Emperador Inc. (EMI) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen, and welcome to the Annual Stockholders' Meeting of Emperador Inc. for the year 2025. Before we start with the meeting proper, we would like to introduce and acknowledge the presence of our directors and officers participating by remote communication. Dr. Andrew L. Tan, Chairman; Mr. Winston S. Co, President and Chief Executive Officer; Mr. Kendrick Andrew L. Tan, Executive Director; Mr. Kevin Andrew L. Tan, Director; Mr. Enrique M. Soriano III, Independent Director; Dr. Jesli A. Lapus, Independent Director; and Mr. Ho Poh Wah, Independent Director. We would also wish to acknowledge the key executive officers of the company. Mrs. Katherine L. Tan, Treasurer; Ms. Dina D.R. Inting, Chief Financial Officer, Corporate Information Officer and Compliance Officer; Attorney Anna Michelle T. Llovido, Corporate Secretary; Attorney Marydale C. Manato-Zoleta, Assistant Corporate Secretary; and Ms. Mary Grace P. Maralit, Chief Audit Officer and Chief Risk Officer. Also present is our nominee for Independent Director, Mr. Jose Rene Gregory D. Almendras. We shall now proceed with our program proper with a short invocation and thereafter the playing of the Philippine National Anthem. [Presentation]

On behalf of the management of Emperador Inc., welcome to this year's Annual Stockholders' Meeting. I turn over the floor to the presiding officer, Mr. Winston Co, who shall preside over this morning's meeting.

Thank you, Mr. Chairman, and good morning to everyone. As the presiding officer, I now call this meeting to order. We are holding this year's Annual Stockholders' Meeting via remote communication pursuant to the company's amended bylaws. -- the revised Corporation Code and relevant regulations of the Securities and Exchange Commission. We adopted measures to accord our shareholders the opportunity to participate in this meeting as conveniently and effectively as a physical meeting. May we request the Corporate Secretary to inform us whether all stockholders have been duly notified of this meeting and whether we have a quorum.

Good morning. I hereby certify that all stockholders as of record date of May 8, 2025, have been notified of this meeting pursuant to the corporation's bylaws and applicable SEC circulars. Copies of the notice of the annual meeting, the agenda and the definitive information statement were made available through the corporation's website, the PSE Electronic Disclosure Generation Technology or PSE EDGE and the Singapore Exchange. The notice of the annual meeting was also published in the business section of the Philippine Star and Manila Times on May 16 and 17, 2025, both in print and online format. I further certify that there exists a quorum to transact the business in the agenda for today's meeting, there being present in person or represented by proxy, stockholders holding at least the majority of the entire subscribed and outstanding capital stock of the corporation. The percentage of shares present in person or by proxy is shown on the screen.

May we request the Corporate Secretary to also explain the rules for participation and voting in this meeting.

Yes, Mr. Presiding Officer, only stockholders who have registered may participate in this meeting. Our procedures for registration, voting and participation in our 2025 Annual Stockholders' Meeting are contained in our definitive information statement and have been implemented as follows: Stockholders signifying their intention to participate by remote communication have registered by submitting their requirements by e-mail to the Corporate Secretary at [email protected]. Stockholders who have registered have sent their questions and/or comments prior to the meeting through e-mail to the Corporate Secretary until 5:00 p.m. of May 20, 2025. Some questions or comments received will be taken up after election of directors. The resolutions proposed to be adopted at this meeting will be shown on the screen. Stockholders who have duly registered to participate by remote communications have casted their votes by proxy or in abstention by sending their accomplished ballots by e-mail to the Corporate Secretary until 5:00 p.m. of May 20, 2025. And the office of the Corporate Secretary has tabulated all valid and confirmed votes cast through electronic voting together with the votes through proxies and the voting results will be announced during the meeting and reflected in the minutes of the meeting.

There being a quorum, we shall now proceed to the approval of the meetings of the annual meeting of the stockholders held on the 24th of June 2024 and the special stockholders' meeting held on the 14th of November 2024. Copies of the minutes of the said stockholders' meetings have been made available through the corporation's website and contained in the definitive information statement. I now request our Corporate Secretary to present the proposed resolution and the voting results on this item.

On the proposal to approve the minutes of the Annual Meeting of the Stockholders held on 24 June 2024 and the special stockholders' meeting held on 14 November 2024. I am pleased to announce that majority of the voting shares represented in this meeting have voted in favor of the approval of the minutes of the Annual Meeting of the Stockholders held on 24 June 2024 and the special stockholders' meeting held on 14 November 2024. The percentage is shown on the screen.

Therefore, the resolution is approved. Thank you, Attorney Llovido. May we request our Chairman, Dr. Andrew L. Tan, to deliver the Chairman's message on the performance of our company.

2024 was a year of proud milestones for Emperador Inc. It was a year when we celebrate historic achievements, honor our rich legacy and laid down strong markers for a dynamic and sustainable future. Our story this year is one of celebration and forward momentum. We celebrated Fundador's 150th anniversary, a milestone that reflects not only the longevity of the world renowned Spanish brand, but also the strength of craftsmanship that has withstood the test of time. Fundador stands as a symbol of our rich heritage and excellence in brandy making. This celebration reminds us of our roots while inspiring us to keep moving forward. In the same spirit, we celebrate Whyte & Mackay's 10 year with Emperador. Within this period, Whyte & Mackay reached new heights and is now among the top single malt scotch whisky companies. As we look forward to the next milestone, our culture of innovation rooted in tradition and our shared ambition will continue to fuel our journey. In 2024, we generated PHP 61.65 billion in revenue, demonstrating that Emperador stood strong even as markets were pressured by economic challenges and shifting consumer landscapes. We adopted with agility, gained a deeper understanding of our products and customer and pivoted when and where necessary. Our mission of bringing fantastic drinks to consumers around the world remains at our core. In 2024, we celebrated major milestones in our sustainability journey. We installed additional solar panels across our Philippine facilities, reinforcing our commitment to renewable energy. At Whyte & Mackay, the completion of the Jura biomass boiler and the bioenergy center in Invergordon marked significant steps forward, which puts Whyte & Mackay firmly on track to achieve carbon neutrality by 2030. Beyond our environmental goals, we continue to prioritize our people and communities we serve. We remain committed to supporting a work environment that promotes well-being, upskilling and retention. We have strengthened employee development program and increased support for local initiatives, recognizing that long-term success is rooted in inclusive and responsible growth. We're excited for the path ahead. We will continue to provide the best drinks for our customers, deliver value to our stakeholders, advance our sustainability goals and build on our time, honor heritage. Thank you.

Thank you, Dr. Tan. We now proceed to the presentation of the highlights for the year 2024 and the first quarter of 2025 to be given by Mr. Kenneth Nerecina, our Investor Relations Officer.

Greetings, everyone. It is an opportunity and a huge blessing to present the 2024 financials of Emperador Inc., a global brandy and whisky conglomerate, probably the most global Philippine-based firm given a worldwide reach spanning at least 100 countries across 6 continents. As you likely know, Emperador Inc. owns Whyte & Mackay, the world's fifth largest scotch whisky manufacturer. We have a diversified single malt and blended whisky portfolio led by our flagship luxury single malt whisky, the Dalmore. Our brandy portfolio is just as sublime as our whisky portfolio. Our mainstream Emperador branding has a strong following in the Philippines, and our Spanish brandy Fundador is a renowned and iconic brandy. So without further ado, please allow me to briefly discuss Emperador's 2024 as well as first quarter 2025 financial performance. 2024 consolidated revenues totaled PHP 61.6 billion with PHP 36.4 billion coming from brandy and the balance, PHP 25.3 billion from whisky. Challenges were faced last year, both global and in the Philippines. Gross profit went down to PHP 18.8 billion by 11% and margin dropped to 30.9%. EBITDA was down by 17%, amounting to PHP 11.4 billion. Net profit dropped 27% to PHP 6.3 billion. All told, inflationary and competitive pressures, continued A&P investment, trading down and the like resulted in lower profitability. Fortunately, in quarter 1 of 2025, net income was up 6.5% to PHP 1.85 billion. In terms of segment performance, Brandy revenues saw a 9% decline last year, amounting to PHP 36.4 billion, but the first quarter 2025 revenues went up almost 10% year-on-year. As mentioned earlier, due to pressures, gross profit, EBITDA and ultimately net profit went down. But fortunately, first quarter net profit for Brandy went up to PHP 1.44 billion from PHP 823 million in the same quarter last year. There was some uptick in the first quarter, particularly Fundador due to your company's unwavering premiumization efforts. Whisky's performance last year was slightly down. Revenues dropped 1.6% to PHP 25.3 billion with margins holding up strongly. Net profit dropped 9.6% to PHP 4.5 billion. But a price-conscious environment continued to beset the luxury space. And so first quarter revenues dropped 13% to PHP 4.5 billion, and this was reflected in GP margin as product mix changed. Net income went down to PHP 404 million from PHP 915 million. Now this dividend payout chart shows the consistency of Emperador's philosophy of increasing shareholder value by providing annual dividends. Our recent acquisition in Mexico through a subsidiary, Casa Pedro Domecq has deepened Emperador's foothold in Mexico's liquor space. We expect newly acquired Mezcal brands, Los Danzantes and Alipus to be available this year in the Philippines. Owned by the recently acquired Mexican firm, Destilería Los Danzantes, both brands are touted to be among the top 10 best-selling and top 10 trending Mezcal brands by industry surveys. Destilería Los Danzantes is at the forefront of the highly aspirational and artisanal Mezcal segment. [Presentation]

Meanwhile, Emperador has added 470 hectares of vineyard land in Spain, boosting its great farming capacity to support long-term growth. And in the U.K., Emperador is doubling production capacity at its Dalmore distillery in Alness, Scotland and expanding whisky storage in Invergordon to accommodate an additional 1.5 million maturing casks. To quote our CEO, Mr. Winston Co, our ongoing expansions in the U.K., Spain and Mexico are testaments to our unwavering resolve to pursue our global aspirations. That ends my presentation. Thank you very much.

The next item on the agenda is the appointment of the independent auditors for the current calendar year. The Board of Directors, upon recommendation of the Audit Committee has approved the engagement of Punongbayan and Araullo for the audit of the corporation's financial statements for the year ending 31st December 2025. We submit for your approval such engagement of Punongbayan and Araullo as independent auditors for the current year. I now request our Corporate Secretary to present the proposed resolution and the voting results on this item.

I am pleased to announce that based on the tabulation results, majority of the voting shares represented in this meeting have voted in favor of the engagement of Punongbayan and Araullo as external auditors for the fiscal year ending December 31, 2025. The percentage is shown on the screen.

The resolution is approved. The next item in the agenda is the ratification of all acts and resolutions of the Board of Directors. Board committees and management of the company since the date of last year's Annual Stockholders' Meeting held on the 24th of June 2024 until the 8th of June of 2025. A list of such acts is provided in the definitive information statement distributed to the stockholders. I now request our Corporate Secretary to present the proposed resolution on the matter and the voting results thereon.

Submitted for ratification are all acts and resolutions of the Board of Directors, Board committees and the officers of the corporation, which were duly adopted in the ordinary course of business since the date of the last year's Annual Stockholders' Meeting held on 24 June 2024 until 8th of June 2025. I am pleased to announce that based on the tabulation results, majority of the voting shares represented in this meeting have voted in favor of this resolution. The percentage is shown on the screen.

The resolution is therefore approved. The next item in the agenda is the amendment of the company's amended bylaws. Stockholders' approval is being sought for the amendment of Article 2, Section 1 with regards to regular meetings, Article 3 with regards to committees, Paragraphs D and E and Article 4 regards to officers and Section 1 and 2 of the amended bylaws. In order to first set the Annual Stockholders' Meeting at the later date on the last Wednesday of June of each year to give the company ample time to prepare and fully comply with the relevant regulations of the Securities and Exchange Commission concerning the conduct of the meeting. Second, create an executive committee that can kindly address the day-to-day operational concerns of the company, thereby allowing the Board of Directors to devote their time and attention to more pressing and important matters. And third, formalize the position of Chairman Emeritus as an honorary title conferred by the Board of Directors to a person, who has rendered outstanding exemplary and unselfish contributions to the corporation and has served as Chairman of the Board of Directors of the corporation for at least 10 years and who shall act as a principal adviser of the Board of Directors. I now request our Corporate Secretary to present the proposed resolution and the voting results on this item.

I am pleased to announce that based on the tabulation results, at least 2/3 of the voting shares represented in this meeting have voted in favor of the amendment of Article 2, Section 1 regarding regular meetings, Article 3 on Committees, Paragraphs D and E and Article 4 officers Section 1 and 2 of the amended bylaws. The percentage is shown on the screen.

We shall now proceed with the election of members of the Board of Directors of the corporation for the current year 2025. The corporation shall elect 7 directors, at least 3 of whom shall be independent directors pursuant to the Securities and Regulation Code and the corporation's revised manual of corporate governance. Following our secondary listing in the Singapore Stock Exchange on the 14th of July 2022, the corporation is required to appoint at least one independent director, who is a Singapore resident. We request the Chairman of the Corporate Governance Committee, Mr. Enrique Soriano, to present the nominees for the members of the Board of Directors.

On behalf of the Corporate Governance Committee and in accordance with the corporation's bylaws, the revised manual of corporate governance and requirements of the Singapore Stock Exchange, I would like to present the final list of nominees for the members of the Board of Directors. For regular directors, the nominees are Ms. Katherine L. Tan, Mr. Winston S. Co; Mr. Kendrick Andrew L. Tan and Mr. Kevin Andrew L. Tan. For independent directors, the nominees are Mr. Jose Rene Gregory D. Almendras, Dr. Jesli A. Lapus and Mr. Ho Poh Wah. We are pleased to report that the final list of nominees for election as directors of the corporation possess all the qualifications and none of the disqualifications to hold office as directors of the corporation.

Pursuant to the corporation's bylaws as amended, no further nominations shall be allowed. Based on the tabulation results, each of the nominees have garnered the required number of votes to be elected as members of the Board of Directors. The percentage of affirmative votes garnered by each director and the proposed resolution are shown on the screen.

Therefore, the resolution electing the members of the Board is approved. We will now proceed to the discussion of the questions raised by our stockholders via e-mail prior to this meeting. May I request the Head of Investor Relations, Mr. Kenneth Nerecina, to read the questions sent by the shareholders together with the names of the shareholders who sent them.

The first question is from [indiscernible]. Congratulations on the improved brandy performance in the first quarter of 2025. Are we starting to see green shoots for the brandy business? Do we expect this growth to continue?

We are happy to report a better performance for the first quarter of 2025. And the growth is driven by the Brandy business. We are also happy to see the results from the pivot, the product activation and the brand building activities that we have implemented around the brandy business. Given the signals from the market, we expect to have a better year for the brandy business.

The second question is from [indiscernible]. The whisky market globally has been flat. How do you view your whisky business given the weak performance in the first quarter of 2025?

Thank you, [indiscernible], for the question. The global liquor industry has been challenging for a few quarters. And we see that the whisky is still much more stable and resilient compared to the other categories in the alcoholic beverage segment. Nevertheless, we are seeing a slowdown in the whisky business across the world in North America, in China and even in Europe. The market has become very competitive given the situation. And we believe, however, that this is a cyclical and that is structural concern. We believe that eventually, the scotch whisky business should return to growth. And we are hoping that by next year, starting 2026, there should be a resurgence and a rebound back to regular consumption. When you look at the scotch whisky market, particularly as a single malt, the core ranges are doing okay. It's in the premium high-end segment, de Jerez as we call it, that is a little bit affected. But we believe that the consumption should continue the long-term prospect of the whisky, scotch whisky and the single malt whisky continue to be attractive over the long-term period.

The next question is from [indiscernible]. Can you give us more insight into the acquisition of Los Danzantes? Why the decision to take on Mezcal brand when focus has been on brown spirits? What value do we see Los Danzantes to bring into the portfolio?

Thank you, [Bernadette] for the question. We are excited to acquire the super premium Mezcal brands, both Los Danzantes and Alipus. The brands that we acquired actually fit in perfectly with our globalization and premiumization strategy. Both Los Danzantes and Alipus are premium luxury Mezcal brands, which have been named among the top 10 best-selling and top 10 trending Mezcal in the industry surveys. The products also is currently available and exported to over 20 countries, including North America, Latin America and Europe and are now available in many of the world's top bars. Utilizing our global reach, we expect to expand the availability of these products in more countries, and we will bring the product here into Asia as well, and we will expand our distribution into the travel retail. So we believe that with our global footprint and the desirability of these 2 top Mezcal brands, the Los Danzantes and Alipus, it would create another leg for our business. So we're excited, and we're looking forward to fully integrate the business into our operation.

The next question is from [ Dana Gabriel A. Fresnido]. What is your outlook for 2025, especially given Trump's tariff policies?

Dana, thank you for the question. We get many questions about the U.S. tariff policies recently. And it is very difficult to give a concrete answer because the landscape keeps on changing. And there are many, many moving parts. We operate on a global supply chain, and so there are aspects that will be affected and that may not be obvious on the onset. And we're also contemplating that if the tariff goes online, our products imported into those countries may have a higher price. We are working with our suppliers and also with our distributors globally on ways how to mitigate the inflation and the rising costs as an effect of the new tariff regime across the world. So in the U.S., U.S. represents roughly around between 10% to 12% of our whisky business. And we have plans that are in place currently. We have conversation with our suppliers and distributors on ways how to keep the shelf price of our products as it is, okay? So it's challenging times. As I said earlier, there are many moving parts. And in situations like this, opportunities are also created, okay? So we are looking at opportunities wherein we can capitalize. And one of the opportunities that had happened recently is the lowering of the scotch whisky taxes in India, okay? The tax has actually come down by around 50%. So we expect a surge in the importation of scotch whisky into India. And of course, it will not happen immediately as all the players are positioning to capitalize on this opportunity, and we are working with our distributors in India. And so this is one of those opportunities that have been open to us in -- amidst the tariff -- the new tariff environment across the world. And we believe that there will be more opportunities that will be opened in the coming months and years.

The last question is from [Miguel R. Harabata] What is your long-term outlook for the business?

Thank you, Miguel, for that question. The company is optimistic of the long-term view. In fact, looking 5 years from today, we are very excited. We believe that the global business will continue to grow next year 2026. And when we look at the 5-year horizon, we are very excited. And all global reports indicate that there will be a continuous growth maybe following this year on a global basis. And we are excited because there are new opportunities that's open to us, opportunity like China, opportunities like India, which we believe will propel the next cycle of growth. And because of this, we have expanded our Dalmore distillery and we have also improved all our distilleries in U.K. And with the company that is abroad, we have enough liquid to meet the demand in the market. So we're excited as far as the single malt and the whisky business is concerned. On the brandy, we believe in the future of the brand, and it will remain to be very strong. And as a company, we are now pushing the Brandy de Jerez globally. We have presence now in 64 countries across the world. We are pushing our brandy in China. We are pushing our brandy in North America, in the southern part of Europe. And we have launched as we have mentioned a few years ago, the sherry casks collection, which highlights and which also innovates the Brandy de Jerez, okay? We are excited also that about the future growth of the premium segment of the Brandy de Jerez. So with this innovations, we believe that both the brandy and the whisky will have a very, very good prospect in the coming years.

Thank you, Mr. Co. There are no more questions.

May we know from the Corporate Secretary if we have any other matters on the agenda.

There are no other matters in the agenda.

Having completed all matters in the agenda, the meeting is adjourned. This concludes this year's Annual Stockholders' Meeting. Thank you. Thank you very much for joining us.