construction of the power plant, a 600 megawatt power plant in joint venture with the Aboitiz.

So, I guess, to some degree there is some relaxation of this very challenging environmental regulatory environment. And I don’t know what it is maybe it is the occasion by the fact that the President would step down very soon and therefore they might be accelerating the approvals of projects that have been on the boil since say 2010 or 2011 or so.

At least on those two fronts I would say there has been some progress now. What was the other question?

About head office overhead, I think Mark you are asking about the, there is sort of normalized head office overhead, is that right?

Yes, that’s right, so I was aware there were some certain issues in there in terms of things being pushed up a little bit with share option expenses and may be some other items that would bring cash, so, I mean I'm just looking at sort of your contribution taking you have got your corporate heads and you quote your other expenses line, and just how those two would trend into 2015?

Well, I think the corporate overhead currently is, we are looking at about $30 million, the other expenses is mostly related to the share option plans is the accounting amortization of the awards.

And the rest is interest expense?

And the other item that you can see on the face of contribution summary is interest expense.

I see, so the corporate head is just around $30 million and that's…?

Yes, and that’s I think if you stick with that figure Mark that would be fine. These are the ones, it is more difficult for you to predict is the amortization of the share awards scheme.

Yes, okay, so that depends on some accounting definition of the value signs and therefore that is important over the period of time I guess.

Yes.

Okay. Thanks.

Hello, hi, I have, hey, I have a few questions, firstly on PacificLight, could you share about why did you make this investment in the first place and what really went wrong because if you look at your results on the EBITDA margin is rather being just about by 1.8%? My second question is with regards to the usage of the rights issue proceeds is it mainly for the acquisition of PacificLight?

And thirdly, do you think you can further deliver value creation in future by reducing head office cost and interest expenses? And also could you provide an update any recalculation as of today and lastly what is the policy on share buyback for 2015?

Thank you.

PacificLight?

PacificLight?

Well, we had assumed that the initial purchase price for PacificLight would be reasonably priced right, because we find like this is fairly priced, because it was a distress seller. GMR was a distress seller of the property.

I guess we underestimated the extent of the surplus capacity that was in the Singapore market and we I think correctly assumed, that the plant would be a super efficient plant as it is now because it is a new plant and it is one of the latest plants employing the latest technology in the gas area. So, I think what we underestimated the extent to which gas prices would drop and the extent to which over capacity would impact the pricing in the Singapore market.

So, we have done recently we commissioned a study, the market study of the Singapore market and I think the assumption is that we should see the start of an inflection point in the recovery of the demand supply situation starting 2017 and that’s the way it is. We just have to hold on to it, until the situation stabilizes.

I mean, just to add, even though coal pricing remains quite challenging, the management has been building up its base of retail contracts. They are working on improving the efficiencies.

The plant is operating very well and in the context of a new plant bear in mind this is a plant that still has a life of 30 to 35 years. And so, whilst the market condition today in Singapore because of the supply situation is challenging, we believe that in due course that will change and that being an efficient and new plant will be an advantage in the long-term.

Now, regarding your question Pauline about the use of the rights proceeds, that's followed the acquisition of PLP and the rights proceeds essentially financed most of the purchase of Goodman Fielder.

Okay.

Now that the Goodman Fielder transaction is closed, its mainly funded by the rights issue proceeds and going forward you'll see overall, I mean by end of 2014 we still have quite a bit of cash in the balance sheet and those cash not being used to fund the closing of the Goodman transaction just last week. So what we see that going forward in 2015 clearly the cash on hand would be substantially reduced, so that would clearly have some impact to the interest expense line, the net interest expense line in the sense that interest income from cash will be reduced.

So, that will and you will actually see may be a little bit kind of trending up a little bit on the interest expenses in the course of 2015 because we had exported levels we now have roughly 1.8 billion gross that. So at the brand of roughly 5% borrowing cost that’s about 90 to 95 million, so the 90 million you see in 2014 in 2015 that actually would go up little bit to the 95 million level.

So, I think that address your point on the interest expenses. Overall, I think it is pretty much same as what Paul has mentioned earlier, I think the assumption is that while we keep at the pretty much the same 30 million level going forward.

As to the adjusted net asset value, right?

Yeah.

I think we could send you by separate email the calculation on the NAV. Our gross adjusted net asset value as of the end or this March 18, as of March 18th.

Okay, that will be very helpful.

It’s 8.8 billion net of debts and other things in cash. The adjusted net asset values of March 18, this year was about US$7.3 billion.

Okay.

In share price, the adjusted NAV is HK$13.21 per share. 13 Hong Kong dollars 21 cents so that’s a discount about 42%.

Okay. So share buyback plan.

Share buyback yes. I think we have announced that we will maintain a share buyback policy of 10% of core the year and then we will just have to be somewhat opportunistic as to when we go to the market to implement this share buyback program.

And so far we spent about 200 million on share buybacks in the past couple of years and bought back roughly about 5% at a branded cost of roughly about HK$7.70. So we will keep a close eye on share price performance and in the right level then we will come out in the market and do some buyback, but I mean we spent 200 million already in the past couple of years, so we will monitor the impact to the share price and NAV discount before we jump in and buy back shares in a big way.

Okay. Thank you, and just one clarification, if we go to PacificLight, could you remind us how did you fund the acquisition and amount of this acquisition?

The acquisition price we paid for the PacificLight, I mean on First Pacific as long as we did it in terms of joint venture with Meralco as in the investment costs for us is probably US$330 million. And I think before that actually you will remember we issued, I think we issued a bond few years back in the tune of $400 million earlier in that year, so and raised the bond proceeds and then we identified this opportunity in Singapore.

So, it’s largely funded by I think by that bond and the bond proceeds we raised from that bond trends a few years ago.

Okay, sure. Thank you very much.

Hi, guys, good evening. I have got two questions actually; one is do we need to think about or potentially some asset write-down for the Singapore power plant?

That’s the first question. And my second one is if you are considering your payment of something like US$400 million for Goodman Fielder this year, it looks like your head office liquidity looks like pretty tight in light of PLDT's dividend account as well.

I mean, do we, can we assume your dividend on an absolute level stay flat for 2015 and 2016 and how are you planning to [indiscernible]? Thanks.

Obviously, every year was part of the order there is an assessment of the assets that we have and that’s done on a value in use basis. Obviously, there was an exercise that was done this year with Philex which resulted in significant write-downs for the quoted market price.

With PacificLight, because it’s now quoted price wise its slightly different, but effectively they go through a cash flow analysis and the valuation that was done and reviewed by those indicated the value we used was higher than our carrying value. So on that basis there was no impairment required, but with all assets of this type there will always be an ongoing review whether impairment provisions require it or not.

On the question on the cash flow, you are right that well we spent quite a bit of cash on funding the Goodman Fielder closing, but as we were saying earlier its mainly funded by the rights over proceeds that we raised in July into 2013, I mean we raised 500 million fresh equity from debt and then very patiently, I mean look for good opportunities like the Goodman Fielder. So, it’s actually fully funded on a kind of a capital basis by the equity we raised back in the middle of 2013.

On the kind of recurring cash flow, you are right there as well, I mean PLDT has kind of revised its public guidance and also it has done a little bit on is dividend payout, but at headquarters level and clearly the impact was that the dividend at headquarters level will also be affected slightly, but I mean, the MPIC is performing well and Indofood is performing well. So it does not make sense that compensate a little bit on the kind of decrease in dividend reduction from PLDT.

Overall, I mean yes, there will be some time adjustments on the overall dividend income and the kind of the surface, kind of surface operating cash at headquarters level will affect us slightly, but the dividend kind of payout that we are trending going forward, clearly was too tight to the recurring profit that we could achieve in 2015 into 2016. For 2014 we still stick to the same dividend payout in absolute terms and per share basis.

On the kind of a payout basis it’s still 36% of the recurring earning. So, we still get back to show the confidence that we think that well in 2016 to 2017 that would stabilize and may be trending up starting on 2016.

Make that sense.

I think for 2015 we have budgeted a similar dividend per share, right?

Yeah, that’s.

2015. So we can maintain the 2014 dividend payout in absolute terms, so if pockets are higher than expected than that’s open to, it’s a look back approach, right.

We could pay more, but at the least we will pay $0.21 per share.

Thanks, just a quick follow up, so any plans to de-leverage the holding company, if I add in your completion for Goodman Fielder, I think your net debt-to-equity at the holding company level goes to close to 90%, so any plans to de-lever or are you going to be happy with that that gearing level? Thanks.

Well, I think that actually as noted that perhaps we should start thinking about a de-leveraging program starting this year and next few years, so that’s important for us. But of course the debt and the gross debt and gross net asset value is still about what.

Yeah, the gross as well mentioned by Manuel earlier, in the early kind of bonds is about $8.8 billion or close to $9 billion asset value, I mean if you, I mean do the calculation on that basis and using the book equity, I think which is about $1.7 to $1.8 billion, which is low, but if you focus on using the market value of the asset which is $8.8 billion almost 9 billion and the gross at that quarters level is $1.8 billion, so it’s not really less than 20% of the gross asset value. So, is that high, is that low, I mean we believe that from the asset value point with that is actually not very high.

Right, right, but I think from the liquidity perspective.

Correct, I mean from the liquidity point of view, well we do not dispute with you because of the impact from the say we reduced the PLDT contribution at the same time there was as I mentioned where we need to do the full impact of the say let's say 5% borrowing costs on the $1.8 billion debt which is around $90 million to $95 million interest payment every year.

But I think we do have internal policy of having the dividends received each year being a multiple of interest expense. So we have to maintain the discipline.

At the moment we are above that internal guideline. So, but you know it’s something that is something that we have to address, it’s been raised in the Board meeting this morning, right.

Thank you, that’s helpful. Thanks.

Okay.

If there are no more questions, may I ask Manny Pangilinan to give his closing remarks please.

Well, thank you for attending this conference call and look forward to talking to you again when we announce our first in August this year and when we announce our first half results. Thank you.

Thanks again for joining us tonight for the call and operator, can you please provide the replay information?