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

Good morning, everyone. Thanks for joining us for the first quarter briefing of D&L's results for 2022. Let's get started. So okay, let's go to the next slide, please, Crissa. So our highlights. First quarter, we saw that net income was higher by 12% versus first quarter of the previous year. First quarter net income came in at PHP 780 million. This is also 63% higher quarter-on-quarter. It's also higher than the net income we reported in 2019 and 2018, which were pre-COVID. So good results considering the Omicron surge in January, and we'll talk a little bit more about this in the next couple of slides. We did see our exports continue to perform quite strongly with first quarter export sales value up by 45% and export contribution to total sales consistently at approximately 1/3 of total sales. We did see the sales mix start or still tilting towards commodities. And so the commodity segment did much better than our high-margin segments with volume higher by 18%. We are continuing -- we believe that the momentum is still continuing to be quite strong, especially with the Philippines staying in Alert Level 1 for COVID for most provinces and most cities. So there is a lot of optimism, okay. So the next slide, you can see that here comparing first quarter net income to fourth quarter last year as well as first quarter from the previous years. So this is we see a positive result, and we are higher than all the first quarters from the past. The next slide, we can see the condensed income statement. And so here, you can see more details. And the other thing of note that you can see here is that we can see that we also reported higher sales, but we'll go into more details later in the next couple of slides. In the next slide, you can see there the historical comparison of net income versus the previous periods or previous years. So we see 2021 recovering versus 2020 and reaching pretty much the same level as net income from 2019. And if you just annualize the first quarter 2022 results, it looks like we may hit the same level of net income from 2018, which is the highest level of net income we reached in our history. In next slide, you can see there the high-margin volumes and how it's changed since 2017. So you see there the growth -- good growth in 2018 and then 2019 growth starting to weaken, mostly because of the late passage of the budget in 2019, the inflation fears as well as the trade wars that were happening back then. Of course, 2020, we see the effects of the start of COVID and then the recovery in 2021. 2022 volume for high margins, it was actually down by 1% and this is mostly due to the Omicron surge in January. Next slide shows you the segment volume across the different businesses, split between high margin and commodities. So you can see there -- so Food, in terms of high margin, still managed to grow, it was 2% volume growth. Oleochemicals, good growth, 5% up, but Plastics were down. Consumer products ODM was down as well. So high margin volume, as we have seen in the earlier slide, volume was down by 1%, although you can see there commodity volumes significantly higher compared to before, especially for the food commodity volume up by 21%. The 5% higher volume for the oleochemicals under commodities. So that's mainly biodiesel. So biodiesel volumes were up by 5% compared to the first quarter of last year. In the next slide, you can see the export performance for the company. So consistent with what's been happening since the start of COVID, our exports are continuing to do quite well. And so you can see by value, exports are up 45%. As a share of total sales, exports are currently at 34%. On the right side, you can see there the breakdown of our exports. It is mostly coming from our Food segment, although -- and then you see Oleochemicals second and Specialty Plastics being third. The next slide, we show the revenue breakdown or the sales mix. So this is something we've seen since COVID started. So we've seen much less interest from our customers to be doing specialty formulations or to be launching a lot of new products. There's still a lot of hesitation, especially every time there's a surge and restrictions. A lot of our customers prefer to stick to their core products. The volatility in raw material prices is also being a factor here. So we see customers trying to manage that volatility. So the growth in the commodity business better than the growth in high margin. However, we do expect this situation to eventually reverse. So once COVID is gone, also once supply chain disruptions and raw material price volatility goes away, which eventually it will, then we should see this situation reversing. So that improvement in the product mix should result in overall higher margins. So that's something we are looking forward to. The next slide shows you the high-margin segments summary for the company. So you can see there that in terms of revenue, a big increase, up by 29%. Although there is still that drop in margins, we did see that actually had started when COVID happened, although there was a recovery in 2020. But in 2021, as volatile raw material prices started to transpire, we did see a slight lag in our ability to pass on price changes. So we do still have confidence that we are eventually able to pass on price changes. But for now, there is that lag. And that's why you see margins there trending down, but we do expect this situation to reverse once the volatility is -- once things are more stable. I look at the next slide for our commodity segments. Here, you can see that margins are much more stable. Margins are pretty much the same from where they were last year. And no surprises here for our commodity business. The price pass-through is pretty much almost immediate. As the market prices change, we are able to reflect that in our selling prices pretty much. For the next slide, you can see the summary of our cash flows. So we did manage to have positive net operating cash flow. Although a big chunk of our cash, as you can see there, being used up in working capital. So that's mainly inventory as well as receivables. And then you see the big spend in CapEx in the first quarter, so resulting in negative free cash flows. The next slide shows you from the last 12 years, the volatility in our raw materials. So the middle portion of the slide there coconut oil and palm oil together make up over -- I think now it's over 70% of the raw materials we use. So you can see there, prices were -- prices have been volatile, not just in the recent last couple of months, but actually since 2019, pretty much prices having gone up by quite a lot. And below that, you can see the dollar cash exchange rate, a lot of volatility as well. For us, that is significant because roughly half of our raw materials are imported. So a lot of sources of volatility. But if you recall the slide earlier where we had -- where we showed our product mix and how it had been deteriorating since the start of COVID, we believe that has been a bigger factor in the decline of our margins, which you can see at the top there. So that is something -- the decline in margins, the bigger factor there, we believe, is really coming from the deterioration in the product mix. So once that product mix start to stabilize, it starts to improve, then we should see our margins continue to -- or start to improve as well. The next slide. So just to emphasize our ability to pass on price changes, just you can see there the quarterly revenue since pre-COVID. So second quarter 2020 having the lowest revenue because of lockdowns and restrictions, but as you can see, since then, business recovering and a lot of this increase in revenue is primarily from higher selling prices. So it is our ability to pass on raw material price changes. Okay, next slide. We'll go next to take a look at the performance of the different business units. So just looking at summary here, you can see that Food continues to be the largest segment of the business on a revenue basis. But from a net income basis, it is now the #3 contributor. So if you recall from last year's results, Food had recovered. So at the start of the pandemic, Food had fallen to #3, net income contributor. But as of last year, it was already at close to #2, but primarily because of the Omicron surge, it has fallen to #3 again. However, we do expect this situation to improve a lot in the next couple of quarters, knock on wood. Hopefully, we don't see any more serious surges and no more serious restrictions. So that should see people continuing to go out and a good recovery in our Food business. So a quick look at the Food segment overall. So good growth across the different segments in terms of volume as well as revenue. However, margins have dipped primarily because of not just lower margins for the first segment, especially fats and oils, but also from the change -- that change in product suite, which we did see in our Food segment as well. And you can see here from the numbers the low-margin segment, which is the second box, volume increase of over 20%. So that shift in product mix also contributing to overall lower margins for our Food segment. This is something we do expect to start to reverse. So a couple of things to look forward to once the Omicron surge -- sorry, once COVID goes away and once we don't have a volatility of raw material prices anymore, then we should see our Food segments start to stabilize and the performance should be much better compared to what happened in the first quarter. Next is a quick look at Chemrez. So we sell a lot of oleochemicals and specialty chemicals, biodiesel being still the major oleochemical in this segment. But as you can see here, a relatively good growth in terms of volume overall, up by 5% and a lot of price pass-through with revenue up by 36%. Slight improvement in margins, up by 0.3% and net income higher overall by 57%. So very good performance, particularly from the Oleochemicals segment. Next is Specialty Plastics. So that has been impacted not just by the Omicron surge, but also by the chip shortage, which has resulted in a decline for our business, especially for the automotive wiring. So volume for the quarter down by 20%. However, we were still able to see higher net income primarily from overall higher gross profit margins, as you can see, higher by 2.5%. And we have been -- we're in a good position with our Plastics business because we have quite a good level of inventory and a lot of that was procured at a low price. So on average, we carry around 90 days of inventory across the board. But for our Plastics business, we were able to position quite well, and that contributed a lot to the profitability of the Plastics business in the first quarter. And then finally, we have Consumer Products ODM. So in this segment -- so a few good things and a few not so good things. So on the positive side, we can see the second box there, Personal Care. So this is a segment that had fallen the most at the start of COVID, restrictions and lockdowns causing a lot of people to stop going out and to stop spending on personal care products. And so as you can see, people are going up again and Personal Care volume up by 73% in the first quarter of this year. That was something we actually started seeing towards the end of last year. However, the segments that did quite well at the start of COVID, so sales of the cleaning, sanitation chemicals, alcohol and so forth, which were up during COVID, that is not doing as well in the first quarter. So through proposing forces, if you will. So I think we're still doing slightly better than where we were pre-COVID, but it is part of the adjustment of how we are seeing consumers shifting their spending away from not spending so much on cleaning and sanitation, but spending more on products for going out like personal care products. In the next slide, we can see the summary of the related-party expenses. The company spends on the large assets that it uses that it doesn't own. So D&L on its balance sheet, you can see it does not own any property. So the bulk of the large fixed assets the company uses are leased from affiliated third parties. And so that's the bulk of the left side. You can see that these are classified as related-party expenses. On the right side, you can see there D&L as a company performed shared services for a lot of companies in the group. And net of consolidation, we can see PHP 28 million earned classified as related-party income, which helps offset the related-party expenses. Next slide is a summary of our cost structure. And you can see there, no major changes, with raw materials still being our most or biggest cost item at 87%. Far #2 would be labor at 4%. And similar to before, if you were to add up all the costs that would be classified as fixed, that would be pretty much just labor, depreciation and rental and maybe half of the others. So that would be less than 10% of our overall cost expenses being classified as fixed. So that's what makes us quite versatile and agile in terms of reacting to issues that could affect us as a company and even the economy overall. So this is pretty much one big reason that allows us to react quickly every time there's adversity. On the right side, you can see there, so almost half of our raw materials are imported and over 70% just coming from 2 main raw materials, number one being coconut oil; number two being palm oil. On the bottom left, you can see there, technology spend. So technology spend defined as R&D as well as IT spend, dipping lower in 2020, understandably, as our customers were requesting less spending on new formulations. But as we can see, that spend did recover last year and it's still up this year, higher by 41%. A quick look at our balance sheet. No major surprises. We did issue a bond in September of last year. So our debt-equity still manageable at 68%. And on the bottom right, you can see there interest cover at 31x. On the next slide, you can see our net gearing still quite conservative at 45% net debt. So borrowings of PHP 13.5 billion, minus our cash, net debt is at PHP 9 billion. Our average cost of debt still at below 3%. Although interest rates are slowly going up. So -- but it is something we believe we are able to manage, trying to keep interest rates as low as possible. Next page is our working capital cycle. So cash conversion at 109 days. Receivables, still trending a little lower, currently at 47 days. So, knock on wood, we were able to manage our receivables quite well during COVID and still trying to do so. We also see a lower base inventory now at 82 days. And payables, slightly down from 21 days last year, now at 20 days. In terms of the stock, we are ranked #52 in terms of the largest Philippine companies ranked by market capitalization. The average 12-month daily trading value is roughly $600,000. And on the right, you can see there that about half of the public float or 14% out of 29% is owned by foreigners. On the next page, in terms of how the stock has done since the IPO. So we've still performed much better than the index. And on the bottom, we see there, we are continuing to be involved in various conferences and forums with the different brokers. Next, we'll take a look at some of the -- what we've been doing with our expansion in Batangas. So you can see in the picture, in the next slide, that the buildings are pretty much -- on the outside are pretty much done. So a lot of the ongoing work is really what's happening inside. Once things are at a later stage, we will actually be inviting analysts and fund managers and anyone else who wants to come along to come with us and go visit the site in Tanauan, Batangas. Still targeting to be completed by the end of this year, start operations by January of next year. And in the next slide, you can see there, so in terms of CapEx, how we have been ramping up. So construction started at the end of 2018 with CapEx peaking last year. We do expect that CapEx spend to already be lower this year compared to last year and to be tapering off already. And that's it for the presentation. So we are open to Q&A. Thank you very much.

[Operator Instructions] We have a question from Koh Sang Lim.

I would like to ask about the margin outlook because you mentioned that you are using some low-cost inventory and, hence, some of the divisions that the margins are better than expected. Perhaps you can share with us the margin outlook, especially at the gross margin level.

Sure. So we carry on average anywhere from 80, 90 days of inventory. So -- it is the case that for some of our product groups, the -- that position enables us to basically have lower costs compared to some of our other competitors, and that means we can -- even if we're selling at the same price or even slightly cheaper than our competitor, we may even still be making more money than our competitor. But in terms of gross margins, our teams, they all have their targets. They all know how much there -- how much they should be selling at to achieve their target gross margin. So that's something we are -- I would say, we're quite used to because from the chart we showed earlier, it's not just the last 12 years where we've seen volatility in our raw materials. Volatility has been something we've been seeing since business started in the 60s for us or almost 60 years ago. So it's -- margin protection for us would be 1 of the 2 KPIs are people really focused on. So the sort of 2 KPIs, the first one would be volume growth. And the second one is really focusing on margins. And just focusing on those 2, it keeps things simple, but the end result is if you -- because if you can grow both your volumes as well as your margins, and that will automatically translate to higher income, right? So that's still something we put a lot of attention into. In terms of the outlook for margins, I wish I could say that prices have peaked and they're going to come down. But the reality is no one really knows how high prices will still go. What we do know is that prices can go up forever. I mean it's just economics. Eventually, prices will reach a point where demand is not going to be there. And then you'll also see supply start coming in because a lot of the suppliers are just going to be so attracted with the higher prices and high profit. So eventually, high supply, lower demand will result in lower prices. And that's only a matter of time when it will happen, but we don't know when it will happen. But in all cases, whether prices still continue to go up or eventually, they go down, our outlook is really to continue to protect the margins that we get.

Next to we have [ Gina ].

So a couple of questions or 3 questions actually. So we're into May now. Are you seeing a recovery in, I guess, the Food segment, high specialty margin segment into the second quarter? If you can provide any color on the second quarter, that would be great. And I guess you've sort of in an indirect way, answered my second question. I just wanted to confirm, Alvin, you were saying that 2022 net profits, if you simply annualize, you'll get something close to 2018 net profit levels. Is that sort of where we can see net profits ending up to this year? Would that be your guidance for net profits for this year? And thirdly, it's regarding exports. So if you could provide any color on the exports, where it's going, where you see strength? I mean, I know you were talking about China pre-COVID as a very exciting market. I know China is not doing particularly well at the moment. But what you see there, that would be great. And on the back of that, I suppose, since your export portion has picked up as a percentage of revenue, does that mean that you're a beneficiary of a strong U.S. dollar? Or are you still sort of net neutral?

Thanks for the questions, [ Gina ]. Nice to hear from you again. So the first question you were asking if we could give some color on what's happening with our Food business in the second quarter. So what I can tell you is whenever -- so people have started to go out now. Traffic is getting worse. I see my friends posting on Facebook and Instagram pictures of them in restaurants. Restaurants seem to be packed. In fact, I've heard that in some restaurants, lines have started forming again. And this is -- there are no restrictions anymore when it comes to dining. So restaurants can be 100% occupied again. I've been asking a couple of friends who own restaurants, food establishments. Almost all of them have said that business is back to pre-COVID levels, if not better. What else gets you? We know that flights have -- are becoming full again, at least domestically. So we've had staff who've had to travel for business to places like Cebu and Davao. Not only are the flights or not only are the hotels filling up, but the delays of the airport, which we used to see before COVID, unfortunately, are back again. I heard last weekend. So one of my staffs who came back from Cebu and the flight delay was 2.5 hours. So bad news for travelers. But I guess it's a sign that things are coming back to normal. So it's not just Food that seems to be coming back. It's hospitality, it's everything related to at least domestic tourism. Over Easter, which is a couple of weeks ago, I saw pictures of Boracay and Baguio and the crowds are incredible. It seems to be back to normal, except for the face mask wearing, of course. So yes, second question about 2018 net income. We -- it looks like we can possibly reach that in 2022. And it's just multiplying our first quarter number. So PHP 780 million x 4, it's roughly PHP 3.1 billion. So yes, that's pretty much where we were in 2018. So yes, despite COVID still being around, although knock on wood, it looks like at least in the Philippines, it looks like we've -- we know that Omicron surge hit us so badly in January, it looks like we've already achieved herd immunity, plus, of course, the rolling out of the vaccines with over 80% of the population having received vaccines. It's -- so knock on wood, we don't see any more new variants and surges in the future. Obviously, these are restrictions that hurt us. But yes, it does look like as long as there are no incidents anymore of new variants or deadly variants, then we should be okay. And we should see that for -- we should see us hitting the same numbers we got in 2018, if not better. In terms of exports, so yes, we are still very much excited about China. So yes, we've seen lockdowns in Shanghai and Beijing. And we don't know when those lockdowns will end. But what we do know is that things may look bleak, but it's only a matter of time before the restrictions are lifted and the lockdowns. And just like we've seen in the past. So some reason -- still a lot of reasons to be optimistic. China, of course, is not our only market. We are selling to a lot of markets as well, including Europe, North America and other parts of Asia, not just China, all the way down to Australia and New Zealand. And so the outlook is still good. And with the opening of our expansion plant in January next year. So by the rules of PEZA, which is the Philippine Export Zone Authority, which is where -- our plant is located in a PEZA-registered zone. We are required to export a minimum of 50% of what we make from that plant. So currently, we export 34% of our revenue. And just by the higher average, that's going to go up once that plant is operational. So exports by nature of that new plant opening up. It's going to go up. In terms of the U.S. dollar, Crissa, if you could please show that slide that shows the dollar volatility as well as raw material price? Thank you. There you go. So you can see here that the dollar has been quite volatile every since from before. Having said that, so with the dollar volatility, you can see our margins don't really reflect that volatility. So regardless whether the dollar was -- sorry, whether the peso was depreciating or appreciating against the dollar, our margins don't really reflect any of that. So I would still say that is still the case. We're not -- so the correlation with our margins and our profits with how the exchange rate is, it's not as high, I would say, compared to other exporters. Thanks, [ Gina ].

Okay. We have a couple of questions in the Q&A chat. So the first question is from Joyce. Another coconut exporter shared that their business was seeing good volumes. They noted that while the demand was there, customers in general were not willing to pay for the very expensive freight cost and it seems like this is not the case for you. Why do you think you as an exporter why you're doing better than the others?

So I think the difference between us and the other companies that export coconut products is we're not so focused on the low end of coconut products. Most coconut product exporters export just crude cocoa oil or maybe coconut water. It's a low-margin business, not much value add. We're focused more on the higher margin coconut products like oleochemicals, for example. And our customers are much more price elastic, willing to bear higher prices. Their margins are much higher, the demand for their products -- it's just a different business altogether. So I would say that would be the biggest reason or the biggest difference we would have with other companies that export coconut products.

Okay. Next question is from Cristina Ulang. In what ways did the Indonesian ban palm oil exports effect you? Any supply chain [Audio Gap] to mitigate the impact?

So the Indonesian ban, and you could say this is something that seems to be a continuation of the ban on coal. Indonesia announced some time ago. It's very political, but there definitely is an effect. So you did see prices start to go up once the ban took effect. However, as we think about it, Indonesia is a country with over 17,000 islands. And I don't -- I'm not sure they have the capability to enforce a ban across all 17,000 islands. So that's one factor. Another factor is Indonesia is not the only source of palm oil. We also have Malaysia. From our perspective, we -- at least for our company, we have enough supply because we have a lot of alternate suppliers. These are relationships, which we have built over time. The -- there might be a shortage in the market for palm oil because definitely, a lot of the customers will not have these relationships that we would have. But at least in our case, for those customers that have been loyal to us, especially, so we want to take care of those customers who have continually been buying from us, who buy from us not just because we're cheaper, but because they value the quality that we give to them. So it's these customers that we would now as a supplier. So now the power is with the suppliers. And us as a supplier, we would continue to support the customers who really put value on quality, on reliability and not so much on price.

Another question from Cristina. What have you done differently? And what has changed remarkably that enabled you to achieve a record breaking first quarter net income, for the first quarter 2022?

So we actually -- so it's not the highest quarterly net income we've had. We actually had -- was the third quarter of 2018, I think was still higher. But nevertheless, yes, this quarter's net income was better than what we were expecting. And so a lot of it -- so if you look at the numbers -- Crissa, if you could show please the breakdown between the segments, the summary slide? You can see that the net income gain or almost half of the net income -- sorry, not that one, for the group results with the breakdown in segments. So there you go, thank you. So almost half of the net income, 42% came from just oleochemicals and other specialty chemicals. So that's everything from biodiesel to the high-margin oleochemicals and even some of the traditional chemicals. So this is Chemrez. And I guess this is another feature we would have as a company that is not so tied up in just one segment. We are very much -- we're a very big supplier to the food industry, but we have a big nonfood component as well. And this is, I think, is one advantage of having that, I guess, diversity in a way in our business model, where we're not totally dependent on food. We are -- we do have that nonfood segment as well that helped us during the quarter. So that's something that really helped. I think another thing that's helped is -- Crissa, I think if you could go back, please, to the working capital slide? So we've had to really be very disciplined in terms of everything from giving credit terms to customers, making sure we had enough supply on hand. But at the same time, not piling up too much inventory to be a drag on our cash flow. So that there is a delicate balance, I would say, but at least in terms of scalability and the sustainability of the business in terms of having enough material available to serve our customers. At the same time, giving out enough credit terms to support our customers, but not be a burden for our cash flow. So there's that balance that we're performing. So this is also -- it's behind the scenes. It's not sexy, but it is, I would say, one big reason that's allowed us to continue to do well. So conservative management. We don't have high debt levels in the company. But for the debt that we have, we try to manage it very well. We were lucky we were able to time the bond offering last year. When we issued it in September, rates have gone up since then. So just trying to be consistent trying to manage so many different moving parts as well as we can.

Okay. We have a question from [ Stephen Alvarez ]. Just wanted to ask if management can share the outlook on the global edible oil market.

Well, what we know and what we have experienced is that not just the edible oil market, but the commodity markets in general. For the last maybe 10, 20 years, so many companies, so many industries were focused on just in time or focused on reducing cash flow and being basically becoming vulnerable to volatility in supply chains, logistics and raw material price volatility. So that vulnerability seems to have bitten a lot of companies, a lot of industries. In our case, because in the Philippines, inefficient infrastructure, port congestion, all that, we could not have the same level of low inventory and very low working capital as in other companies and other industries. So I guess, that's kind of -- it became a benefit that we had 90 days of inventory on hand to help cushion and to help us as a supplier to be able to help our customers manage a lot of the volatility. Definitely, it's not easy. But to answer your question, outlook on global edible oil markets, definitely, there will still be a lot of volatility. I do feel though that once we start hitting record prices, there's less reason to believe prices will continue to go up. So on the demand side, demand will naturally weaken. On the supply side, you will start to see providers of the products start to ramp up production. Although there might be a lag, but still that increase in production is inevitable. And once economics tells us, right, supply goes up, demand goes down, the price should come down. So what we've experienced in the past, once you start seeing record high prices, that's really a signal on the demand and supply side. And eventually, prices do start to go down. So -- it doesn't mean that prices may not go even higher, it might still, but there seems to be less reason to think prices will go higher. More reason to think prices are eventually coming back down. So -- but in terms of timing, unfortunately, if I knew the timing, I'd be day trading, I'd be -- that would be all we'll be doing. We'll just speculate, right? But it's so hard to make money in speculation. So we'd rather stick to the steady business.

We have another question from Hazel Tanedo. Why did demand for commodity products increase? And why are costs passed on quicker to customers in the commodity segment?

So I think that there has been a lot of increase in the overall economic activity. And that is what we are seeing. So overall, our volume is up. Crissa, if you could show the volume change slide, please? So overall, volume is up by 9%, although commodity volume is up by 18%. So what it looks like to be happening is for a lot of our customers, they have shifted to more of their core products. So they can see that their business is doing well. The customers, the end users are back in the stores, back in the restaurants. But for our customers, instead of rolling out new products, they're just going to focus -- they have been focusing more on their core products. And the core products they don't need as much of the higher-margin specialty. They're really more users of the commodity, oils and commodity food ingredients. So that's something it seems to be consistent with what we're seeing happening in the market today. So the growth in commodity, I would say, is really a reflection of the pent-up demand that we're seeing from people starting to go out again. And the lower growth in high margin is where we see our customers, the restaurants and the food companies, not so willing to roll out new formulations, new ingredients, new launches and also the reflection of what happened during the Omicron surge in January. So going forward, what we likely may see happening that growth in commodity may come back down and that growth in high margin may start to go up as our customers get more confidence that, oh, they can start to roll out new products, new formulations, they come back to us to help launch more new products. So that's something we are actually expecting. And our costs passed on quicker on the commodity side, it's just the nature of the commodity business. Commodity business by nature, it's like the stock market, right? One second, the price changes, that is your new market price. It's the same for the commodity business. Whatever the price was at 9:00; by 9:30, if the price is different, you forget about the 9:00 price. You buy and sell at the 9:30 price. It's not so straightforward with the high margin business. The high-margin business, customers are not as familiar or not as attuned to whatever prices in the market. That's the price we have to pay. The prices are more fixed in nature on a 30-day basis. So a lot of these orders are made on a purchase order basis. Good for 30 days. After 30 days or 45 days, that's the time we can change the price. And so there is more of a price pass-through lag for the high-margin segment.

Okay. There's a question on oleochemicals. Can you give more color on the outperformance of the Oleochemicals segment like the sources of the volume growth and margin expansion?

So -- sorry, Crissa, if you could jump back to the segment volume growth slide? So here are some clues. You can see that the rise in volume was actually across both high margin as well as the commodity oleochemicals. So that's the second row in blue, labeled Oleochemicals and Other Specialty Chemicals. You can see high-margin volume up by 5%, commodity volume up by 5%. Now if you then jump to the summary slide for Chemrez, you can see that -- so volumes were up quite significantly. So that's the good thing. However, if you take a look at revenue, revenues actually were higher by 36%. So -- and then if you look at the margins, margins were actually also slightly higher by 0.3%. So what does this translate to? It means that at least on the -- for Chemrez, volumes -- not only were volumes higher by 5%, Chemrez was in a much better position to increase its margins and to pass on higher prices. And that had a very big impact on net income. So in effect, we saw that across the board, at least for the Oleochemical side for Chemrez, the business did quite well, not -- and we're able to pass on higher costs pretty well. The demand for its products are quite strong. And a lot of this is coming more from especially the exported oleochemicals. And the margins have also held up pretty well. So it's really just overall good performance by that division.

Okay. So is it right to think that as long as higher crude oil prices continue, Chemrez will continue to do well?

So we do think that the demand for specialty oleochemicals and, of course, biodiesel is a steady business. As more people are traveling again by default, more diesel is going to be consumed and, therefore, more biodiesel will be consumed as well because of the fixed 2% mandate because of the biofuel's law. So overall, demand for the products of Chemrez mix will continue to be strong across the board. So it's really a reflection of the fundamentals of the industries that Chemrez is in.

Okay. We have a question on inventory and inventory days. Have you adjusted your inventory or will adjust your inventory days moving forward, given the continuous disruptions and challenges in logistics? And what do you see as the average days moving forward?

So our inventory is not mark-to-market, I think. Sorry, Crissa, actually, I don't think we do mark-to-market?

Yes. On our books, it's not mark-to-market. It's based on cost on our books.

Okay. FIFO, FIFO, right?

50 days out.

Yes. Yes. Okay. So yes, it's not mark-to-market. No plans to -- so in terms of inventory base going forward, what we try to do is try to balance making sure we don't run out, making sure we know how many days before our shipments get to us, how many days -- making sure we have enough stock on hand to make sure our customers don't get cut. The -- you could say it's like a big no-no for us to run out of inventory, and that would be equivalent to like abandoning our customers which is one of the things we cannot do. It's like a cardinal rule in our business. But at the same time, of course, we don't want to carry too much inventory because there's cost of money and it could lead to speculation and so forth. So there's that balance that we need to hold. But in essence, that is what we're trying to accomplish just to maintain that balance. So average days moving forward will still be anywhere there from between 80 to 90 days on hand. Now however, if you do start seeing issues like, for example, if there's port congestion again, like what happened in the past or other reasons that would merit us being more conservative, then it could lead us to holding more days of inventory. Again, the purpose is just to make sure we don't run out.

Okay. In case of Philippines in terms of [ cessation ] phase, with high inflation in a soar economy, would the Consumer segment and Specialty Plastics be the weakest part of the business?

[ Cessation ], so I'm not so sure -- okay, so actually, we -- I think in reality, we've been seeing high inflation in the Philippines, not just in 2018, 2019. I remember late 2018, early 2019, we were seeing food inflation as high as 10%. And that was actually one reason why our business started to weaken back then because of high inflation. So we are seeing high inflation again now. But I'm not seeing less people going out. I'm not seeing the -- at least the evidence doesn't seem to support demand destruction from higher inflation. So I don't think we're at that point yet. Okay. However, if things are -- if inflation does rage on and stays quite high and if the economy does slow down, then yes, definitely, the Consumer segment will be affected because, essentially, companies won't be interested to invest, companies won't be growing. Therefore, they won't be hiring as much, won't be paying as much in terms of wages. So that has a big effect overall. And yes, if the Consumer segment starts to suffer, it's not just a Plastic segment that will be affected. It's pretty much everything across the board for us. We are -- as a company, as we saw during the COVID lockdowns, we were badly affected during all the lockdowns and restrictions and the relaxation of the restrictions did see our businesses recovering. So if for whatever reason, later on the consumer economy were to slow down again. So it won't just be the Plastics division that will slow down, it will be pretty much all our segments that will see a slowdown.

Okay. We have a raise hand from [ Karthik ].

Alvin and Ainslee, so I have 3 questions. So I'll probably take it one by one. The first is to the point that Alvin made on trying to be more disciplined with receivables and especially our customers. So if I were to look at the 47 days of AR, how does that roughly split division-wise? Which is the division that has the highest receivable days, which is the one that has the lowest?

Highest, right now -- so average is about, I think, 60 days -- no sorry, sorry, average right now for receivables is 47 days. I would say most of our businesses are close to that 47-day level at the moment. Food might be a little higher. Chemrez is probably a little higher also. The smaller segments might be a little lower, but they won't be that far from each other. So there's not really much difference. The -- it's almost like a commandment we have in the company to -- so what makes our company different from most other companies. The sales guys in our company are also the ones in charge of collecting from the customers. So what you see in most other companies is sales would be different from credit and collection. In our case, collections is a responsibility of our sales guys. And the rationale there is we don't want our sales guys just to making sales and not worrying about the ability to collect. It's an old fashioned way, I guess, of doing business, but it's something that has benefited us, especially in difficult times like what we had during COVID. So yes, not much difference between segments.

In other words, the 47 days per se doesn't have any mix impact effect of revenues, right, that's the inference we can draw?

In a way, yes, correct. Yes.

Okay. The second question, Alvin, is slightly a more medium-term question. So if I were to assume the first quarter of 2018 as an index of 100 and if I look at the volume growth of the high-margin specialty products, in first quarter 2019, the growth rate was 2%. In first quarter 2020, it dipped 9%. In first quarter 2021, it improved to 7%, and now we are at minus 1%. So if I take this cumulative growth over 4 years, assuming the first quarter 2018 as an index of 100, the growth rate has actually been almost like flat. How would you explain this? I mean for 4 years, it's the high-margin specialty volume growth even it's still flat. I would see that's a bit underwhelming. If I just ignore, I mean, COVID is there. I get that, but generally, from a medium-term business planning perspective, how would you look at this?

So we're a company that is really affected by a lot of external factors. So everything from -- so in late 2018, early 2019, there was high inflation, food inflation at that time hit 10% at one point. The trade wars as well impacted us. And of course, in 2019 -- so 2019, interestingly enough, was an election year. It was a midterm election for all positions below Vice President. And that year, I can clearly remember that the national budget was passed in April instead of in December or January. So that also had a very big impact on us. So that was 2019. And then 2020, we had COVID. So for me, it's really 2019 had a lot of negative factors. And of course, 2020 had negative factors as well. Those 2, I would say, are more outliers. They're not conditions we would normally expect that would happen in a year. And so my optimistic projection is that we should not have these outlier type events in a normal year. But yes, it just so happened that the time segment we are talking about, just so happen to have 2 years of fairly negative events that had negative consequences on our business. But if you were to expand the time segment to a much wider range, you will see that we've actually done much better. So the other way to look at this, I would say, is we already had the budget passed quickly after 2019. We do have the problem of inflation now, so that is still a worry. We do still have COVID as a concern now that is also still a worry. However, it seems that at least for COVID, the worst is over, knock on wood. Even if there are new variants coming out, at least from the last variant, it seems it's not as deadly or not as negatively affecting the consumer economy. And so I think there's more reasons to believe that the next couple of years going forward, even if there are these types of events, they may not be the type of outlier events that we saw in 2019 and 2020. And therefore, the outlook should be more positive going forward.

Got it. Okay. And my last question, Alvin, is we have seen some level of flip-flop from Indonesia, especially on the palm oil policy. First, they banned the whole exports, then they said crude refining palm oil is fine. And now I think they'd started to ban that as well. Is there a Plan B that you have both from the point of view of securing supplies and as well as prices, especially when it comes to sourcing for palm oil?

Sure. We are not out to grab 100% market share in that market. A lot of the customers in that space are so price sensitive. So if -- even if we were able to get their business if a competitor was offering a few cents cheaper, they would switch. So we prefer to focus on the customers that value, not just price but quality, reliability of the supply and so forth. So what that means is we focus on a smaller segment of the overall palm oil usage market in the Philippines. What that means is we don't need to be so reliant on Indonesia. We can continue to buy from our suppliers based in Malaysia. We also have some suppliers domestically we can consider also. So alternate suppliers outside of Indonesia, and not trying to grab the whole pie, just focusing on those customers where we have real value-added and real margins for that business.

So as of now, supply per se is not a problem according to you, securing supply is not a problem?

Yes, because we are not trying to grab the whole market. We're just focusing on that side of the market where the margins are correct.

Great. Excellent. Wish you and the team all the very best for the remaining quarters.

We just have one last question in the Q&A section from Cristina. How exposed this export business to a potential U.S. and European recession? And how would you mitigate the risks coming from an export slowdown?

Well, I would say -- so yes, if -- I'd say it's normal to project with ones -- if there happens to be a recession, then all businesses will see lower revenue. However, the other perspective here is that we're just barely scratching the surface for our exports. These are markets where we're still getting to know -- getting to expand, getting to know the customers, getting our products known, getting our reputation known. So there's a lot of share that we are able to target. So even if demand goes down, because we're just starting and because we just start stretching the surface, there's still a lot of share there that we can try to achieve. So I guess what I'm trying to say is even if there is a recession in the U.S. or in Europe, because we've only just started reaching out and our business there is not so big, I mean, think about it this way. We did roughly PHP 10 billion in sales in the first quarter, out of which 1/3 is coming from exports. So that's PHP 3.3 billion. So that's 60 -- let's round it up, let's call it, USD 70 million, correct? Yes, USD 70 million worth of exports in the first quarter. If you analyze that, that's less than $300 million worth of exports for the whole year. That's kind of tiny. So definitely, there will be an impact on markets if there is a recession. However, for us, because we're such a small player and we're just starting, it's -- we think there's really more upside than downside, regardless of if there's a recession or not.

Okay. That's actually all the outstanding questions we have.

Okay. Yes. So I guess if there are no more questions, any time you guys have anything else you'd like to ask, feel free to reach out. You can reach out to myself, to Crissa or to Ainslee. Happy to have you here. And yes, happy trading and see you guys at the next meeting. Hopefully, we'll have a face-to-face briefing eventually. Thanks, guys.

Thank you, everyone. Thanks for joining us.

Thank you.