Jollibee Foods Corporation (JFC) Earnings Call Transcript & Summary

Okay. Good afternoon, everybody. Thank you for joining us today for the second quarter/first half 2023 results briefing of Jollibee Foods. I'm Carissa Mangubat of Regis Partners, and I'll be your host and moderator for this afternoon. From JFC, Mr. Richard Shin, the CFO, will be presenting the results, followed by Q&A. Joining him as well is the Investor Relations team headed by Cossette Palomar. So I'll turn over first to Cossette for some housekeeping before we move on over to the presentation proper. So Cossette?

Yes. Thank you, Carissa. Good afternoon, and welcome to Jollibee Foods Corporation's Second Quarter 2023 Earnings Call. I am Cossette Palomar, Investor Relations Head of JFC. Okay. So as Carissa said, joining us today is our Chief Financial Officer, Mr. Richard Shin. And following his presentation, we will open the call to questions. Before we get started, let me just remind you that this earnings call may include forward-looking statements that are based on certain assumptions of management and are subject to risks and opportunities or unforeseen events. Actual results could differ materially from those contemplated in the relevant forward-looking statements, and the JFC Group gives no assurance that such forward-looking statements will prove to be correct or that such intentions will not change. All subsequent written and oral forward-looking statements attributable to the company or persons acting on behalf of the company are expressly qualified in their entirety by the above cautionary statements. So today's call is being recorded, and the replay will be made available on our corporate website. Our presentation deck will also be available on our website. So with that, let me now turn over the call to Mr. Shin.

Thank you very much, Cossette. And again, a big thanks to Carissa and the Regis team for setting this up. A very good afternoon, and for those of you joining us from other parts of the world, good morning and perhaps even a very good early morning. So thank you again for the time you've allocated to listen to the update over the next hour. And I hope that beyond the presentation, we can really get into some good dialogue around the Q&A. I'll do my best to try to provide answers. And if we can, as always, we will certainly get back to you within very reasonable time to address all your questions and concerns that you may have. So let me start with the summary, as usual. In short, it was a record-setting quarter in many aspects in that we had reached the highest level of revenues, system-wide sales and our same-store sales performance was also rock solid for the quarter at 9%, as you can see here in the top left corner. And of course, equally, if not more important, that drove very positive gearing performance and operating income of 31% for the quarter. That then added with the first quarter where we had incredible growth in particular as we were lapping on a lower base in Philippines in 2022 Q1 as there was still impact of COVID lockdown, we were lapping through that, but Q2 was, in fact, a record quarter for us last year led by the Philippines' domestic business. And so we're, again, incredibly pleased with the results given that it was a strong Q2 last year as well. And you can see here, 50% up on the first half of the year in terms of operating income. So what drove this growth? For one thing, it's system -- sorry, same-store sales efficiencies and growth throughout our markets, not just the Philippines, but throughout our international markets as well. In addition, we added 270 new stores, as you can see, 40 in the Philippines and 230 in international. So we continued to outpace investments in new stores in our international market as we know that the importance of the U.S. and China, in particular, are very high for us strategically. So we stand now today at 57% of our 6,600-plus stores being franchised. And within the Philippines market, 2/3 of our business is franchised. If we now move to the top right-hand corner, let me just give you some highlights, starting with our engine, our Philippines domestic business. Again, very strong results. In particular, you can see our OPM of 10.2% in Q2. So that, of course, was led by the Jollibee brand, which grew at 11.9% same-store sales. But net-net, all the other brands in our portfolio in the Philippines delivered an 11.3% same-store growth. Addition of the new stores that I just referred to, in total, 14.5% growth. Then we move down here to China. We did have a very strong top line deliverables, and it did deliver an incremental positive EBITDA meaning last year was not positive and we're now in the positive zone. I do want to caution that, just like all other industries and all other businesses in China, there are incredible macro headwinds that I think we have to be mindful of and navigate through. So I do want to sort of balance the enthusiasm of 77% system-wide sales growth and 35% same-store sales growth in the quarter. I want to balance that also with the reality that China is a challenging market for all due to the macros. We then move to North America, and let me talk a little bit about Smashburger first before I move to our star of North America, which is our Jollibee brand. So Smashburger had a very strong quarter, posting a growth -- system-wide sales growth of 13.4% and a same-store sales growth or rolling base growth of 8.3% for the quarter. And Jollibee, the brand itself in the U.S., we're now 66 stores strong, all 100% company-owned. We started the migration into gen pop, so not just enjoying our presence in the FilAm market, but also expanding outside. And you can see system-wide sales growth of nearly 27% and a strong rolling base growth of 7%. In the context of the U.S. market, this is a very strong number. So in totality, North America delivered 15.1% and same-store sales of 2.6%. And the reason for the drag here that you see, even though our Jollibee brand and Smashburger had higher numbers, is because we have hit some headwinds with our secondary brands of Chowking and Red Ribbon, but we're working through those and we'll ensure that they are cash contributors as they are another strategic focus on brands. But nonetheless, there was a bit of a drag. In addition, as it's North America, our FX impact on Jollibee Canada stores also had a negative impact for us in the quarter. Now moving down to CBTL. We had a solid system-wide sales growth of 10.3% and modest decline of 0.4%, and I'll explain the rationale behind that a little bit later. But in short, it's due to the fact that we had a very high base in 2022 Q2, in particular our 2 markets where we have the highest concentration of company-owned stores and the highest contributor to a P&L vis-a-vis the fact that it's nearly 200-plus company-owned stores in Singapore and Malaysia or accounting for about 20% of our network. The border openings in Q2 of last year had contributed a very high top line. And so as we cycle through that, we've fell a little bit short on that. Nonetheless, the first half, we're up 14.3% in terms of system-wide sales and same-store sales growth of 3%. Let's go a bit more into the details of the top line and our network. So graphically, you can see here from 2018 divided by 4 quarters, cycling through the COVID period of 2020, 2021 coming out last year, and of course, Q1 and Q2 of this year. You can see PHP 85.5 billion is a record-setting system-wide sales number for us. This is billion pesos. And the Philippines business, of course, contributed PHP 52 billion or the majority, slightly over majority of PHP 50 billion. And our international business, not just a Q2 record, but an all-time high of PHP 33.3 billion. If we then look at it by key businesses. Again, we're focused on top line. So this is system-wide sales growth versus the same quarter last year. This is same-store sales growth, so rolling base, new store contributions and FX impact. And of course, on this side, we've got the consolidated first half numbers. So let me start with the first half first. So right across the board, all regions delivered a positive system-wide sales and also a positive same-store sales growth. For Q2, you can see that we have 3 businesses here and I've highlighted, so I want to be able to walk you through what happened in these 3 markets/businesses. But nonetheless, a global system-wide sales -- sorry, same-store sales growth of 9% broken down 2/3 or more from transaction count and 2.4% coming from average check. So let's go one by one. So North America Asia brands, so that consists of Jollibee, Chowking and Red Ribbon, and that's the U.S.; and in Canada, we have Jollibee. So what we see here, again, as I mentioned in my summary slide, 7.2% was the rolling base for the quarter; and for the first half, it's 6.3%. So it continues to grow, respectively. In context of QSR segment, I think this is a solid number. But you can see here the impact of Jollibee Canada as well as Chowking and Red Ribbon being negative growth. And so therefore, it was a drag, resulting in a North America combined -- sorry, same-store sales growth of negative 0.8% -- or a decline of 0.8%, I should say. Nonetheless, we'll continue to grow our network and expand, as you can see here, 16.2% in system-wide sales. For the half, we are still positive even though we have some weaker brands that we're dealing with, and we'll continue to focus on that in Q3 and 4. CBTL, the softness here of 0.4% although system-wide sales-wise a double digit of 10%, is mainly driven by this higher base in Q2 of 2022 that I mentioned in Singapore and Malaysia. Then when you look at SuperFoods, so this -- as you know, we've divested out of Pho24, so this effectively is now our Highlands Coffee business, we continued to expand, so 7.6% for the quarter and 17.2% for the first half in system-wide sales. We had a modest growth of 4.9% in the first half, led by the first quarter. But in Q2, the macros of Vietnam started to become quite challenging, and I put a footnote here to describe some of the details to that. So what we did see, however, versus our competition is that Highlands Coffee's ADS was down by 7% for the quarter. Our second largest coffee chain -- coffee and tea chain in Vietnam, Phuc Long, had a decline of 23% in their average daily sales. So relative to that, we had a lower decline in a very challenging macro environment. And then the next decline here, Coffee House, 17.7%. So what we decided to do for Q2 onwards is to accelerate our footprint through -- ahead of planned builds of our new stores. And the reason for that is because we're still getting a very good payback in this business. And we know that as we cycle through this headwind, and we believe it's around Q4 that we'll be cycling out of it, we'll be in a much stronger position with a much larger footprint. So we will continue to gain market share in this very important coffee market in Vietnam. Footprint-wise, again, 6,617 stores as at the end of June, which represents a 5.1% growth led by international, 8.9% growth. And Philippines, we continue to focus on driving our existing network very hard and being very selective in our new store openings. But nonetheless, we're building out 40 new stores for the quarter -- for the half, sorry. Okay. Moving on to financial summary now. We talked a little bit about system-wide sales. So I think you can just see the growth numbers here, 17% for the quarter, 23% for the half delivering revenues of 17%, so in line; and for the half, 22%. Strong middle of the P&L, our margins continued to grow, outpacing slightly a revenue growth at 17%; and for the half, nearly 29% absolute growth. Operating income, we're up 31% for the quarter. So this is from our regular business and it does not include the other income or other items as such. So this is pure growth. And for the first half, it's a near 51% growth to PHP 7.6 billion. Just as a reference point, last year, 2022, we delivered 12 months at PHP 9.9 billion. So we're currently on a pace to significantly outgrow last year. EBITDA, you can see PHP 8.3 billion, which is a 6.7% growth for the quarter and 7% growth for the first half at PHP 15.9 billion EBITDA for the first half. If we back out those land conveyance onetime gain that we enjoyed in 2022, which in the quarter was PHP 1.1 billion and in the first half is PHP 2.9 billion, there's still more to come as last year we disclosed that we had PHP 4.9 billion of onetime gain from going asset-light on land and putting that into our central hub REIT where today we are enjoying profit returns from that REIT. But this PHP 2.9 billion will continue to come up. And you will, on a like-for-like basis, make our net income after tax look like a decline, but in fact it's an adjustment given the gain that we had last year. So adjusted, so if you were to look at the business on an adjusted basis on pure what the stores are delivering, we had an EBITDA growth of 24% for the quarter and 33% for the half. Just moving below EBITDA, now to net income. So this is where those onetime gain impact comes through. And you can see here minus 8.2%, and our net income attributable to equity holders of the parent comes down at 16%. So that's the headline that you will see, 16% decline for the quarter and 14% decline for the half. But again, adjusted for the PHP 2.9 billion onetime gain, we, in fact, have a growth rate of 99% or double of last year's run rate business. And for the quarter, we're up near 35%. Let me share with you now more details on EBITDA by region and business section -- segments. The headline here really is China, Smashburger's turnaround is now adding cash to our system and is cash-positive. And you can see our international operations now accounts for 29% of our total EBITDA for the quarter, up from just under 12% last year. So let's go one by one. So Philippines, this negative again reflects the land gain because that happened in the Philippines. So that's PHP 1.1 billion impact in there. It's actually a growth, as you can see, the footnote down here. Adjusted for that, Philippines actually grew their EBITDA by 1.6%, which also denotes that we are investing quite a bit back into technology and other investments in our very important Philippines business. And if you look at it for the half, this negative 14% adjusted is positive 11.2% if you take the onetime gain out. So EBITDA accretive in both cases. China, PHP 167 million positive versus a negative PHP 191 million last -- sorry, Q2 last year. And just over PHP 400 million for the first half, which is an increase of 39%. Smashburger has turned around on an EBITDA basis and is now near PHP 240 million of positive cash or EBITDA contribution. Our coffee and tea segment, which includes Coffee Bean & Tea Leaf, Highland Coffees and Milksha, you can see, again, as explained earlier, what we saw in CBTL. We're slightly up, 9.5% for the half and slightly down for the quarter. And again, I want to reiterate that we continue to be very optimistic about the direction of Coffee Bean & Tea Leaf. We believe it will be a mega brand. We're almost there in terms of what we call their [ sell-in ] program. So that's brand, product, clustering our geography so that we can be a lot higher contribution through franchising in the U.S. in particular, we're about half and half at the moment. So all these programs are coming together very nicely. We've onboarded new executives, not only the CEO, who's is now coming to 1 year at the helm, but we've also onboarded a world-class chief development officer, who is responsible for the franchising program in both the U.S. and international markets. So we're seeing a lot of very positive things coming through. And we're not at all concerned about the investments that we're putting back into our business as you can see here. The rest of the world, which comprises of North America, Asian brands, so that's Jollibee, that's Chowking and Red Ribbon; as well as EMEA, you can see a significant growth in the quarter as well as a turnaround in the first half. Let's go through some key KPIs here. Let's start with gross profit margin. So 10 basis points better for the quarter despite the fact that our food and packaging cost is 40 bps higher than the same quarter of last year. So it's 47.4 versus 47. And for the first half, it's not shown on this chart, but for the first time, it's 46.9 versus 46.3. So there is still an inflationary impact that we're working through. But you can see the fact that we have increased our margin means we're getting further efficiencies from our operations, whether it's at the store level or commissary level or our warehousing and supply chain level. So we'll continue to run those programs and continue to get savings. We've had modest price increase, but we've also benefited from price increases of last year that are flowing through into the first, second quarter of this year. Our operating profit margin, or OPM, is up 70 basis points to 6.6%. Earlier, I showed you north of 10% of Philippines business. Our adjusted EBITDA, you can see this is the only one I've shown as adjusted because I think it's important to understand that the land gain should not be -- it should not be a hurt this year, but rather it was a help last year, so you can see here 80 bps up. And our free cash flow margin is now at 12.8% for the quarter. Before we get into free cash flow, I just wanted to show you a slide on where we are with our A&P investments because last year, and particularly in December, we had a catch-up month where it caused quite a bit of concern. But I guaranteed last year that this year we would have a much smoother management of A&P, and you can see in the second quarter compared to as a percentage of system-wide sales, 2.4%, right in line with second quarter last year. And over here, you can see the issue was first quarter last year, as I've explained in past calls, where the Philippines market due to the lockdown was underspending the A&P, of course, because of our COVID lockdown, so there was a catch-up. And you can see last year, the catch-up amounted to 3.2% in the fourth quarter. So of course, we're managing it so that we don't have [ a curve ] this way in our fourth quarter. In the first half of the year, you can see we're very balanced at 2.2%; last year, it was 2.1%. And you can see it broken down by quarters where we are. So we're not holding back on our investments. We continued to invest behind the 4 pillars which is chicken, beef, Chinese cuisine and coffee and tea. And all the other brands sitting in other segments or sectors, we are converting them to cash generators. So we are upscaling our A&P into our champion brands of Jollibee, Coffee Bean & Tea Leaf, Smashburger and Tim Ho Wan and moderately investing in the other brands. This is just the OPM chart. I think the point of interest is over here at the right at 10.2%. We have dipped -- our international OPM has dipped. And again, that's both due to investments that we're taking on some of our businesses, but also recognizing that it is tougher to play in places like China as well. Free cash flow and balance sheet. Let me start with the highlight, which is 12.8% compared to 9.9% same quarter last year. And for the first half, you can see we significantly improved last year from Q1 to Q2. But you can see in the first half this year, we're even ahead of that curve at 10.2%. On the CapEx basis, we are in line. So about half -- sorry, about PHP 5 billion invested in CapEx, which are being very selective, making sure that we're getting quicker paybacks and driving the existing store boxes a lot harder. So we're investing behind also technology and other enablers that's going to help us drive those boxes harder. The way we get to this PHP 12.8 million, of course, is our cash EBITDA here. There is no big one-offs. This PHP 1.1 billion I mentioned earlier is the conveyance. We don't have anything of that sort. No big swings for us on our fixed income instruments. And you can see our cash being generated from operations is a high of PHP 11.4 billion versus a PHP 9.4 billion contribution same quarter last year. Now let me move on to our fortified balance sheet metrics. Again, I've talked a little bit about inflation. I talked about the macro headwinds in places like China, et cetera. But as you can see, in our cash and cash equivalents, we remain -- sorry, we maintain a stronger cash position. And these are deposits as well, so it's not idle. It is actually giving us a decent return compared to the cost of debt. Our net debt has come down as we continued to make repayments on a timely basis. Our working capital management, we're putting a lot of work and effort into this. I think the last quarter that I presented, there was PHP 17 million then down to PHP 15 million and now down to PHP 13 million. So same period last year where we're at PHP 15 million and we're now PHP 13 million. Our inventory days, I want to qualify this number, it is up by 2 days. But if you look at our June 30 snapshot, our inventory level is significantly down to the tune of over 20% down given our top line growth. And the reason why it's still 2 days up is because in the earlier months, because this, of course, is an average, on earlier months for the first half we did continue to have slightly higher inventory for unknowns. But we're now starting to bring this level down on all key materials, so you'll see this number continuing to come down. But for the first half, it's at 51. Days payable, it's more or less in line. We have strategic vendors as well. So where it makes sense, we do pay slightly more favorable to them, but that also guarantees our pricing and our quantities. All the key ratios. And just as a reminder, covenant has us at breach, and you can see us significantly below. And the movements are coming down in all measures. So we're in a good place on our balance sheet and our cash management. Let me conclude now before I take on Q&A. The guidance for 2023 remains and most likely we're on track to exceed those guidance. And those guidance were 5% growth in our network. Our CapEx we'll continue to manage, and if it's not necessary, we will not spend all of the PHP 17 billion. But of course, we're not pulling back on future, we're just being very selective on our investments. System-wide sales, we gave the guidance of 15% to 20%, and we're outside of the high end range. Same-store growth, we gave a guidance between 7% to 10%. First half of the year, we're exceeding that on the high end. And operating income growth, and we gave a guidance of 20% to 25%, and for the first half we delivered 51%. So with that, let me just stop sharing and open it up for any Q&A.

Okay. Thank you, Richard, for that very detailed presentation. So we can now jump into Q&A. [Operator Instructions] So perhaps I'll start off, Richard. Maybe let's talk a little bit about inflation, right? So you did mention that you are still feeling some input cost inflation across the various markets and I suppose the commodities that you employ. You also alluded to a price increase in the second quarter. So by how much did you raise prices? And is it enough to cover the cost inflation that you're experiencing? And I guess moving forward, how do you see the costs trending? And how are you managing this?

Yes. Great. Okay. Thank you, Carissa. So just as a reminder, last year, our basket of goods at one point we're running somewhere around 11.5% to 12% inflation impact. So if I look at it from quarter 4 last year to where we are today, what we're seeing on the food and packaging side is a 1.43% increase. So as I say, inflation isn't over yet for us and if you then factor into that currencies and all the other variables that impacts us a center of gravity Philippines business, that is manageable and we've obviously managed rates like that in the past. And so our time-adjusted price increase in the first half of the year is very minimal, it's around 1.5%. So we are covered. We certainly don't want to pass on more pricing to consumers than necessary. So we're also offsetting that with efficiencies. Specific to, I guess, some of the key parts of that food and packaging and I think people will be curious around chicken and other key proteins, I won't go into all of them, but let's just talk about proteins. We're seeing 1.26% rise in our cost of protein. So again, I think everything is within manageable ranges as I've shared earlier. So 40 bps on second quarter increase is manageable and we're doing that through efficiencies and through pricing. Again, which is very modest.

And I think you also discussed earlier that you did get some efficiency gains on the operating side with your OpEx now -- well, some key OpEx items proportionately lower. So is this sustainable? And there are a few questions here on operating margin. I guess, do you think you can bring operating margins higher over the near term? And if you have any OPM targets for the year and next year and the drivers for that across each business segment.

Sure. So just to finish off then on gross profit margin. Last year, we were delivering consistently around 250 basis points of efficiencies every quarter. This year, it's slightly lower, but nonetheless, we're still delivering and offsetting this cost. So that's why we maintain an 18% total gross profit margin. So that includes running the stores, et cetera, not just the food costs. Moving on to the bottom line or OPM, I think the key is really to continue to grow a very efficient domestic business. So you can see we're north of 10% OPM in the Philippines, although we have several brands. It's not just Jollibee, but we have several. So we're obviously excelling in certain brands and other brands were supporting slightly. But nonetheless, all of them are cash contributors for us in the Philippines. We also want to demonstrate that we can manage portfolios, and we are managing our portfolio. We're more targeted in international. We don't have as many brands outside of Philippines. And what's good here is on a unit basis, our margins are higher on our international business. And of course, our beverage business is the highest, but our Better Burger business, Smashburger, is also very high, so it's around 73%. So when you have businesses that are running at a good margin, the opportunity for our group OPM to rise above 6.6% is to really get the international piece coming up. Our headwind at the moment is the uncertainties we see in China in terms of the recovery and the bounce back. So it is getting very competitive in that market, I think, for all players, given that most of the business is done on digital and there's a cost to aggregators, there's a cost to digital advertising and so forth. So we are managing through that, but at the same time the growth rates that we're seeing, the top line, doesn't necessarily translate directly to the bottom line. So I think we have to cycle through that. It is not a company issue, I think it's a market issue at the moment. So those would be my, I guess, take on driving this OPM. We're very disciplined. We are, as you can see, very careful with our CapEx and we're trying to drive our existing stores harder, both inside the 4 walls and outside the 4 walls. So we're very targeted in our digital marketing spend as well with a lot of data to support and increase the probability of success when we do invest in these platforms.

Okay. We do have some specific questions here on -- since we're on the topic of margins and cost inflation. Question here on which brand or geography would be most sensitive to price increases? I guess this is in terms of price elasticity across. And how does this vary across the different brands? If you can elaborate on that.

Sure. And that's split between food and beverage because we're seeing different data points suggesting different behaviors. So when it comes to coffee, i.e., discretionary, in the U.S. we are seeing that price is a consideration point for people because people are making choices. But when we're looking at food, in particular fast casual, we're seeing the growth rate of that category actually growing faster than the QSR category. Then when we look at China, again, because I think -- and everyone knows the macro, so I'm preaching to the choir here when they say that their exports are down. It's not just the macros of GDP that we're interested in, but their exports are down. Consumer confidence is down. Real estate sector and the confidence that, that gave -- or the stock market and the confidence that gave to people to spend on discretionary. So we're seeing the China market being quite sensitive at the moment. And because there are more outlets coming through, in particular digital outlets, we're seeing that the cost to customer acquisition is changing as well. So I think price sensitivity in China for the food side seems to be one that -- we're not totally surprised, but to some extent, it's a tougher nut to crack at the moment because it's not you build beautiful stores and people come in and buy. 75% of food in China is sold through delivery, so you've got to work through that channel as well. But there is nothing out there that we are giving up on. We still believe that we have the right strategies and the right categories and right brands at the moment. We've just got to work through it. It just takes a little bit of time and hard work in China at the moment.

Okay. Understood. Just 2 more specific questions on cost. So one is that, I guess, we've all seen the news that rice prices around the region are starting to go up, including the Philippines. So how does this affect, number one, your cost structure, Jollibee or JFC as a group; and number two, consumer sentiment in the key markets where rice is a key staple?

Sorry, can you say that one more time?

Yes. So the first -- so in the context of increasing rice prices around the ASEAN region, how does this affect Jollibee's cost structure? Is it a significant portion of your cost? And second, what is the knock-on effect on consumer sentiment in the key markets, like Vietnam and Philippines, that you've seen in the past in these types of situations?

I recognize that rice prices are moving, but it is not in the top 5 of our concerns. It's not a huge cost contribution to our entire business. Specific to the Philippines, I have not seen this being an issue for us. In fact, we have a brand, such as Mang Inasal, where we give unlimited rice and I think that's also creating traffic flows in. So our pricing is good. We're market leaders in several categories, and we don't see rice as an issue for us specifically.

Okay. We do have one question in queue here, Divya. You may now ask your question.

Am I audible?

Yes, yes. Now you are.

I just wanted to ask 2 questions. The first question was on the international margins, specifically for Smashburger. I mean while we see the year-on-year improvement, we can't help but notice that, sequentially, the EBITDA is at about PHP 46 million for this quarter compared to PHP 195 million in the previous quarter. So could you help us understand why the big sequential decline in EBITDA for Smashburger? And what would the outlook for Smashburger be for the second half? That's my first question. And my second question is on Philippines. Could you talk about the same-store sales growth trend in July, August? I mean given that the GDP number came out extremely weak, people are trying to get their heads around how we've shown a very strong same-store sales growth number. But given that consumer sentiment seems to be weaker, are we seeing that in the July, August numbers? And a related question to Philippines also is that considering how well the business is doing and the 10% operating margin we're seeing, why aren't we opening stores more aggressively in the Philippines as well?

Okay. Okay. These are great questions. So let me try to do justice. So let me start with Smash. Q2 had a combination of 3 things. One is some catch-up onetime cost. I shouldn't use onetime, but catch-up costs. For example, audit fees and professional dues, which in Q1 it did not come through, but Q2 it came in. So if you were to spread that over 12 months, you will probably have seen less of an impact. Second, we are seeing further investments in Q2 as we're starting to see top line growth and we're starting to narrow down. We have 240 stores now, which is 4 less than the last number I reported in the first quarter. And as we're getting tighter with our gaps between quartile 1, very profitable stores; and quartile 4, where we had some negative EBITDA stores, that's why we're getting tighter on that we're starting to accelerate our investments, in particular around people and also in technology and digital marketing spend that drives incremental. And then the last thing, and this one will be something we need to crack over the next couple of quarters, is we're seeing the cost of delivery about 200 basis points higher than where we like to see it meaning the way we've sort of targeted. And the reason for that is because we have a combination of aggregator cost for delivery and our own platform. And as we start to get more traction -- and that costs money to get that traction, to get people into our own apps, the delivery cost ratio will come down. But right now, we're not at optimal yet. So that was -- in terms of numbers, that was the largest significant impact that gives you that delta between Q1 and Q2. On Philippines, I think there are several questions, but if I get to the crux of it, it's clearly outperforming every other business, both geographically, and if you were to carve that out into Jollibee Philippines specifically, it's outperforming every other brand market combinations. And I think your question is why not accelerate that? I think there are 2 reasons. One, we're trying to balance -- as we kept saying 80-20 rule, we're trying balance our longer-term return investments in international and our, I guess, immediate return opportunities. We're trying to balance that. So it's a bit of a deliberate. The other way to look at it is in Metro Manila we're not fully saturated, but it's 88% saturated. So for us, I think in order for us to get the lift on the Philippine OPM, it's going to come through renovation. So that won't necessarily be all in this year, but I foresee that going into 2024, we're going to have to make some choices around how quickly we renovate our aging stores. Because studies have shown the renovated stores and changing the model to more digital platform as well, kiosk, virtual drive-thrus, et cetera, point-of-sales material, all that is CapEx investment, we do see ADS going up. So I think that's how we're going to look at Metro Manila. Outside of Metro Manila, which is about 13% penetrated, we are looking for continuation of good franchisees that will represent us. But this takes a bit of time because we don't have corporate franchisees taking out 100 stores over time, but rather it's pockets. So I think the nature of the provinces is such that we can't go and open 300 stores right away. So that one takes a bit of time. And we're very careful in Metro Manila in how we invest. And lastly, I would say is if the macros turn on the Philippines, then we will be incredibly over reliant on a single market. So we're very careful with the single market reliance as well.

Got it. And could you comment on the recent same-store sales growth trend in the Philippines given the GDP slowdown that we've seen?

Yes. We are pleasantly surprised because we thought it was going to be single digits, maybe mid, but we ended up with 11.3% for the Philippines; and specific to Jollibee, it was 11.9%. And I think the only way to really explain that is, I guess, we have a very good team, very good products and we're doing the basics. We're doing things like mix and match where we're offering very good price points and the option for consumers to actually add on the sides or drinks or dessert. And although it's slightly lower unit gross profit, we're getting a lot more TC popping up from programs like that. So we'll continue to do that. July looks strong, and we'll continue to do that for Q3 and 4 as well.

Next up on the queue is John Te.

Three questions. The first one is more maintenance. In the EBITDA slide, there is the rest of the world that had a really small EBITDA last year, but it jumped about PHP 1 billion this year. Which specific brands actually drove the turnaround and why? I'll go over the questions one by one. So maybe you could address that first.

So there were several, but I think the biggest impact we're seeing is China being positive EBITDA and Smashburger being positive EBITDA versus last year.

Yes. Sorry, Richard. That was rest of the world line.

Sorry. Rest of the world, okay. So rest of the world is EMEA and North America Asia brands. And I could tell you, North America Asia brands, the one that's really contributing is our Jollibee U.S. And then for EMEA, we're getting really good growth out of Vietnam Jollibee, where I think now 164 or 165 stores, so closing the gap to KFC's 170. And we're getting real growth there because it's 100% local management except for one person. And it's 100% local consumers, and we have products that's very tailored towards the Vietnamese palate. So we're seeing consistent growth coming out of Vietnam. Our Middle East Jollibee is also doing very well, as is our Southeast Asia Jollibee businesses. So in Singapore, Brunei and Malaysia has less losses. It's only 1.5 years old, this business, but we're seeing the pickup of the Southeast Jollibee as well.

And is that just mostly, I guess, operating leverage and scale? Because last year, it was barely profitable and this year it was PHP 1 billion -- in excess of PHP 1 billion EBITDA. So I'm just trying to understand where that is mostly coming from, at least from [ an EBITDA ] standpoint.

I would say it's both -- I'm not going to put a percentage, but I would say partially scale, but I think it's more coming from better box economics from our existing store levels.

I see. And 2 maybe high-level questions. First is on the franchising head for CBTL that you just hired, and congratulations. Maybe we can talk about a little of his background and what he can potentially deliver on -- to the table.

Okay. So Mr. Yousif, he's from Bahrain originally. So he has quite a bit of experience in the Middle East as well as in other parts of the world, including having worked and lived in Asia. He spent a long tenure with McDonald's and has developed businesses right across the board. He has also served a bit of time as the CEO of Americana. And as we know, Americana was in the news some 6, 9 months ago when they IPOed into indexes in the Middle East. We are seeing increase, of course, naturally in our franchisee sign-up in the Middle East, but he's given us a comprehensive plan actually to expand internationally and over the next 5 years. So I think one of the things I could possibly do that might be very interesting and helpful is invite our CEO, John in de Braekt, to one of these earnings calls. And he probably will do better justice than I in summarizing his vision and road map for this brand. But I could tell you, it's very exciting at the moment to see all these executives coming in with clarity on growth.

No, that would be definitely exciting, Richard. Last question is on the CEO departure of Smashburger. Any plans following his departure? I thought [ he was ] a big part of the turnaround.

Yes. I mean Carl Bachmann is a good guy and certainly there's no reason to say anything negative here. He made his own decision to move on to a different opportunity. So what we've done is essentially we brought in Pepot Miñana, who used to run the North America market. And right after we bought Smash and we stepped up to 100% control, Pepot was, in fact, in charge of that for a short period of time. So we brought somebody who's very familiar to the management team there. So he's holding down the floor and doing a fantastic job. He's 20-plus years in JFC. He's also a Chief Sustainability Officer. So we're getting really good traction and clarity. So I have no doubt that we'll be in a better shape. And of course, a brand like Smash has opportunities to go international. And therefore, it will be wise for us to bring in a world-class executive to run that business as well. But we're very excited about the opportunities for Smash. And the team is solid. They're all pretty much all there. So yes, unfortunate that Carl left, but we did not miss a beat in getting Pepot there. So mindful that there's about 13 questions in the queue. I'm not sure I can handle...

Yes. I'll consolidate some of the common questions here. So maybe we can jump into store expansion. There's a couple of questions on that here so -- in relation to CapEx. So I'll just -- what is the breakdown of your CapEx program for the year? And where do you -- which brands will be taking priority for the new store rollout? And I guess from a bigger picture perspective, if you could ramp, where to invest capital or open new stores by order of attractiveness of return, what would that be? What would that order look like?

Wow, there's a lot there to untangle. But let me start with the best return that we get is on coffee and tea businesses, and it could be as low as 1.5 years to 2 years. And so that's why even though Malaysia is not necessarily our biggest TAM, it's actually a very profitable market with 143 company-owned stores because their return is so quick. And so we'll continue to invest. And the footprint to expand in markets like that still exists. As we trail Starbucks, you can see clearly that there's still opportunity. So Singapore and Malaysia would fit into that category. Before COVID, and I guess, if the bounce back was different, China will be another market where we're getting -- depending on the store model type, we were getting 2- to 3-year paybacks. So we'll continue to invest in those markets. The #1 brand for us and our focus on both Philippines and international is clearly Jollibee. We believe that Jollibee should be a much bigger footprint, much more accessible brand in many more markets. And even in places where we are, like the U.S., there is an opportunity for a wider footprint. And that's not necessarily only through CapEx, but that's going to be through strategic franchise alliances. So we're spending a lot of time on cluster approach, so taking areas, breaking it down by key cities and looking at sort of a cluster partner, which then also averages down the risk of the investor because you are now investing in a portfolio of stores rather than being stuck at a 1-, 2-, 3-, 4-, 5-store level. So there's a lot of good thinking going on, all data driven and based. So I said the -- I would say the priorities for store expansion would continue to be China and the U.S., where we do get per-unit margin increases versus the Philippines. But of course, Philippines has the highest probability of success for Jollibee. So we'll continue to expand our 1,100 stores of Jollibee in the Philippines as well.

Okay. And the PHP 17 billion to PHP 19 billion CapEx, how will that -- what's the breakdown of that? Any additional...

Yes. I don't think we're going to get to PHP 19 billion and we may not even get to the PHP 17 billion. You saw first half we were up to PHP 5 billion. The rough breakdown, the way it was allocated was to build out -- 2/3 of that money was to go to build out stores. So build out stores plus renovation of existing stores. And then the other 1/3 was to, where needed, to build out capacity for production and in particular in the Philippines. And POS, kiosks and other technology, apps and so forth, so technology ramp-up as well. So that's the rough -- and we'll continue to have, I think, 2/3 store and 1/3 technology and capacity. But again, we're seeing that -- now there's opportunities for franchising such as Smashburger, converting company-owned stores to franchise, et cetera, and we'll continue to pursue that as a priority. I think there was an earlier question, I don't know if you get to OPMs, but I think one of the question was, what's your target or where do you aim to be? I don't know if that question came up more than once, but I thought maybe...

Yes. Please, go ahead if you can share that. There's a question, OPM targets for international this year and next year. Yes.

So what we've done, as we monitor the top 30 companies and these are publicly listed companies where we can get data readily available. As we started to break it down into 90% and above franchised companies, such as the McDonald's of the world and more skewed towards -- closer to company-owned strategies like the Chipotles, which is 100% and then the mix, which is kind of where we are, 57% franchised, it was very interesting to see that the OPM rates of the best-in-class were very different. So McDonald's was highest at 40% because we all know the model there. And in fact, the top 2, 3 companies with 90% or above franchised was around the 30% OPM level. Very interesting. And then on the other side, even best in class like Chipotle is running around 12%, 13%. So I think the range we saw was around -- between 10% to 13%. And then the mix was -- went as far as like single digits to mid-double digits. So I think the way we're modeling our strategy really is where we have brands and markets that's highly franchised, we should be looking towards trying to get into that 20-plus percent OPMs. And so at the moment, as I mentioned, U.S., for example, Jollibee is 100% company-owned. So we can't expect that business to give you 30% OPM. So we're never going to get 30% out of North America if our route to market is 100% company-owned. So I bring that up because the targets we set is to be in the first quartile. And to be in the first quartile, we're looking at where we are in terms of franchised to company-owned store mixes. And when we break it down by brands and by regions, we get a lot clearer. So I think the short answer is for every brand and every region, we believe that there's opportunities to only incrementally increase because we're going to be very targeted and we're going to be chasing the best-in-class. At the moment, we're not there on international yet. But the seeds are definitely more than planted and we're starting to see some green sprouts coming through.

Okay. Thank you, Richard, for the insight. Unfortunately, we are out of time, but we very much appreciate this hour that you gave us to explain the results. And congratulations on the very good numbers. We look forward to seeing you again in succeeding quarters and hearing more about Jollibee. So to those who have dialed in, thank you, again. As Cossette mentioned earlier, if there are any follow-up questions, you may go to her directly and they'll be happy to take your questions. So that's it for now. Have a good Friday, everyone, and happy weekend. And you may now disconnect. Thank you, Richard. Thank you, Cossette.

Okay. Thank you. Thanks, everyone.

Thank you, everyone.