D&L Industries, Inc. (DNL) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the results presentation for D&L Industries. My name is Alvin Lao. I am the CEO of D&L. Together with me are my colleagues, Crissa Bondad, Investor Relations Manager; and Ainslee Lao. So thanks for coming, and we can start. So the main points of the presentation this morning. Our first half net income came in at PHP 802 million. Revenues were down by 8% year-on-year. One bright thing that we've seen is that export sales are up by quite a good amount risk during the lockdown, in fact, increasing by 41% year-on-year. And later on, we will go into more details. Export contribution to total sales is currently at 31%. Admittedly, the sales mix has tilted towards commodities more as demand during the lockdown has really just focused on very basic raw materials. In terms of financial standing, still pretty much the same from the first quarter, net gearing at 8%. We have, however, seen improvements in our cash conversion cycle. So in terms of net income, we're down by 43% from the first half of last year. And the big impact really came in after ECQ or the Enhanced Community Quarantine started on March 17. On the right, you'll see that in terms of net income contribution. So Food Ingredients has remained the biggest in terms of revenue contribution. But in terms of net income contribution, you can see that it's now the third largest in terms of net income contribution. So that, I would say, in a nutshell pretty much shows where the biggest change has come in terms of the drop in net income especially during the second quarter of the year. Slide #4. So revenue down 8% for the first half, net income down by 43%. Comparing second quarter of this year to second quarter of last year, revenue was lower by 13%. However, net income was down by 57%. In the first quarter, net income was down, I think 32%, 32 -- 31%, thereabouts. So in the second quarter, we did feel the impact more, again, mostly because of the quarantine. However, something we had mentioned in an earlier press release, we did see April being the weakest month in terms of net income. April was the first full month of an Enhanced Community Quarantine. But as the months progressed, things did get better. So May was significantly better than April, and June was also better than May. We do feel that April was slightly the bottom. A lot of companies -- a lot of our customers were still scrambling to figure out how their demand was affected and how they'd be able to operate, how their people would be able to come in, how their supply chain was affected and so forth. I believe that most companies have been able to figure things out already. So we don't think things will get as bad as they had been in April. So in fact, with mECQ starting many parts of northern zone again as of yesterday for the next 2 weeks, it looks like things are not as bad as what we had seen during the early days of the quarantine period. Comparing second quarter, this year's first quarter you do see net income lower by 44%. We did not have -- another thing to add, we did not have any months of the year with negative net income. So I see that as positive, reflecting how our company is really active in the basic -- the provision of basic goods, Food Ingredients, even the plastics and chemicals, disinfectants, alcohol. These items, there's still a lot of demand even during this uncertain time. Page 5, look at our exports. So this is one bright spot despite the stronger vessel. We've seen exports improve from a value basis as well as a percent of revenue. So we used to hover at around 20%, 25% of revenue coming from exports. You can see in the second quarter, it's 31%. And for the first half, it was 26%. So exports doing quite well. On a value basis, higher by 41% in the second quarter of this year versus last year. In terms of the breakdown of exports, it's still pretty much following the same breakdown more or less from before, except maybe for oleochemicals, which has seemed -- seems to be doing quite well, especially the medium chain triglycerides that we export. So we have a big market overseas that has seen high demand. There's been more emphasis on exports, such as for products like essential oils. There's a lot of emphasis on health and safety, and coconut oil with the -- coconut oil has shown to have antiviral, antibacterial, antifungal properties continuing to be very popular. And so demand for coconut oil as well as the derivatives such as the medium chain triglycerides and other oleochemicals continuing to be quite good. Page 6. So we've seen higher growth in the -- especially in the food commodity business. So this is why you see the sales mix has shifted back towards -- more towards commodities. We did not see growth -- we saw a drop in volume for the high-margin specialty products. So that's why you see that change in the sales mix from 69-31. Last year, it's now 63-37. However, the change is not still bad. It's pretty much just going back to the same ratio that was there 2 years ago. So on this slide, we do see lower volumes across the board for all of our high-margin businesses. Later on, I'll go through each segment specifically. But one thing that does stand out here, the big jump in the food ingredient commodity business, with volume up by 47% in that. You can see on the right that has had a big impact on the overall margins of food from 18% last year, it's now down to 10%. Not -- well, partly because margins across the board were lower. So for both high-margin food as well as commodity food, margins came down, but also because of the change in that sales mix with commodities big -- commodity sales of Food Ingredients is taking up a much bigger chunk compared to before. But for the other segments, you can see that margins are pretty stable, at the same level or better than where they were the year before. Page 8 of the presentation, you can see that we did start to see weakness in our business in the first quarter. So even before the lockdown started, we did see a lot of weakness and hesitation. People were not going out as much. People were afraid of getting infected. And of course, when the lockdown started, things did get worse. For a lot of our customers, they stopped operations for a while. In fact, for many of our customers, they're still not operating at -- they're operating at far below 100%, probably anywhere from 60% to 80% compared to where they were operating at before. So there you see that significant drop in volume in our high-margin specialty products business in the second quarter. So specifically just for the High Margin segment. You can see that there's a 17% drop in revenue compared to first half of last year. On the bottom left, you will see that -- so similar to what we saw in the first quarter, the margins of our high-margin products are lower compared to last year. However, they're still higher than where they were 2 years ago. So, and as we saw in the earlier slide, it's really the margins for the Food Ingredients that had come down. The other segments, which make up roughly half of our business margins were actually quite steady. On the right side, you see there the breakdown still pretty much consistent with where it was before with food being half, Oleochemicals second, Specialty Chemicals third, Aerosols fourth. For the commodity business, primarily because of the growth in straight oils, which is a lower-margin business compared to bio-diesel. Overall margins for commodity segment are lower. The slide earlier with the volumes for the different segments, it's shown that bio-diesel volume was lower, I think, around 35%. So reflecting the -- so no public transportation during quarantine, people traveling less. So less diesel consumed. And so there's also less bio-diesel bought by our customers. Page 11. So this shows you where the commodity margins are right now. So they're at a low. It is a buyers' market at the moment across the board. I believe, globally, for most commodities, prices are really soft, with maybe the exception of iron ore, gold, and I think copper, silver, but pretty much most -- especially for food commodity products, prices are very soft. So it's a buyers' market, not much opportunity to earn. However, being a -- we are considered a strategic supplier for many of our customers. We do need to continue to sell these commodity oils to our customers because they do need to have consistency in the products with high quality. So we have seen many of our competitors drop out of this business in the last couple of months. Their supply chains were not able to cope with what's happening. And so we had to take up the slack. Unfortunately, the margins are not there at the moment, but we do believe that going forward, this demonstration of stability to our customers should benefit us long term, again, because we are seeing as a strategic and if I may say, a reliable supplier to many of our customers. Page 12 shows you -- so these are the numbers we typically look at when we go through with the operations of the company. So for this quarter, most of them are lower with the exception of net gearing. Net gearing is still stable at 8%, but lower revenue, lower income and margins lower as well. So in terms of cash flow, still positive. Our CapEx -- so no construction was allowed during ECQ. Construction of our expansion in Batangas was frozen for around 2 months, starting up again about a month ago. I'll show some pictures later. It's -- so we have been -- we've seen a delay of maybe 6 months to our construction of the expansion, so we're likely seeing that completion slide. From the middle of next year, it's going to slide to the end of next year. And I'll talk a little bit more about that later. The other thing you see here is for some of our products, commodity prices did move up. And that's why compared to before, where you saw a negative working capital environment that has changed. So it's kind of normalized. It was actually more abnormal to see -- to continue to see commodity prices falling. If you may recall the last 2 years, coconut oil prices had been falling. But since the end of last year, coconut oil prices have started going up. So that's 1 reason why we've seen that working capital coming in, taking up some of our cash during the first half of the year. This slide shows you -- so there in the middle, you can see coconut oil prices together with palm oil prices moving up towards the end of last year. Prices had come down since then, but slowly going back up again. But compared to the same period last year, prices are higher. And you also see the dollar peso exchange rate. So the peso is continuing to show strength, I assume primarily because with economic activity in the Philippines dropping so much, manufacturers are not importing as much as before. So that is peso positive. On the top, you see there, our margins have fallen. And again, margins have dropped, but only to the same levels as where they were 3 years ago. We do believe that this is a temporary drop primarily because of the weak state of the economy with the lockdowns, with restrictions, with people not wanting to go out. We are seeing the lower demand for the high margin specialty products across the board. But eventually -- it's only a matter of time this pandemic will go away and that should come back. So we should see those margins come back up eventually. Page 15 shows you the breakdown across the different groups. So #1, in terms of revenues, Food Ingredients, but as I mentioned earlier, in terms of contribution to net income, it's now the third biggest with Oleochemicals and is the first biggest in Specialty Plastics coming in at #2. Sales, you can see here sales and net income, it was only Aerosols that had positive growth in both sales and net income. So this is an interesting, I guess, demonstration of what's doing well during the pandemic. So our aerosol business, for those of you've been following us since we were listed in 2012, back then, Aerosols contributed maybe 1% or 2% of revenue, probably 3% of net income. You can see how it's regrown now. It's now 5% of revenue and 14% of net income. Of course, one big reason for that is because the other segments have fallen so much. But at least it shows how not -- how the -- how it's not all negative for us. The pandemic has affected the Food segment badly as well as the other Oleochemicals and Plastics segments, but at least have and segment that's doing well. So if you look at the food business. So volumes for the high-margin segments, which are boxes 1, 3 and 4, are lower. Volumes for the commodity business, which is the second box up by 47%. The gross margins are -- have fallen for specialty fats and oils as well as the refined vegetable oil segments. It is a buyers' market at the moment. We do believe that this is a temporary drop in margins. As the -- as people start to consume again, as restaurants start to open up again, we should see these numbers start to improve. But so Food Ingredients with net income 60% lower this year, just first half of the year compared to last year. For Oleochemicals, so net income is lower by 38%. However, you can see that overall margin is higher almost by 3%, primarily because of the other Specialty Chemicals segment on the right side. This segment caters to the traditional manufacturing segments. So manufacturers as well as the makers of packaging, F&B and so forth. We are -- so we're seeing overall lower volume for this segment. But for some specialty niche products, I think, doing much better. So that's why you see margins actually improving. Here's another interesting thing for the Oleochemicals segment. So this is still mostly bio-diesel. For those of you who are tracking Chemrez before when it was listed independently when D&L acquired -- wholly acquired Chemrez around 5 years ago, the overall gross margin of Chemrez back then was, I think, around 13%, I think, so it's now doubled. Also, if you look at the Oleochemicals segment, so just the left box there, with GPM at 27.4%. So the earlier volume slide I had shown with the segments, you had seen that bio-diesel volume was down, I think, 34%, 35% but here, you can see oleochemicals' overall volume was down 25%. So it means that the higher-margin oleochemicals volume actually grew. Now we don't break this down, but -- because we don't want to give too much information out. But safe to say that demand for these higher margin products, the higher-margin oleochemicals, specialty oleochemicals continuing to do well, as you can see. Specialty Plastics. So half of this segment sells to majors of automotive wiring. Car sales collapsed globally during quarantine periods, with many countries reporting sales of vehicles down by 90% or more. Today, in the Reuters, I saw an article saying that car sales in China in July were up 15%. So it looks like it's starting to come back. So it's down in the first half, but cars are getting older. People are looking at taking less public transportation because they don't want to get exposed to others. So there could be some reasons why you could see car sales coming back later on. And on the right side there, that segment caters to, again, the more traditional applications for plastics, everything from F&B, plastic bags, parts of appliances and so forth. So no surprises there, weakness in general. Net income for the Specialty Plastics division down by 37%. So here we see aerosol. So 3 segments: home care; personal care; and maintenance chemicals. Personal care volume down 66%. So people are going out less. So consumption of things like shampoo, deodorant are down. You're home. I guess, you don't need to beautify yourself so much. However, for home care, when it comes to things like disinfectants, that's doing well. So volume is up 11%. Maintenance chemicals would be sales of, I think, mostly alcohol. There may be some other different segments as well, volume up 21%. So overall, margins actually saw a little improvement, up by 0.4%, but revenue up 19%, net income up 20%. So we update this slide every quarter just to show the related party expenses. So D&L, as a whole, does not own any land or buildings. We lease most of our facilities from an affiliate owned by the family. And similar to what we have seen before, comes out to roughly 1% of total costs and expenses. On the right side, that would be related party income, which on a consolidated basis -- or net of consolidation comes in at PHP 31 million, which helps offset the related party expenses. Page 21, our cost structure. So raw materials still is the biggest part of our costs and expenses at 81%. Labor, 7%. This has remained consistent. So if you add up all of the expenses that will be classified as fixed, you would see -- it's probably just labor, depreciation and rental and maybe half of others. So coming up to under 15% of our cost expenses will be classified as fixed, which I'd say explains a lot about how we were able to continue to be profitable despite the big drop in our businesses overall. On the right side, you can see that we've continued to be a large user of food oils, palm, coconut oil and other food oils together making up 3/4 or 75% of our total raw material use. On the bottom left, tech spend is down 11%. So tech spend would be R&D, IT. Although it's lower, if you annualize that first half number, it could still come out almost not much lower than what we spent full year last year. And I believe as the second half rolls out, we should see more spending there as our customers start to ask for more products and better products. So more of R&D being done. So Page 22 is our balance sheet. Pretty much -- not much change here. That's a little higher. So debt equity is now 21% versus 20% last year. You see there the lower CapEx spend, but that should start to come back in the second half. Interest cover is still quite conservative at 14x. For net gearing, 8% in terms of -- so one interesting thing, we've seen interest rates finally start to come down in the Philippines. After the Bangko Sentral dropped the overnight lending rate by 50 basis points, we did start to see the banks passing on more of the lower interest through us as a borrower. The -- as of last week, we got one offer, 6 months fixed at 2.75%. So we'll see. But it's interesting. It looks like we're starting to see rates come down. So we shouldn't be a beneficiary of that as we start to ramp up our borrowings the next couple of years to pay for the expansion in Batangas. In terms of working capital cycle, improvement all around. So receivables are lower, inventories lower, payables are higher, cash conversion lower by 6 days. So unfortunately, we're not able to maximize improvements in inventory because with government operating on skeletal workforce and occasionally closing down customs, there's been a lot of delays moving products in and out of customs. So both on the import as well as on the export side, we're seeing more delays now than we saw before. Not tragic delays. And these delays are really more due to the bottleneck at customs, not so much. So the previous years, we would see delays coming more from a port congestion or tightness at the ports. That's not an issue anymore. So the bottleneck is now in customs. But I'd say this is temporary. Customs rolled out a new system around a week ago to further computerize their system. So we did see some of that. Well, there are a couple of bugs, but we're optimistic that things should get better. So in terms of the stock, daily trading average is still quite low. In terms of foreign ownership, so it peaked 2 years ago, but it's fallen from where it was last year, at 18% foreign ownership currently, but is still -- it hasn't fallen as much I'd say compared to the market in general. Family ownership has inched slightly up. So as the share price tumbled, when it hit PHP 4, a lot of family members bought. So unfortunately, even the insiders can't get it all right. A lot of family members including myself were buying early in the year. We thought PHP 10 per share is already cheap, but it didn't get cheaper. So yes, I think everyone's -- a lot of people are waiting to buy more. This chart shows you -- so the share price has fallen a lot since last year. We are still continuing to participate in various investor conferences hosted by the different banks. All of them have shifted to virtual conferences. And just to show that -- so just before ECQ started, we were actually -- D&L was actually at net foreign buying with the market at net foreign selling. However, since ECQ, we have seen some net foreign selling already in the stock. Just to show a recent picture. So this was taken 2 weeks ago. So if you can see the added construction, so we had a -- we have a lot of catching up to do, but you have -- you do see quite a lot of progress compared to the pictures we showed last quarter. So the tanks are almost finished and you can see the buildings starting to take shape, [indiscernible] are there and part of the roofs going up as well. So our estimate is that this construction should be done by the end of next year. And this is what it looks like -- what it should look like once construction is finished. I think that's it for my presentation. So we're open to Q&A.

Thank you, Alvin. [Operator Instructions] So we have a question now from Arvind of Wellington. So I will read the question. D&L has commitment volumes for straight oils. In a low-margin environment, around 1.5%, suppose margins become negative, do you just have to supply? How are your contracts structured?

So the straight oil business is quite tricky in the sense that margins -- there's really barely any margins there even before. And actually, that's one concern that's frequently brought up by investors. Why are we still in a low-margin business, why not just drop it and just focus on the high-margin business. It's not -- unfortunately, it's not that simple. If we could do it, we would have done it a long time ago. But the reality is our customers who buy the high-margin products also buy -- also depend on us for a lot of their low-margin product requirements, especially -- so when you look at things like quality, reliability, consistency, they need that reliable, quality, consistent supplier. So it's part and parcel of our product offering and our stance as a reputable, reliable supplier for our customers. So we always do our best to make sure that we don't lose money when we sell this -- when we trade this business. It is basically a trading business. But it's that trading business that allows us to maintain that strong relationship with our customer. So if -- maybe I can share with you what we have seen in the past. Every time there is a crisis in the past, we would see margins fall. But because of the consistency we demonstrate to our customers, they do appreciate us even more, and they further -- it cements more into their minds how we are so reliable even during a time of crisis. So when the good times come back, this -- due to the improvement in the relationship, they do give us those big orders. So I would just say that I classified simply a short-term pain, long-term gain. But we would try our best to keep this at least breakeven, if not slightly profitable, if possible. Thank you.

Okay. Another question from Arvind of Wellington. So on Slide 16, specialty fats and oil segment, gross profit margin is down 5.8%. Can you help me understand this drop further? Arvind indicated that this will raise as the volume sequentially recover. But were you providing discounting or difficulty in passing on higher raw material costs?

Well, it's a buyers' market, unfortunately. So there's not much pricing power suppliers like us have at the moment. So it's part of what I talked about earlier, short-term pain, long-term gain. Well, of course -- so it doesn't help that our company continues to be profitable, but most of our customers are not. I believe we already saw in the first quarter, many of our -- several of our food customers were reporting losses in the first quarter. I wouldn't be surprised if things got a lot worse in the second quarter for them. So it's not that we are being sympathetic or just sympathetic to our customers, and so we didn't charge as much but it's just the stage of the industry now. The food companies in general, especially those with dine-out restaurants are having a really tough time. And so the market is not able to bear high prices at the moment. It is temporary, I would say. And things -- we did -- so the bottom of this was really in April. Although the food business was still profitable in April but barely. Things are much better, things did improve as the months went by. So -- yes, so we should see things get better in the second half.

Okay. The next question comes from [ Dina ] of Arbor [ BP ] Capital. May I ask about the commodity margin -- may I ask about the commodity business margin recognition. It was all-time low at 1.5% this quarter. Is this a flat dollar per volume or a percentage of selling price margin?

It's a mix of both. There's some customers that we sell to where the margin is a percentage. There's some where it's a fixed margin. So it depends on product.

Okay. Next question comes from the line of Arvind, again of Wellington. Given our asset-light model and continued generation of free cash flow in the first half, is it safe to assume that you will not be interested in raising equity? This is in spite of CapEx commitment for Batangas.

So our net gearing is only 8% and with the share price at PHP 4.50, less than 1/2 of where it was in the beginning of the year. I think it's pretty clear that selling stock at the moment would be just a wrong move. It wouldn't be the best for us, wouldn't be the best for the company as a whole. So definitely any new capital raise would just be a bet for the -- at least for the foreseeable future.

Okay. Next question comes from Stephen of China Bank Securities. Can you give more color in terms of export volume? Does HMSP comprise bulk of it or commodities?

I don't see the breakdown, but I think it's almost 50-50. So HMSP would include things like the specialty food ingredients, the Specialty Plastics, Oleochemicals. We do export some commodities like coconut oil and there's a lot of interest there as well. But I'd say in general, it's probably 50-50, thereabouts.

Okay. Next question comes from Justin Cheng of COL Financials. Alvin and Crissa, 2 questions for me. Just wanted to ask about your export business and the stronger sales. It seems like food exports more than doubled. Could you give more clarity on what drove this? Is this mostly driven by increased demand for coconut-related products? And for the second question, I will read it also. Given the second quarter -- given that second quarter seems to be the worst quarter, which is already behind us, do you already have an indication of whether D&L will remain its -- will maintain its dividend policy?

Okay. So first question -- so there's a big increase in demand for coconut oil. So we did export a lot more coconut oil. So that's pretty much where the increase was. In terms of the dividend, the Board will finalize this. So normally, we announce our dividend at the AGM. So that's scheduled for September 18, I think. So our dividend policy is to pay out 15% -- sorry, 50% 5-0 percent of net income. And at this point in time -- so it's the Board's way to decide that. But my personal opinion, since our gearing is so low, we do need cash for the expansion, but even if we had to borrow 100%, assuming we weren't able to use any cash from operations to fund the expansion, which is unlikely. But even assuming that our net gearing won't go above 50%, I think. So I think there's space to gear a dividend. So -- but yes, we'll just have to wait until the AGM.

Okay. There are currently no more outstanding question. So again -- okay. Next question comes from Aaron of Regis Partners. With the overall softness in demand, what is driving the growth in commodity food volumes?

So we've seen -- so a couple of things going on here. First, there's -- we've gained market share. A lot of our competitors in the food commodity or straight oil business, they were able to sort out their supply chain during the lockdown. So either people weren't coming in. A lot of our competitors also outsourced their logistics and so with what's going on now, with the lower margins, they are not as competitive. So we gained market share there. That's first. Second, we're just seeing -- so for a lot of companies that are -- a lot of food operations -- give you an example, I went to buy from one of the large fast food restaurants recently. And the only items available were the basic items, so things like fried chicken. I think there were some French fries, soft drinks, and not much else. So a lot of the specialty items like the burgers, sandwiches and so forth, specialty deserts, they were not available. So that explains 2 things. One, the drop in the higher-margin sales for us. So our customers simplified a lot of their menus and just stuck to the core products. So -- and I think the other -- there's another factor here, which is we've seen a large increase in people eating at home and preparing their own meals. And I think globally, it's been reported, I think Amazon reported a sharp increase in sales of bread makers. Globally, I've heard there have been shortages of flour and wheat. I wouldn't be surprised if the same thing happened here. So what that means -- the effect on us is people cooking at home more. So they have to buy more ingredients and cooking oil would be one of them. So that, I'd say, also explains some of the increase in the commodity business.

Okay. We have a question from -- a follow-up question from [ Dina ] of Arbor [ BP ] Capital. 2 questions. The first one is, can I clarify again on the 1.5% gross margin for commodity business? Are these long-term contracts with customers? If yes, typically how long? Second question, you mentioned earlier that you are hoping for long-term gains for taking this low margins. Can you help how will that translate in contract negotiation with your customers?

So the 1.5% gross margin is low, but we don't -- typically, we don't have contracts with customers. So in other words, as soon as the situation stabilizes and prices go up and margins go up, we will be a beneficiary. In general, we don't have contracts with our customers. What's -- so actually, that's good lead into the second question about how this translates. So because we don't have contracts, but actually how we obtain customer loyalty, it's not through contract. It's the relationship -- it's the trust that our customers -- that we build up with our customers over time. So in other words -- so this is what I -- I guess I was talking about earlier. As we demonstrate reliability, quality and ability to be there when our customers need us that strengthens the relationship and the trust our customers have with us. And so to your second question, that's really where we see the benefit of just being there because the last thing the customer wants to happen during this uncertain time is for their supplier to suddenly disappear. That's the worst thing that could happen to them during this time where demand is so challenging. The business is having so much difficulty. The last thing they want is for the supplier to suddenly disappear. And it's something we've seen in the past. So fortunately or unfortunately, for the Philippines, we've had so many crises in the past, but what we just had to keep doing in every crisis, just be there for the customer, be available, don't run out of products, deliver when we say we can as best as we can. The customer remembers this clearly. So even if there's no explicit contract, I would say this is stronger than a contract. And for many of our customers, we talk to not just the officers, the guy purchasing, we -- it's the owners themselves during this crisis who are hands on managing the company, trying to steer the company through the troubles. So it's the owners themselves that remember who their consistent suppliers are. That makes a big deal. And I think it's just sets us up, hopefully. And we see that happen before. So I am hopeful, but I'm confident because it's happened before that we should be better off later on because of this.

Okay. The next question comes from Arvind of Wellington. Can you paint the picture of your Food Ingredients customers in the Philippines in terms of their expansion or contraction plans? If you were to grow in the future when the market recovers, assuming that several players exit or operate at lower volumes, you will need to gain market share. Could you comment about this in light of the other competitors in the Philippines?

So I am not ready to, especially now everyone's -- so everyone's plans for 2020 even for 2021 have been upended and changed so much. And I think it's fair to say that in the papers, we've read about especially some of the fast food chains, restaurant chains, planning to close maybe 10% of their stores even more. Those are crisis there. But what I can tell you is that in past crisis, specially, our multinational competition, a lot of them -- so usually, they would see Philippines as a small insignificant market that doesn't really move the needle for them. So many of our foreign competition in past crises, they will just close operations or they would downsize it or simplify it. So in any case, in the past, whenever there was a crisis, there -- because -- well, we have no choice. This is our main market. We have to stay here. We usually found that we're in a better competitive position once the crisis ends. So that does allow us to gain market share. It's still too early to tell if the same thing will happen during this crisis. But what I can tell you, at least from the commodity business, we already gained market share in the commodity business. So it's not a far reach to think that even for the high-margin business, we'll gain market share as well after the quarantines are lifted.

No more outstanding questions at the moment. [Operator Instructions]. Okay, a follow-up question from [ Dina ] of Arbor [ BP ] Capital. Can you talk a little bit on the export business? Are these new customers? And what type of products?

These are mostly existing customers, especially for the higher-margin Oleochemical segment. These would be manufacturers of things like essential oils. These would also be packers. So if you go on Amazon, search for medium chain triglycerides, or MCT oils, you would see that there are now many vendor selling them not just in the U.S., but even in the U.K. and other markets. So those will be examples of some of our customers. On the food side, especially for coconut oil, we probably did gain some new customers there, but these are just trading companies. But in terms of the higher-margin products, these would be mostly existing clients.

No more outstanding questions. [Operator Instructions] Okay. We have another question from Ivan of [indiscernible] Investments. When you say gradual recovery in the second half would you say the pace of recovery would be slower initially but picks up faster towards the end of the period? Or would it be slower than that?

That's a very interesting question. It will like -- so our recovery depends a lot on our customers and how quickly they can start up. And what we saw is that during -- so from March 17 until the middle of May during ECQ. At the beginning of ECQ, many of our customers were just not operating at all. In fact -- so for example, my kids' favorite pizza brand, surprisingly, who I thought should be able to deliver. I think it wasn't until 1 month after ECQ -- it wasn't until the first month past where they were able to start delivering pizza. I think it's taking companies a little while to accept that they need to be able to accept delivery orders, takeout orders. They need to accept that dine in will not be back to normal for a while. They need to be able to implement online payments. They need to be able to work with apps and websites to take orders for food. So I think this is still in progress for many of our customers. And so as our customers adapt and implement and accept then our recovery will also get better. So yes, it, like what we saw happened in April, May and June, the recovery will be continuous. I'm not sure if I should use the word gradual because gradual just implies a slope that's not steep. Because the slope of recovery from April, May and June was actually quite steep, primarily because April was just so low, but we are expecting second half to be better. And again, one indication is that even if Manila and nearby provinces have gone back to modified ECQ, things are different this time versus the last modified ECQ. So for example, it was my daughter's birthday yesterday and we were able to order takeout food from 2 of her favorite restaurants. Both of these restaurants were closed during the modified ECQ -- the earlier modified ECQ. So I think as our customers accept and adapt to offering takeout delivery online and so forth, the recovery should continue. In terms of the pace of recovery, it's hard to predict that. Again, it depends on how quickly our customers adapt to all the changes.

Okay. Thank you. The next question is from the line of Daniel Locsin of SB Capital.

Sorry, Crissa, I believe that was clicked in error. My apologies.

The next question is from [ Dina ] of Arbor [ BP ] Capital. 2 questions. The first one is, how are you seeing your customers' reaction to the reimplementation of the lockdown? How are you -- how are your operations reacting to this, too? Second question, I understand the uncertainty for second half. However, can you provide some color on the outlook for each of your divisions? How much lead time do your customers need to give you to ramp up volume?

Thanks for the questions. So in terms of customer reactions, our foods customers, they just closed their dine-in, but many of them had already started to offer takeout and delivery. So here's an interesting thing. Many restaurants before refused to do takeout or delivery refused to have accept payments online. Now, everyone does takeout, everyone does delivery, everyone accepts payment online. So -- I think the other thing here is that dine in never really took off the last couple of months, although during -- before modified ECQ started again yesterday, we were in General Community Quarantine, or GCQ, and dine in was allowed for 50% -- up to 50%. But from the reports I heard most restaurants were not seeing anywhere near 50% dine in. People were just not willing to go out, people were afraid. So having said that, I am not anticipating a big change of going to mECQ as far as our customers are concerned. Again, if anything, it further drives emphasis of how important it is to allow people to take out food or to have food delivered. So I would say that would be the bigger reaction from our customers. The emphasis on delivery takeout, everyone's accepting mobile payments now, some companies started to roll out apps. So those are the one that will tend to do better. In terms of our operations, well, so mECQ just started yesterday. One big effect on us is -- supposedly public transport is shut down. But public transport never really came back on line 100% during GCQ. So we did see a lot of jeeps around, or buses for example, or tricycles. What I heard, even with mECQ is that some areas still allow tricycles. And so one thing that -- one big thing we did when ECQ started in March because there was no public transport and because a lot of our staff were concerned about getting infected and then infecting someone at home. We ended up having over 400 of our staff sleeping at our sites. So at the plants and the offices and so forth. So as of yesterday, we -- maybe not 400, we may have 60 to 80 people sleeping at the sites again. So that's something -- okay. So I guess what I'm trying to say is there's nothing new. And whatever we need to do we already did it probably before, so we can easily adjust. Second question about the uncertainty of the second half. So -- okay, in terms of our food division, things can't get any worse. I think it should get better. At the beginning, first couple of months of ECQ, product development requests was at 0. And we've never seen that before. Typically, we get requests of something like maybe 20 to 30 new requests per week. It was at 0 for a while. It's slowly starting to come back. And what we've seen is that we have some customers realize that they can't stand still forever. They can't wait forever, so they might as well move forward and come up with new menu offerings, which are -- which will sell during quarantine. So -- simple things like back to basic stuff, pastries, pancakes, we knew it, right, pancakes turned out to be a very popular product during quarantine. Brownies, muffins, cookies. So we're seeing our customers slowly shifting and looking at changing their menu a little and tweaking it. What are these products that people are continuing to buy or buy more of. And that's what our customers are trying to do. So that's for the food side. For oleochemicals, as people -- as public transportation starts up again, as people travel more, what we saw in China in July, auto sales numbers were up 15%. So bio-diesel sales domestically should start to recover. There's also talk that the government may bring forward the implementation of the increase of the bio-diesel blend from 2% to 3% because coconut oil price is still -- even though they've gone up a lot from the low, they're still quite low and the government wants to help coconut farmers. So there's talk that it's possible that 3% blend may come in earlier than we thought. But you can never be sure when that's going to happen. But in general, for the traditional chemical segment, as the economy starts to open up again as construction starts, as people start building houses and buying appliances and so forth, then we should see a recovery there for Chemrez and the Oleochemicals business. The -- so the segments that have done well, whether it's Oleochemicals or disinfectants, alcohol, even if the quarantine goes away, I think, that emphasis on health and safety and cleanliness will still remain, and so likely, they will still remain strong. Plastics are very similar to chemicals. So as the economy opens up, that should grow, especially as car sales start to recover. And finally, for Aerosols, so we should see the personal care segment improve again as people start going back to work. So thanks for your question. Sorry, the last part of the question, lead time our customers for us to ramp up volume, very quickly. The equipment is there, the raw materials are there. It won't take us a long time. Maybe a week or so to start to ramp up volume when we need to.

Okay. The next question comes from Ivan [indiscernible]. Do we expect commodity margins of 1.5% will have to stay low for the remaining of 2020? Or is this magnitude of weakness lowest versus the lowest since 2014 a one-off for the second quarter? What do you expect would help drive the improvement for this segment?

I don't expect that margin to stay that low. So it's more one-off than something that we didn't see. Improvement would come as the companies open up again, and people have more confidence going out. So one thing I've done is, I checked with my friends in countries like China and Taiwan. So they were ahead of us in China, in particular. So China was, I think, 2 months ahead of us in terms of locking down. They locked down in Chinese New Year at the end of January. And according to my friends in Shanghai, things are back to normal, I'd say completely back to normal. So China lifted their lockdowns, I think, in June or July. So in the next couple of months, hopefully, we'll start seeing things start to trend back to normal for us as well.

Okay. The next question comes from David Dale. Please help shed some light on the following 2 queries. One, what is your opinion or policy on buying back shares in D&L, either by the company or by the family? And two, regarding the acquisition of competitors or on acquisitions that would help boost D&L strength, what are the things that management will look out for, for example, valuation levels, special know-how, et cetera?

Okay. So it wouldn't be in our best interest to tell you what our buyback strategy is because we don't mind you guys front-running us. But I think it's fair to say, if you just look at the record of when we had bought, it was when the share price is low. So the float of D&L during IPO in 2012 was 34.5%. It's now at 29%. So in the last 8 years, the family has bought back 5.5% of the company at share price being lower. I think it's fair to say maybe in short as the share price, when we -- when it goes low and when no one wants to buy anymore, that probably the time will come for the company. Second part of your question regarding acquisitions. So we look at the normal things, potential for improvement in profitability or in maybe a strategic reason like accessing technology or people. But valuation, which you mentioned for an acquisition, that is something we would be very careful about. So unfortunately, more and more sellers are now consulting accounting firms or finance companies or investment banks to value their companies for sale. And unfortunately, when interest rates are low and you calculate your DCF, it leads to really high valuations, whether it's NPV, DCF or whatever. So that would be the downside of doing a value on acquisition now. With interest rates so low, it just makes things expensive. So -- and that's the last thing we'd want to do to buy something that's too expensive.

Okay. The next question comes from [indiscernible] of LMN Advisors. So this is related to the previous question. Any M&A opportunities emerging? Are you open to these? And what segments of the business were attractive?

We've been hearing of a couple. Although I think most companies in the Philippines, the vast majority would not be in what I would classify as natural be in deep financial trouble. That levels -- I mean, if you compare it during the Asian financial crisis and now, that levels today are much lower, also much less of the debt is foreign currency denominated. Now, the bulk of most companies' debt now is peso denominated. So meaning, companies in general seem to be better able to weather the storm now compared to the Asian financial crisis. But having said that, yes, we will send some dealers, some companies. So we're looking -- we are open. And if -- as long as it's in a segment that we're already in or it's something that's B2B that leads to us being able to add value on the technical or chemistry side, on the product development side, then it's something that will be of interest to us.

No more outstanding questions at the moment. [Operator Instructions]

Maybe something I can add. So we did a little over PHP 500 million in net income in the first quarter. We did less, I think, about half of that in the second quarter. For the second half of the year -- so overall, first half net income came in at -- a little over PHP 800 million. Second half should be better. So we're looking at anywhere between at least PHP 900 million to at least PHP 1 billion income in the second half.

So if there are no more questions, that concludes our second quarter briefing. And as usual, whenever you have any question, you can always reach out to our IR team, so that's Alvin, Ainslee and myself. So once again, thank you for joining our briefing and have a nice day.

Thanks, everyone. Take care. Buh-bye. Well, there's a question.

No. Okay. Thank you.

All right. Thank you, Crissa. Buh-bye.

Bye. Thank you. Bye.

Thanks, Crissa. Thanks, Ainslee.

See you. Buh-bye.