Del Monte Pacific Limited (D03) Earnings Call Transcript & Summary

Good morning to our call participants in the Philippines, Singapore [ and other locations ] in Asia. [ Good evening to ] those who are calling in from [ the U.S.] This is the conference call for the second quarter results of Del Monte Pacific group or DMPL for FY 2021 ending October. Representing Del Monte in this call are Cito Alejandro, Chief Operating Officer of DMPL; Parag Sachdeva, CFO of DMPL; Greg Longstreet, CEO of Del Monte Foods, DMFI. And this is Iggy Sison, Chief Corporate Officer of DMPL. Before we start the call, may we request everyone to please mute his phone. Thank you. Parag Sachdeva will now present our second quarter results.

Hi. Good morning, everyone, in Asia. And good evening or good afternoon in the U.S. I will start with Slide 4. Just to reiterate, on 30th April 2020, the group recognized the sale of 12% stake in Del Monte Philippines and started recognizing this as noncontrolling interest on 1st May 2020. In addition, DMPL's effective stake in Del Monte Foods, Inc. increased to 93.6% starting mid-May 2020 and had since for -- henceforth recognize a 6.4% noncontrolling interest. These 2 comprise the NCI line in the P&L. Net profit or loss is net of the NCI. On Slide 5, second quarter highlights. Group sales grew by 11.6% due to higher consumption of healthy, shelf-stable food at home, with U.S. sales up 12.9% and Philippines sales expanded by 10.4%. Del Monte Pacific delivered EBITDA of USD 94.4 million and net profit of USD 21.9 million, a complete turnaround from losses last year due to one-off expenses. I am pleased to report that there were no one-off expenses or items that were recognized this period. Del Monte Philippines generated a net income of USD 23.9 million while del Monte Foods achieved a net profit of USD 9.1 million, driven by increased sales and improved gross margin. Reduced group [ net debt ] to USD 1.5 billion from $1.7 billion, and gearing was improved from 3.6x equity to 2.6x. Slide 6 on the outlook. I just wanted to touch up on key highlights. Aside from the DMPL base business, DMFI is also well positioned to improve performance in fiscal year 2021 with better sales mix and focused management of costs. We do not anticipate material one-off items in the coming fiscal year. The DMPL group is expected to return to profitability in fiscal year '21, barring unforeseen circumstances. On Slide 7, we'll present the group results summary. Sales of $623.5 million for the quarter, as mentioned before, is an increase of 11.6%. U.S. sales, up 12.9%; Philippines, higher by 3.9% in local currency; and 10.4% in U.S. dollar terms. S&W brand in Asia declined by 10.3% mainly due to lower sales of fresh pineapple in [ North ] Asia. Trading in India declined by 3.2% in local currency as B2B business did get impacted by COVID-19. EBITDA of $94.4 million up 35.8% from $69.5 million due to higher volumes and better sales mix in U.S. and Philippines, really getting a lift from pandemic-driven higher consumption of trusted, healthy and shelf-stable products. Our operating profit, in line with EBITDA, of $67.7 million was up 43.4%. Net profit, in line with operating profit, of $21.9 million is up 37.2% from USD 15.9 million. And just to remind, it does include the impact from minority interest changes explained on Slide 4. There are no one-off items this quarter. All figures above are versus prior year quarter, excluding one-off items last year. In terms of nonrecurring expenses, this is just to remind on what we incurred last year. This year, as I mentioned, there are no one-off costs. Last year, we did incur a significant cost of $76.8 million on a pretax basis and out of which $75.5 million was towards the closure sale of 4 production facilities. Pleased to report this has all been completed, and the sale closure of all the 4 production facilities was executed by the end of fiscal. Production at the rationalized facilities has been transitioned to other production -- DMFI production facilities in the U.S. as well as to the strategic co-packers. The sale proceeds from the sale of 4 plants was approximately $27 million. On Slide 9, we'll share more detailed results on a reported basis. Second quarter sales at $623.5 million was 11.6% higher, and it's driven by higher sales in the U.S., Philippines and S&W packaged sales in Asia, of course, to a large extent, driven by the pandemic. This will be explained more in the turnover analysis. Gross profit at $159.7 million, higher by $25.6 million, driven by higher volume. Gross margin at 25.6%, higher by [ 160 ] basis points, led by lower trade spend and improved sales mix both in the U.S. and the base business. Margin for the base business improved by almost 270 basis points and for DMFI by 160 basis points during the same period. EBITDA of USD 94.4 million, up 35.8% on a recurring basis, mainly due to increase in volume, improved sales mix and lower trade spend; last year including one-off costs, as explained on Slide 8 and hence, a complete turnaround and an increase of $101.7 million versus last year in profitability. Just to remind everyone that due to change in accounting of leased assets, the increased depreciation versus last quarter is just to the tune of $2.6 million. OI of USD 67.7 million, up 43.4% on a recurring basis; a complete turnaround, again, on a reported basis with an increase of USD 97.3 million, very much in line with EBITDA. Net finance expense, financing cost of $27.9 million reflects higher interest costs driven by higher coupon rate on high-yield bonds issued in the U.S. DMPL share in FieldFresh joint venture in India was a loss of USD 0.2 million, which is an improvement from last year, reflecting recovery from the pandemic impact. And also, last year included strategic investments in marketing. Higher tax expense, Q2 net loss before tax last year. Net debt, again, pleased to report that at $1.46 billion, lower by USD 274 million, due to significant improvement in cash flow from operations both in fiscal year '20 and fiscal '21. Gearing ratio, which follows the net debt, at 2.6x lower by 1x, mainly driven by significantly lower loans due to higher cash flow from operations, plus higher shareholders' equity as well. Slide 10, an update on the bond issuance that got executed end of October. We successfully raised PHP 6.47 billion worth of fixed rated bonds. The issuance, which consisted of 3-year bonds at 3.484% per annum interest and 5-year bonds at 3.7563% per annum, they were oversubscribed. Our credit rating, as mentioned in the last quarter's update, for this bond small is Aaa and is the highest rating assigned by the Philippine Rating Services Corporation. The proceeds of the offering were used to refinance existing loans with lower-costing fund and longer maturities. Slide 11. We'll talk about the turnover analysis. Our Americas business constitutes 72% of the total group sales, higher by 12.9% in the second quarter, to USD 450.8 million, mainly driven by higher volumes due to increase in demand from COVID-19 across categories and also higher USDA sales. DMFI benefited in the categories and segments with strong leadership positions as consumers turn to trusted names. If you look at our market share at 52 and 13 weeks, our share growth outpaced category growth across all major categories except for one. New products contributed 7.4% to DMFI's retail and foodservice sales in the second quarter. Asia Pacific sales in the first quarter increased by 10.1% to USD 166.5 million from USD 151.2 million, mainly due to growth in all major segments, including Philippines, S&W packaged and recovery of fresh pineapple sales as well. Sales in the Philippine domestic market was up both in peso and U.S. dollar terms by 3.9% and 10.4%, respectively, mainly due to higher volume both in general and modern trade, favorable sales mix and sales price variance. Group continued to progress with distribution transition in general trade coming from fiscal year '20. We'll provide a quick summary of our first half results. Sales of USD 1 billion, up 10.9%. U.S. sales, again, up double digit at 13.1%. Philippines, higher by 10% in local currency and 15.3% in U.S. dollar terms. S&W branded sales in Asia declined 14.4%, mainly due to lower sales of fresh pineapple in North Asia. Our JV in India declined by 20.8% in local currency as B2B business, which is a significant part of our India operations, did get impacted by COVID-19. But as mentioned, we are on the recovery path, and particularly, our B2C business and e-commerce business is doing pretty well. EBITDA of USD 136.8 million, up 26.4% from USD 108.2 million due to higher volume and better sales mix in U.S. and Philippines getting a lift from pandemic-driven higher consumption of trusted, healthy and shelf-stable products. Operating profit, as you would have expected, at $88.4 million also grew significantly in line with EBITDA. Net profit of USD 18.6 million in the first half is down by 7.3% on an organic basis as compared to last year. But just to remind everyone, this year does include the impact from minority interest changes that have been explained on Slide 4. Again, pleased to report there are no one-off costs in this first half. All figures above -- in the slide are versus prior year first half, and they exclude one-off items from last year's results as well. On a reported basis, we'll share with you a more detailed performance review for the group. Our H1 sales at $1.04 billion, up 10.9% from higher sales in U.S., Philippines and S&W packaged sales in Asia driven by the pandemic. We'll talk about it more in the turnover analysis. Gross profit at $253.9 million, higher by almost $29 million, driven by higher volume, better sales mix. Pleased to report that gross margin at 24.5% is higher by 40 basis points, led by lower trade spend and improved sales mix both in the U.S. and the base business, offset partly by higher pack costs from prior year inventory sold in the first half in the U.S. Margin for the base business improved by almost 260 basis points. EBITDA of $136.8 million is up significantly from USD 29.4 million mainly due to increase in gross profit as explained above. And reminding everyone that last year also included one-off costs, as explained in Slide 8. The increased depreciation from change in accounting of leased assets is $10 million in fiscal '21. OI of $88.4 million, up 27% on a recurring basis and again, a complete turnaround on a reported basis with an increase of close to $200 million. Net finance expense, financing cost of $52.4 million reflects higher interest costs driven by higher coupon rate on high-yield bonds issued in the U.S. DMPL share in the FieldFresh joint venture in India was a loss of $0.9 million but contained and lower than last year due to lower sales for foodservice and key accounts which have been impacted by COVID-19. Higher tax expense last year includes Del Monte Philippines declaring a dividend to its parent, which was taxed at 15% and amounted to $39.6 million. We have already talked about net debt, significant improvements due to improvement in cash flow from operations in fiscal '20 and '21. On Slide 15, we'll close it with the turnover analysis. Americas constituted almost 70% of the total group sales, that was higher by 13.1% in the first half, to $723.4 million, mainly driven by higher volume due to increase in demand from COVID-19 across categories. We benefited in the categories and segments with strong leadership positions. And new products ended up contributing to -- 7.5% to DMFI's branded retail and foodservice sales in the first half. Asia Pacific sales in this half increased by 7.7% to $302.4 million from $280.8 million, driven by Philippines and S&W sales of shelf-stable packaged products, partly offset by lower sales of fresh pineapples in China from lower demand attributed to COVID-19. I'm sure Cito will talk more about that as part of the business update. Sales in the Philippines domestic market were up in both peso and dollar terms by 10% and 15.3%, respectively, mainly due to higher volume both in general and modern trade, very much in line with what you saw in second quarter. And also, the sales mix ended up being favorable with higher sales to retail plus positive price variance due to lower trade spend and also some increase that we would have taken in line with inflation. The strong retail growth was driven primarily by the beverage category and the culinary segments as consumers continue to prepare more meals at home. Europe sales declined at USD 10.8 million by 24%, mainly from lower sales of beverages. With that, I would hand it over to Greg for an update on the U.S. business.

Thank you, Parag. We'll now turn to Slide 17.

Can we just have...

Yes?

We're using net income and net profit interchangeably. Are they the same?

Sorry, yes. Can we entertain the questions later, George?

Yes, yes.

Yes. We'll just finish...

Go ahead with the presentation now. Okay. Sorry about that. Go ahead, Greg.

Okay. So on Slide 17, what we'll see is a review of our market share leadership in the U.S. This data reflects ACNielsen Eq volume share from all outlets for the latest 3 months ending October 31. As you will see, we maintain our share leadership, our #1 share position in our -- the largest category, our canned vegetable category; a strong #2 position in canned fruit; growing #2 position in fruit snacks; and a growing position in canned tomato as well. Our market share for canned vegetables, fruit and tomato was temporarily impacted during the quarter, particularly in the months of September and October, by some out-of-stocks due to very strong demand, COVID-driven demand. Consumers during this time of the pandemic have continued to choose trusted brands in the U.S. marketplace to help them prepare more meals at home and seek healthy snacking and healthy food choices. Del Monte is committed to driving the long-term growth of our business by investing and building our brands, bringing differentiated and innovative products to market and expanding our distribution channels. On the next slide, Slide 18, we'll take a look at our second quarter results. Del Monte Foods' second quarter sales improved by 13% to USD 446.7 million due to higher branded retail sales, up 21%, arising from the pandemic. Consumers are choosing to stay at home. They're preparing meals and in some cases, learning how to cook and snacking on our trusted products for healthy, shelf-stable vegetable, fruits, tomato and broth products. So we've really benefited from this time of unprecedented demand. Higher sales of new products launched in the past 3 years accounted for 5% of DMFI's net sales and 7% of branded sales in the second quarter. We continue to be pleased by our new products growth. Several examples this quarter that were particularly successful include our College Inn Bone Broth products, which are rapidly growing across the U.S. marketplace and are very on trend with our chicken and our beef bone broth. In the club stores, we're having a lot of success with our traditional products and some new products like Bubble Fruit, our new innovative line of fruit snacks for children. And then we're getting back into the business of pineapple in the U.S., and we're having some great success. The launch of a more premium product called Deluxe Gold Pineapple is far exceeding our distribution goals and really helping to drive positive growth. The chart at the bottom of Slide 18 takes a look at the categories in which we compete, and it looks at -- in the top row, you'll see data that says pre COVID. Those are the sales -- dollar sales change for the 26 weeks before the March spike in COVID in the U.S. market. As you'll see, several of the categories are relatively flat with growth. And what you see below that is the 26 weeks following the March spike in COVID and what's happened to our categories and our business. So clearly, consumers are seeking trusted brands and trusted categories as they prepare more meals at home. We are currently, over the past several months, seeing another increase in category growth due to a rise in COVID cases in the U.S. marketplace and an increase in U.S. stay-at-home policies. We're certainly seeing that right now during the holiday season. Slide 19 talks about more of our results. And one area that we're proud of our growth within and one area that we're very focused on is e-commerce. Coming off a relatively low base, we were up significantly despite tight supply. Our marketing investments continue to support building brand awareness, findability and conversion online. Very important for us and a big area of growth over the next several years will be e-commerce for this company in the U.S. Gross margins in the second quarter, pleased to report at 22.8% up 1.6 due to lower trade spend and improved mix. This is a 520 basis point improvement over our Q1 margins. EBITDA of $57.7 million is significantly higher by 43% on higher sales and lower marketing costs. Net profits at $9.1 million, a turnaround from many quarters of losses. The work we've done with asset-light, the work we've done to reinvigorate our brands and contemporize our portfolio and grow in new channels, collectively, all of that work is helping to drive some very positive net profit growth. Pleased with the results this quarter and continue to be pleased with the work we're doing on cost savings. We're doing cost saving every day in the U.S. We've experienced $10 million in savings in the second quarter, $15 million in savings in the first half, and we have much more work to do here. Slide 20 talks about some of our new products that were launched this quarter. On the left, you'll see vegetable -- Del Monte Veggieful pocket pies. These products capitalize on 3 current trends in the U.S.: plant-based, frozen and convenient. These products are very healthy, very good tasting, very convenient. And were encouraged by the acceptance by the retail trade, and we're investing in significant marketing dollars to drive trial and awareness. On the right-hand side, you'll see a new product from our College Inn brand. This is designed to capitalize on interest in home meal prep, simplification of ingredients and a need for increased flavor. These products perform very well. They're very easy to use. And we're again investing marketing dollars to reach consumers, to drive trial and awareness. Slide 21 are a couple of examples of marketing efforts in the second quarter. We continue to invest in marketing activity around our authentic Contadina Italian brand of tomato products, really working to establish ourselves within modern Italian cooking and cuisine, partnering with a chef and influencer Laura Vitale to do a lot of work digitally to reach consumers. And that's really where consumers are looking right now, online, digitally to find new recipe ideas, new ways to prepare home meals. On the right-hand side, we have a very strong growth story occurring in our Fruit Cup fruit snack business. We advertised to all back-to-school period with new creative, new social, digital and PR efforts as well as shopper marketing and encouraged by our share growth, our distribution growth. And one segment that's done particularly well for us are the multipack 12-count products, in which we are the share leader. Slide 22, just some brief highlights on PR activity in the second quarter, 3.8 billion impressions that we've gained in the quarter, a number of media placements that are driving this growth around Del Monte brands and our Del Monte corporate positioning. Really working with top-tier media to increase top-of-mind awareness with parents and families, really reaching more and more consumers obviously at home and online and encouraged by those efforts. We've amplified our GrowingGreat partnership, which is designed to really help educate children about health and wellness and good eating practices, really reaching parents through these educational efforts to address the importance of raising healthy eaters. And then we're getting a lot of industry and media recognition; a lot of coverage from the press, including Wall Street Journal several times in the quarter, really being recognized for the efforts we're doing to promote health and wellness and our new products. So encouraged by that feedback and that recognition. The last slide I'll talk about is Slide 23. And it's been a difficult foodservice environment globally for everyone, but our foodservice team has been working very hard to try to find outlets to grow our products. We've gained new distribution with a very large chain called Schlotzsky's, a fast-casual restaurant with 350 units in the U.S. So we're excited about building our pizza sauce business with them. And then we've been doing a lot of work in foodservice as part of COVID relief, working with the foodservice distribution network to help supply much-needed meals, meal kits to relief organizations and really encouraged by what we're doing to help during this time of the pandemic. And we'll continue that work, obviously, for the several months ahead that we're facing. And with that, I will hand it over to Mr. Cito Alejandro.

Thank you, Greg. Chart 24. We exited the second quarter with very strong growth in the Philippine market. As you can see on this chart, our growth led to expansion of our market leadership across nearly all categories. Del Monte products are sought after by consumers because of its trusted, healthy and high-quality reputation. We also continue leveraging the trend towards increased home cooking, our spaghetti sauce category being one of the major beneficiaries. Chart 25. Philippine market sales grew 10% in dollar terms, driven by retail and some from e-commerce. Our issue is foodservice. It remains very soft due to establishments still below pre-COVID business levels. Our retail sales surged 13%, more than offset the decline of foodservice. Retail was led by flagship Del Monte brands like 100% Pineapple Juice, all juices for that matter, our premium condiments line and our Quick 'N Easy meal mixes, just to name a few. Pleased to report that Del Monte Mr. Milk yogurt drink, our entry in the dairy category, continues to do well in the market. Chart 26. The next couple of charts will show our marketing activities across all categories, all of these aimed at increasing the consumption of our products. In this chart, you will see our advertising initiatives that enhance the relevance and versatility of pineapple in home-cooked meals and [ desserts ]. Pineapple can indeed make food and desserts more fun and exciting for the family as we spend more time at home. Chart 27. We have maintained very strong communication of the health benefits of our beverage products. Our fruit juice provides immunity, protection, as we call it, an extremely sought-after benefit during these times. Pleased to report that our juice business has exceeded historical growth trend. Chart 28. After beverage, our second fastest growing and equally profitable category is our cooking aids portfolio. We have focused our initiatives on the growing trend towards more home cooking. Our goal is to make the family's time special while staying at home, never a dull moment when it comes to delicious, healthy food cooked with Del Monte products. Chart 29. These are more examples of our marketing efforts in culinary, specifically Del Monte Quick 'n Easy, and our spaghetti sauce. Chart 30. Moving now to S&W. As we all know, COVID started in China, and this major market, accounting for 50% of our fresh pineapple volume, affected the S&W business the most, particularly in quarter 1. That's from May to July. Pleased to report that starting quarter 2, our fresh volume has started to recover, especially in China. We're also present across digital formats in North Asia. S&W is in most of the portals in China and South Korea. Fresh e-commerce sales in China was significantly up, although from a small base. Chart 31. Quarter 2 sales of S&W packaged products in Asia and the Middle East grew significantly by 34% over last year. We expect the sustained growth in the remainder of the year. So fresh pineapple rebounded to 7% growth compared to the 28% decline in quarter 1 at the height of the pandemic. We expect the fresh business to do better in the coming quarters. Chart 32. This shows there has been no letup in our efforts to accelerate our fresh business in China and Korea, be it foodservice, in-store retail or e-commerce. Chart 33. Here, we have examples of our e-commerce promotions on S&W packaged products. All of these add to continuously increasing the traction of the S&W business. Chart 34. Moving on to our India business. DMPL share loss in India was lower than prior quarter as the business continued to recover on foodservice and QSRs or quick-service restaurants. Retail and e-commerce sales have surged. We have modified our product portfolio, given the demands of the times. We have also embarked on major productivity and cost savings to ensure we optimize our costs and protect our margins. And finally, on Chart 35, this is just another example of some products specific to e-commerce. With that, I turn you over to Iggy.

Thank you, Cito. Improving sustainability is 1 of the 5 strategic pillars of Del Monte Pacific, supporting our vision of nourishing families, enriching lives every day. In the second quarter, Del Monte Foods and Del Monte Philippines issued their sustainability goals to the employees of the company, respectively. Research developed a new water treatment design, key priorities in our sustainability report, which we published last September and is downloadable in our Del Monte Pacific website. Del Monte Foods also appointed in the second quarter a seasoned senior sustainability manager which will help promote our sustainability goals in the U.S. Our research developed a new water treatment design that improves fruit quality and saves freshwater consumption. We continue to support COVID-19 efforts in the U.S. by utilizing the foodservice distributor network and supplying shelf-stable products for meal kit distribution to government food relief operations in U.S. We also continued donating food and beverage in the Philippines to private and local government organizations to support marginalized communities and frontline workers during the ongoing pandemic. On Slide 37, we recap our outlook. We will continue to optimize our production in the Del Monte Pacific while implementing strict safety measures against COVID-19 in order to meet sustained demand for our trusted, healthy and shelf-stable products, as you will have noted in the update of Greg for our U.S. market and Cito for our market in the Philippines and rest of Asia, where demand continues to be strong. We will continue to strengthen our core business, expand the product portfolio in line with market trends for health and wellness and grow our branded business while reducing our nonstrategic business segments. We are well positioned in Del Monte Pacific in this current environment given our nutritious and long shelf life products, which allow our consumers to prepare healthy meals at home and build their immunity against the pandemic. Del Monte Foods is also well placed to improve performance in the U.S. in FY '21. As you will note in the report of Parag, that Del Monte Foods reported a net profit in the second quarter, which is our first profit in Del Monte Foods in several years. And this is helped by a more efficient supply chain, accomplished from the execution of asset-light strategy, better sales mix and [ proactive ] management of cost. So Del Monte Pacific Group, in summary, expects to return to profitability this financial year 2021. As you will note in our second quarter, net profit of almost $22 million and our first half net profit of $18.6 million. So with that, we would like to open the floor for questions. Thank you.

Okay. My name is [ George Tan ]. Can I ask a question?

Go ahead.

Yes, please, [ Mr. Tan ].

Earlier, I was trying to clarify. You were using the term net income and net profit interchangeably. Are they -- do they mean the same thing?

Yes, please -- yes, George. Thank you.

Yes. Because you used net income and then net profit, so I just want to make sure it's the same. Okay. I looked at your -- first question is probably dividend policy. Is there a dividend policy for Del Monte -- DMPL?

Yes, we do, and we will look at the full year results. And as long as we retain profitability, which we expect to, there would be a dividend of 33% or more.

Yes, that's the minimum dividend payout.

Okay. Next question is really on the financial report, fiscal year 2020 6 months to October and then fiscal year 2021 for the same period. Our interest expense for the current fiscal year is about $55.8 million compared to the prior year of $52 million. So I understand our leverage and borrowings have come down, but interest expense actually went up. Could you please explain this?

Yes. As I mentioned in my update, our interest expense did go up marginally by $3 million to $4 million, as you outlined, because we financed our long-term loans in the U.S., as you know, through high-yield bonds at a coupon of 11.875%, which was on -- which was definitely higher than our long-term loans that we had in the last year -- or in the last 4 or 5 years. Hence, our interest cost has gone up.

Okay. Yes. So I was thinking we could have borrowed in the Philippines and get a coupon of, what, 3%, 3.5%.

Yes. But as you know, we absolutely keep the financing separate. We ring-fence it, and we are actually doing quite well on that front, too. I think the other point I would like to note is we did reduce our long-term borrowings as the business continues to improve from a good $650 million of long-term debt to $500 million. So...

Yes. We have a robust EBITDA, which is probably good enough to bring down those long-term debt. So I guess the benefit will only be realized somewhere down the line.

Yes. Absolutely, George.

Yes. So the next question is on our, I would say, segment income. We have a big loss -- operating loss from packaged fruit, which is probably worse than the first quarter. Did I get it right?

Yes.

I'm sorry. Our packaged fruit operating loss is about [ $13 million last month ] and $5 million for the last quarter. So I guess it has gone down from $10 million to $5 million.

Yes, please.

Okay. Can you please just explain why this business is not making money?

Generally, our fruit business has low margin, particularly the plastic cups business. In the U.S., we are absolutely taking measures to improve the profitability of the business. And we have a clear path to improve margins by almost 10% to 12% on some of the key product lines and also our multi-serve plastic fruit [ cup ] business, which is doing very well.

I see. So there's some potential improvements along the line also on this product segment?

Yes, please.

Will they be able to trim down this even on a breakeven basis by the end of this fiscal year on a quarter-over-quarter basis?

We would definitely have a path to -- we would have a path to improving it by fiscal year '22, and there are some capital investments also being made that will further improve the profitability in 18 months' time. So it's a 6- to 24-month program, which we have embarked on to improve the profitability of our fast-growing plastic fruit cup business.

Yes. I have a third question, if it's okay. Well, I'm glad to note that DMFI actually made money already for the quarter, principally from the asset-light strategy. We did talk of some benefit of $10 million for the quarter. So for how long more will this asset-light benefit run?

So we expect this benefit to be ongoing. And the margin improvement that you are seeing is sustainable from the asset-light strategy that Greg has implemented and executed. So we do not expect that these savings would be diluted or go away. Obviously, there are always puts and takes. We would see some impact of inflation as it sort of rises in the coming quarters, but absolutely, the impact of asset-light was expected to be long term and sustainable.

Are we looking at another $10 million for the next quarter, I would suppose?

Yes. I mean we expect the run rate to continue for the full year when it comes to asset-light.

Yes. So -- well, that's a welcome news, the asset-light. I think it was disclosed some time anyway, yes. So I just want to confirm that, that is still valid. Yes. So basically, those are the questions I have here listed in my notes. Yes.

George, thank you.

Can you hear?

Yes. Go ahead, please.

Okay. My name is [ Chico ]. I have a few questions regarding about this report. Okay. First of all, I would like to know -- okay, as far as George has said, our company, actually, the interest expense increase is because of DMFI, of the loan, which is 11.7 -- 11.675% (sic) [ 11.875%], which we actually refinanced. So I know that actually, the company has a plan to do refinancing at a lower interest. So is there anything concrete about this?

We -- if everything goes as per plan, we would look at revisiting this in 3 years' time.

So you pay it for another 3 years?

Yes.

Okay. Okay. Then another question related to this refinancing. This time, we actually talk about DMPI, which is the Philippines. So it does -- it did refinance of USD 134 million. So I just wanted to find out how much savings with a lower refinance for DMPI.

So on an average -- because you have to look at long term, not just at the prevailing interest rate scenario, our average cost of borrowing in pesos is around 5.5% to 6%. So net savings on interest over a longer period that we are getting is around 150 to 200 basis points.

150 and 250 (sic) [ 200 ] basis points, so 1% to 2%, around there?

Correct.

Okay. But then another question I have is regarding about the COVID cases in U.S. I just want to find out, for DMFI or Del Monte U.S., did any of the employees contracted cases for COVID? And how serious? And how many cases? I just want to find out. And so is -- yes, I just want to get more information on this area.

Yes. I think we've -- yes, I can help with that, Parag.

Thank you, Greg.

Yes. We took extreme measures to protect our employees and create a safe working environment and have done everything very proactively and really in a leading manner in the U.S. And we've had -- less than 2% of our employees have contracted COVID, and they have not contracted that essentially at our workplace. That would be contracted in other areas. We do -- when it does occur, we do a tremendous amount of social mapping and have really done a good job containing our COVID cases. And thus, we've been able to keep all of our sites, whether it's a manufacturing site or a distribution site, operating during the pack season, and we have not had any shutdowns due to COVID.

So there's no impact on the production. But has that -- you just say less 2%. How many number -- absolute number of employees has been -- contracted COVID?

Yes. It's in the neighborhood of a couple of hundred employees off a base of close to 8,000.

Okay, okay. I understand. Okay. That's all the questions I have -- sorry, I have another question, sorry. The question I have is regarding about the dividends. I think in 2013, Del Monte used to pay dividends in half year at least. So when will this policy be resumed? Because now I know that -- I noticed that Del Monte only pays dividends at the end of the year. Is there any plan to go back to half yearly dividend policy rather than just the end of the year?

Obviously, if the business performance continues to grow as per plan, we would be welcoming the policy of going back to half yearly dividends. But since we had paid the common dividend just in the last few months, we would like to wait for the full year results and then take a call at the end of the year. But yes, we would welcome the -- welcome going back to the policy that you reminded us and what we had in 2013.

Yes, yes. I appreciate your consideration because I think, personally, investors definitely prefer half yearly, for my case at least. In terms of cash flow, it will be better for us than a lump sum, which is -- we have to wait for quite some time.

Thank you, [ Chico ].

I have some questions. Can you hear me?

Yes.

Yes, go ahead.

Okay. Congratulations on the good results. In the U.S., right, can we conclude from one of the charts that the market size would have increased by about 20% or so for all the various segments that we are participating in?

Yes. Through traditional scanned ACNielsen outlets across primarily grocery, on average, the categories have been growing at around 20%.

Great. And given that vaccine has been announced, do you see a post-COVID period where the market size will go back to the normal?

We believe that we will benefit from what's occurred in the U.S., and we believe that we're going to benefit from a couple of reasons. One, we've been able to create much larger household penetration during COVID. We have -- up to 1/3 of our consumers are new consumers that have tried our products for the first time, and they've come back and bought them a second and third time. So they've engaged with our products. They've used our products to learn how to cook again, in many cases, in the U.S., and they've enjoyed it. And we've helped make that experience a good experience for them and their families. So we've created a relationship with these consumers, and we believe that many of these trends will continue. We also believe that in this environment, even post COVID, you're going to have more consumers, more workers working remotely. More and more of the U.S. jobs will be located remotely. There'll be a need to prepare meals throughout the day, especially for lunch, and our products are well suited for home -- healthy home meal consumption throughout the day. And then lastly, we believe that there is a movement to value and that in this emerging economy and this recessionary state that we'll be in, that our products provide a value -- we provide accessible nutrition at a value to consumers and these categories that we compete in traditionally do quite well in a recessionary environment. So we do feel there's tailwinds that will help us keep most of this growth as we project into the next few years.

All right. Good. So you see some stickiness with your customers as well as the consumer behavioral change?

Exactly. That's well said, yes.

Okay. Good. Traditionally, this coming quarter, being the Christmas season, is a strong quarter for us. Do you see the same trend, that we are trending up this quarter?

Yes, yes. A couple of things have happened. We did see some earlier demand for the holidays. So we had a good October and as we look at this current month of December, continue to see strong order patterns. We actually think because of the shelter-in-place situations that most states in the U.S. are under, more consumers are at home again as opposed to dining out and they're using our products more and more. Our initial scan data from the Thanksgiving holiday looks quite promising. We're encouraged by our growth at those couple of weeks around Thanksgiving, and we anticipate a strong Christmas. So we're feeling good about the outlook for overall holiday consumption of our products.

Wonderful, wonderful. So we have seen a lot of change since you and the new team comes in. The EBITDA margin has increased. Would the current EBITDA margins be a good model going forward? Or do you see further improvement in the EBITDA margin?

We expect further improvement.

Wonderful. Okay. Then last question on U.S., right? You have e-commerce platform. Although small, it's growing. The e-commerce platform, is it on Amazon and others? Or do you have your own sites for e-commerce?

Right, right. Yes. We don't -- correct, correct. We don't sell direct to consumers. We don't have our own website, our own direct fulfillment. We go through customers. So we have a growing business and a good relationship with Amazon, but we're also having a lot of success working with customers like walmart.com, kroger.com, target.com here and really seeing that emerge as something that will continue. There's a lot of stickiness with that activity. Consumers will be ordering more and more product online and picking that up at the grocery store or having it delivered to their homes. So we're working with all of those customers.

Okay. Then when you go to the traditional model of distributed retailer versus to all this e-commerce platform, is the margin the same?

Yes. We believe that the overall margin and the investment required to promote is reasonable. When we sit down now, what's happened in the U.S., most of our customers now are looking for our sales team to provide solutions, to promote products in store and online. And so they're really viewed as -- so we can show total investment and we can shift dollars if necessary. If they want to invest more in a given time period for e-commerce, we'll move the in-store dollars there, and so we maintain a healthy margin on our products. So -- but we see this just growing over time. And we're adding new resources in this area to keep ensuring that we're a leader in e-commerce solutions, e-commerce promotions and connectivity with consumers in this new platform and are encouraged by what we're seeing.

Wonderful, wonderful. Yes. It looks like we are all doing the right things there, and can't wait to see good results next quarter. So I'll switch back to Philippines and Asia Pac. The question is again on the e-commerce. I noticed that in North Asia, you used a lot of existing China giant e-commerce platform. There's a trend in China towards private traffic where you integrate all this together with your own e-commerce platform. Are you exploring that?

Yes. In China, you would note in the presentation, yes, we have different partners. We are #1 in Pinduoduo, for example. And then Cito will build on this. But we have several e-commerce platforms in China, not our own direct to farmer but -- direct consumer.

We're still starting e-commerce in China. We're not yet fully developed, but we're in -- we're within the big portals there, whether with Alibaba, Pinduoduo. And we're just starting. And it's actually up significantly in the second quarter, but that is coming off a very low base loan. So it's still very early, but I think we will be in good shape in the next perhaps 2 to 3 years.

Okay. Then versus the traditional distributors' retailer model, right, is your e-commerce margin better or worse off?

They are in line with our traditional business, the margins in e-commerce, yes, in Philippines, yes. Again, we are coming off a very small base, and we have plans to really capitalize on our existing asset economics to make it bigger, yes.

Wonderful, wonderful. And in Philippines, I noticed that you have recovered almost fully from the change of distributor at one point when your business was affected. Has that change been complete? And do you see any problems with the new distributors that you are bringing?

So far, the new distributors have worked well, especially in Metro Manila, where -- which was a trouble spot before, about 18 months ago. That has all been fixed. And in fact, Metro Manila is one of our fastest growing areas in the channel. As far as the other regions are concerned, no serious matters so far. There may be just one distributor that we are watching out for. But other than that, all the distributors are continuing to do the job.

Sorry, can we have your name, please? Is this [ Mr. Tan ]?

Yes. My name is [ Wei Ling ]. I'm a shareholder.

Can I come in with a question?

Yes, please.

Okay. My name is [ Ramesh Chandiramani, Forte Capital ]. A couple of questions. In your slide presentations, I noticed certain supply chain disruptions. Can you give us some color as to whether that has improved? Or what are the bottlenecks?

Would you like me to answer that Parag and Cito?

Yes, go ahead, Greg.

Yes. Yes, I wouldn't call it as much a disruption as we have a seasonal business where we pack our core products. We have a growing period where we harvest products throughout the summer and fall months. That's when we build our inventory for the year. And we always build extra stock and extra supply to have enough on hand to keep up with demand. But as we experienced surges in excess, at times, of 50% to 100%, certain items, we ran low on supply. So what we did was we started our harvest earlier this spring and summer. We increased production, and we also worked to source more raw material and finished products globally to keep up with demand. So there were a few instances where we just couldn't keep up with the order patterns that we're continuing to grow week upon week. So we had some temporary out-of-stocks. We are now back in supply. We have adequate stocks. We had adequate stocks to actually support some very aggressive holiday merchandising and display activity that our customers asked for. We spent less on promotion this holiday, but saw very strong demand for merchandising. So we are feeling very good about supply at the moment and our outlook for the rest of the year.

But it's an interesting challenge that we have to continue working on in the coming 6 months. Because it has an impact on the following year and we just need to be at it and continue looking at various avenues to source the product.

Right. Was that the similar situation in the Philippines? Or was Philippines stable?

No, we're more stable in the Philippines. Our pineapple plantation continues to operate, so there's not much disruption in supply chain. Of course, during the early parts of the pandemic, about 6 months ago, the general trade was not operating because the distributors would not go out. But we fully supplied the modern trade, and that helped us a lot. But so far, right now, everything is normal. The modern trade continues to operate. Our distributors, all of them continue to distribute to the mom-and-pop stores and to the other grocery. So we're in good shape particularly going into this month, this holiday season.

But we continue running tight on inventory in Philippines as well, which is a good problem to have.

Yes. I noticed in the 2Q report inventory numbers went up a fair bit, which is the stocking ahead of holiday season. Will that typically run down into the following quarters?

Yes, it will. And the best way to compare is where the inventory numbers at the same time last year, and you will see the inventory significantly down.

Right. Can you provide some color in the 2 big markets of India and China? They appear to have their own challenges, some color as to how to address those markets.

First, let's talk about China. Our China business is primarily on fresh pineapple. And as you know, we've had some problems 6 months ago because of the lockdown and because of the decreased demand in China. That impacted our first quarter results, first quarter meaning May, June, July. But the second quarter actually improved and the business has recovered, particularly in China. So we're now probably back to about 70% of our normal business in China. But that's a big -- but that's a big improvement 6 months ago, where we were actually way below 50% of our normal business. So we're continuing to improve, and I'm optimistic about getting back to our normal levels in China, particularly for the fresh pineapple business. In India, as you know, the portfolio was divided 50-50 between foodservice and the retail. The foodservice business is down, as you know, all foodservice businesses around the world. But retail has surged. And that is the one carrying the -- most of the heavy load for India. And in fact, as I mentioned earlier, our share loss in the second quarter actually decreased because there have been improvement in retail and also some in foodservice that we saw.

Great. New product launches in those markets, I noticed pineapple juice seems to be doing exceedingly well in the U.S. and Philippines. Similar product launches in India and China?

This year, in India, we held on to new product launches because we wanted to focus on the fundamentals to build our B2C business. I mean it's the same thing in China. Our China focus was just fresh. We wanted to focus on that because that is our key profit driver. Even in the Philippines, we did not -- we held on to some of our new products because it would not be good to introduce them during the pandemic. But we have an arsenal of new products coming in, in the new fiscal year next year, starting May, starting first quarter of 2022, and we expect things to be better.

Excellent. My final question, both the Philippines and the U.S. have seen external investors. Any updates about the potential floatation and listings on their respective exchanges?

Parag?

Not in the near vicinity, to answer your question. The focus is really building on the good momentum that we are seeing in the first 6 months and really executing on our long-range plan in the next 3 to 5 years. On the DMPI side, in the short term, we may be looking at an IPO in the next 12 to 15 months.

On DMPI, 12 to 15 months, U.S. not in the near term?

Yes.

This is [ Cynthia ] from Rabobank. I have a question. 3 years back, you announced some joint ventures with Fresh Del Monte. May I know any updates on this joint venture?

Greg, do you want to answer that?

Sure, sure. We've established a very good relationship with Fresh Del Monte both in the U.S. and internationally and we partner with them. We have a trademark council where we review usage of the brand and brand rights. We've established terms where we compete. And regarding the joint ventures, the current status, though, is there's still ongoing business units that we oversee. But I think more and more, we're seeing that we're each having success in our individual channel distribution and they're very good at the fresh business, we're very good at packaged foods business. So to sum up the relationship and the joint venture, I think we're in good standing with Del Monte fresh. And we're pleased that we now have a partnership with them that allows both of us to succeed.

Could you elaborate on how you collaborate? Because both of you are in different business, as you mentioned. How do you collaborate? I would like to just understand that.

Yes. We meet on a quarterly basis to review the usage of the brand mark on new products and promotions. We also collaborate on the opportunities for us to promote together. A lot of -- the consumer in the U.S. market doesn't know there's 2 companies. They believe Del Monte is one company with one brand. So in many cases, we can work with retailers to do a cross-promotion with their products and our products or do display activity together and share in those investments. Those are some examples.

We continue to have good cooperation with them on the Asian side as well. And we do some business with them, which is growing, both on the fresh side and also on processed, including juices. So there is definitely increased cooperation. We also had some brief discussions with them around a strategic cooperation in India, which was interesting but did not conceptualize. So yes, I mean, more and more opportunities are coming up to do business together with them.

Thank you, [ Cynthia ]. Are there any other questions?

Well, can I ask a follow-up question? [ George Tan ] here.

Please, go ahead.

Yes, George.

Now in your presentation of market share, I think in the U.S., you're #2. I am just wondering who is #1?

What category is it, George?

Yes, yes. I think you are #2 is almost all. So are there -- who's the #1 in categories?

Yes. George, I'm happy to help you with that. In the U.S. market, in our largest category, we're #1 in the vegetable business. We're #2 in fruit. We're #1 within the fruit categories, deciduous fruits like peaches and pears and products of that nature. Dole has -- currently has the larger share in canned pineapple in the U.S., and that's something that I mentioned that we're working on with some new products to help regain some of that share, to give them a challenge and try to -- an attempt to take that #1 position. If you add up all of the fruit categories in the U.S. market, if you add up refrigerated fruit, our fruit snack business and canned fruit, our share becomes much larger and much more competitive with Dole. The other categories, George, that you mentioned, we are #3 in the tomato category. There's lots of companies and lots of competition in tomatoes. There's over 20 large brands competing in that category. We're currently #3, but we are growing. And we're encouraged by Contadina's presence in the U.S. and how that's expanding.

Okay. It's just interesting to always know who is ahead of us.

Yes, yes. We compete with companies like Conagra. Conagra owns the Hunt's label in tomatoes. It's a large successful business. Every category is different, George. We compete against Campbell's in some categories and Dole in others. But the investments we're making to invest in marketing and activation as well as new products are paying off, and we're seeing more growth. And as Parag mentioned earlier, our share growth over the 52 weeks is faster than the category growth in all of our businesses.

I see. That's pleasant news. Yes, excellent. Yes. Well, looking forward to see Del Monte being #1 in those categories on future time, yes.

Surely.

Okay. Thank you. Are there other questions?

Parag, this is -- Iggy, this is Jason. Just congrats on a great quarter. And the market is -- I don't know if you've seen this, you're up well over 20% right now so far today. So obviously, the market agrees. So congratulations, guys, terrific.

Thank you so much.

Thank you, Jason.

We'll continue to work hard every quarter, yes.

We know you will.

Okay. So thank you for joining our conference call. And thank you all joining us. We'll be in contact with you. Thank you. Bye.

Thank you.

Thank you.

Thank you.