Jollibee Foods Corporation (JFC) Earnings Call Transcript & Summary

Jollibee Foods first quarter post results call. I'm Hazel [indiscernible] from [indiscernible] Capital, and I'll be the moderator for this session today, together with me, Ms. Divya Gangahar from Morgan Stanley. So to give us updates on Jollibee as well as the company's strategies and plans for the next 12 months or so, our speakers for today are, of course, Mr. Richard Shin, Jollibee Foods CFO; and Ms. Cossette Palomar, our Investor Relations for Jollibee Foods. So thank you for being with us today. Richard and Cossette. I hope you guys are well, as good as the first quarter performance. So before we start, a few reminders -- as Mr. Shin goes through with the presentation, you may type your questions and send it through. Secondly, I think Cossette have a few reminders before we start.

[indiscernible] Yes. Thank you, Divya. Thank you. Good afternoon, everyone, and welcome to Jollibee Foods Corporation's First quarter earnings call. Joining us today as Hazel said Mr. Shin. So before we get started, I would just like to remind you that some of the -- some of the remarks today 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 statement and the JFC gives no assurance as 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 JFC Group or persons acting on behalf of the JFC Group are expressly qualified in their entirely by the above cautionary statements. Okay. So turning over to Mr. Shin now.

Okay. Good afternoon, and good morning to those of you who are dialing in different time zones in a very good early morning to those guests from the U.S., and thank you so much for taking the time and effort to join us today. I'll speak or present or update for about 30 minutes, and I'm very happy to then go to live Q&A so if there's any questions that [indiscernible]. First and foremost, we are tracking to guidance and slightly above with sustainable growth in margins. What that translates to a system-wide sales growth -- it's a record again of PHP 86.8 billion delivered for the quarter -- first quarter and compared to the safest quarter of 2023. And let me remind you again that 2023 first quarter was a record quarter because it came off of a COVID impacted Q1 of 2022. So we [ lapped ] that quarter with a 10.4% system-wide sales growth. And I'm happy to say that a good contribution of that from rolling days of same-store sales of 5.5% as an enterprise and 5.7%, so overindexed to that came really from traffic or volume, which is to say we did not take price increase, and we had a little bit of a mix impact in there which I'll address a little bit later. Revenues coming off of the system wise sales was PHP 61.3 billion or 11.3% positive [ growing ] versus last year. Gross profit and the way we measure gross profit here is the cost of inventory, that's food and raw materials, but also cost of labor, store rents, commissary costs, supply chain. So the entire cost really that is really above overheads or G&A and A&P. So we delivered a margin rate of 18.3%, which represents a 10 basis point improvement versus Q1 of 2022, and this translated into a 12.1% growth rate. Our operating income also did very well, grew by 13.7% and landed at PHP 4.1 billion for the quarter. Therefore, our OPM margin is 6.7%. And our net income after tax, getting closer to earnings per share data, we landed at PHP 2.6 billion or 26.9% versus last year, representing a NIAT margin rate of 4.3%. So again, I want to emphasize that a top line growth revenue of 11.3% delivered the bottom line positive operating leverage, gearing of 26.9%. In addition to financials, we received some recognitions in the tail end of last year, coming to the first quarter of this year, which demonstrates that -- we are being seen as a world-class organization. And what do I mean by that? For the first time in the history of Jollibee Foods Corporation 46 years in existence. We've now entered times world's best companies at 750 of the top best companies in the world as [ weighted ] by times. We were 1 of 6 companies from the Philippines, and we're very honored to be on this list for the first time. In addition, for the third time, we won exceptional workplace award from Gallup. So we're very proud of that, which also means that we have a very strong and happy and motivated workforce. In Vietnam and the reason I want to share Vietnam is because outside of the Philippines, Vietnam is actually our largest Jollibee brand market with near 190 stores. And it's pretty much all Vietnamese staffing there, local staffing. Having said that, they also won a Best Place to Work award in Vietnam. So extremely proud to see growth outside of the Philippines with this brand as well. In addition to the organization and financials, I also wanted to update those of you on this call, some recognitions we received around the Jollibee brand. In Q4, I talked about our ranking globally. But here, it's been more specific to the Philippines market where Jollibee, Mang Inasal and Chowking were all awarded with mentionable rankings, and I'll show you the rankings in a second. In addition, we received some brand recognition for our Highlands Coffee brand in Vietnam. So specifically in the Philippines, -- we were voted #2 in terms of the top 10 most valuable Filipino brand in 2024. This represents a rank up of 2 positions, as you can see here, just below BDO and just above Globe. On the left, you see Mang Inasal ranking first actually as the top 10 strongest Filipino brand in terms of growth. So the movement was quite significant. Jollibee continues to move up. So it's on that listing as well. And in terms of brand value change, you can see our 3 champion brands in the Philippines, Jollibee, Mang Inasal and Chowking, all performing very well. In Vietnam, we ranked #6. But within the F&B or within the coffee space to be more specific, you can see we are top #6 here on the restaurants and fast food category. So very proud of the team for accomplishing this. And this is a movement from 28 place a year ago. Right. Let's get on the performance summary. Again, big picture first, systemwide sales, as mentioned, 10.4% growth, gearing up to 11.3% on revenue. Same-store sales 5.5%. Our store growth rate was 5.3%, but I'll speak a little bit later during the Q&A. Some of you may have questions around our store closures for the quarter as well. Our gross profit, as mentioned earlier, net operating income, and NIAT all mentioned earlier. So just a recap. Our first quarter 2024 represent the close of first quarters. As you know, there's some seasonality in our business. So at PHP 87 billion deliverable. This was yet another record. So you can see for the past 9 quarters, we've been achieving some sort of record in terms of the best quarter or best all-time high. So this momentum, we believe, will continue into the second quarter as we see some strong momentum. I also wanted to just put in context of our global peers that we track with sales again. So this Yum Brands is a global Yums, not just Yum China, McDonald's, RBI, et cetera. JFC 5.5% rolling days of same-store growth rate. You can see how it fares against some of the other QSR players. System-wide sales at 10%, also very strong on this list. And I think we're right in the midst of it with store growth as well. Top line metrics for first quarter, let me start again with the big picture, Philippines and international, very similar system-wide sales growth rate, [ 10% ] for Philippines, [ 11% ] for international. In terms of same-store sales growth, we can see Philippines slightly ahead of international, where international is ahead of Philippines in terms of new stores and how that contributes to our system-wide sales. And I'll get into a little bit more detail of that here. So Philippines top line, I think you've seen the numbers. Moving on to China. China was a bit of a challenge, although we contributed 3.6% growth through new stores, net-net, we were still down. I think this is very much in line with what we're seeing versus Yum China and other published data out there as well. So it has been a difficult few quarters in China. But nonetheless, we continue to build new stores, and we continue to expand capital or asset light in Tier 3 and 4 cities against our brand new [indiscernible]. As I mentioned earlier, we'll continue to do that. North America has our Asian brands, also Jollibee being the primary brand there for Smashburger, -- you can see North America's growth rate was one of the highest. I'm very happy to say that our Jollibee brand is doing very well in both the U.S. and Canada. We have about 72% of business coming from the U.S. and 28% of our business coming from Canada. So collectively North America with a very robust same-store sales growth of 10% driven to a large extent by transaction count or volume -- we're also opening new stores, and that's where we get this 8.4% contribution with some ForEx upside on the system-wide sales. Smashburger, March is doing better than Feb and Feb is doing better than Jan. So we're starting to really ramp up on average daily sales. We're not quite there yet in terms of rolling base growth. But nonetheless, I'm seeing a lot of very positive work being done under the new leadership of Denise Nelsen, who joined us in mid-January of this year from a very large organization. And she in fact is a very experienced operator in North America. Europe, Middle East and the rest of Asia, excluding China and Philippines of course. And you can see we've carved out Vietnam, just to show you the size and scale of that [ pro ], but also Jollibee in the rest of our regions -- and Chowking as well, you can see significant growth coming from these brands -- so Jollibee is growing, not just in Philippines, but outside as well. Our coffee and tea business. Here, our largest one, CBTL had a 16% top line growth from system-wide sales and mostly from new stores as we start to franchise out pretty rapidly, but also our 2% same-store sales growth. In contrast, earlier, I showed you a Starbucks number. I know it's a different scale business. But nonetheless, I think it's a good comparable. Super Foods, we had one of our better months in March, and we'll see continued improvement. So this is Highland Coffee. Earlier, I spoke about some headwinds, the macro headwinds in Vietnam. We're now seeing signs of coming out of that. This is also to say we're picking up market share because our performance is still ahead of the industry. So first quarter, we picked up a 4% market share. Milksha continues to be a good acquisition from 2022 and continue to contribute. Okay. Now let's take a little bit deeper dive into what that means in terms of channel and some consumer behavior. I think this is important to understand. So what I have here, quite a bit of data, so let me walk you through. So dine-in column of first quarter growth percentage versus last year first quarter. Digital as defined by the way the consumers order, so it could be a self-order kiosk in the store or it could be online. Other off-prem depicts takeouts, drive-throughs and pickups. In the past, we used to combine quite a bit of this under off-prem. But I wanted to just make sure that we carve out the digital story, highlight the fact that our dine-in is growing. So the reason why we're going in the Philippines amidst inflation and some of the other challenges we're seeing with other consumer goods company in the Philippines is that our consumers, both existing and new ones are coming to the store. So 11% growth coming from dine-in. Overall, international similar pattern, 11.8% growth from dine-in. So globally, dine-in is growing at 11.3%, which is good. So our investment in our stores and our branding behind the stores are getting its leverage impact. Digital, as you can see, it's also a significant growth, 21.4% in the Philippines, 22% international. So our international business is growing. I just want to make sure that plan has landed because when we look at the bottom line, messing the same level of margin growth, and that's because of the investment levels below EBITDA. So globally, 21.7%. What's interesting here is if you look at the, I guess, the significant sort of quantum PHP 10 billion versus PHP 22 billion. So half our business relative dying into digital. That's quite a significant part of the business. And then when you add on the pickups and the drive-throughs and the takeouts PHP 19 billion, actually, that combined combination of [ PHP 19 billion and PHP 10 billion ] is actually a bigger part of our business. So we'll continue to invest in technology, which is what I've been saying from early last year. And you can see similar trends. So North America, we all know drive-throughs a big component of our store sales. So it's PHP 6.4 billion versus dine and digital of PHP 2.4 billion and PHP 2.2 billion. So I wanted to show this level of detail, just to let you know that these are sustainable growth, and it's coming from strategies that we've been implementing to make sure that our stores has the best consumer experience. Now let's get into the financial details. So some of this is repeat again. So you've seen system-wide sales revenue, gross profit operating, you see here the rates and the basis point improvement on the rates. EBITDA. So this is a new data point now, PHP 8.9 billion. So we are now running our business at 14.6% EBITDA margin rate, which is 80 bps above same quarter last year, and that's a significant growth of 17.9% on EBITDA. Net income, you can see here growth plus as a percentage of revenue and what that means in terms of margin rate were up we can and EMEA were up. And a very important number, EPS. So we're ahead of guidance. Bloomberg guidance, I think, had us at [ PHP 2.0 billion ]. So we're delivering a [ PHP 2.2 billion EPS ]. This just summarizes our key operating margin KPIs that we track. This table shows you the difference again. I think there's a lot of question around is international okay. We understand Philippines looks good but is international okay? And the answer is yes. It is okay. There are significant investments below EBITDA in people. So that comes in as G&A costs as well that we are going to start leveraging as the top line continues to grow at the rate that I've been showing you. So let me break down EBITDA by region. So China's EBITDA is up 12%. And sorry, I should start with Philippines. Philippines is up 19.5%. China is up 12%. North America is up 61%. But coffee and tea is starting to traction well because the gaps were wider in earlier quarters. Rest of the world, EMEA, et cetera, were up 78%, and we'll continue to expand Jollibee outside of Philippines in U.S. as well. Our balance sheet, and I shall continue to use the reported by because everywhere I look at it, I'm very proud of this balance sheet. It is strong and it continues to get tighter and stronger amidst inflation, whatever it means by that and KPIs like base collection. Again, this I think is like the fourth or fifth quarter we've improved collection days. So we're getting cash quicker. So now it's 12 collection days, down 2 days from '14. Inventory days, I remember about 1.5 years ago, we started in the high 50s and we kept bringing that down. But there's a reason for that because of the uncertainties of supply chain security. That's always going to be the case, as we know, global tensions are still there. Geopolitical risks are still there. But nonetheless, we are comfortable now managing a lower inventory days, which fees up cash. So 37 days now from 47 [ varying from ] KPI given the cost of borrowing money is quite significant. Days payable slightly ahead [ our faster fuel ], but we're getting better terms as well for that in exchange. Current ratio improved, debt-to-equity ratio improved debt-to-EBITDA ratio improved and debt service coverage ratio improved. On the right-hand side, this is just more information, so bank loans to senior -- sorry, plus seniors. So debt accounted obligations is around 60% about how we fund our business and equity accounted with senior perps and preferreds, it's about 40%. So we believe this is a good mix for business our size at the moment. We're also very cognizant that our preferred are coming due, and we're going to have to refinance that at a higher rate, given the market rate. So we're very cognizant of that. But we're also very confident that the investments that this money will go towards and will yield a higher return on invested capital. Floating, 73%, fixed -- sorry, 27% -- and this is mainly around our more variable term bank loans, both term and facilities. And then you can see here the split between our interest. So in short, strong, we're well financed. We do keep a healthy balance of cash, as you can see here, we're still holding near PHP 33 billion of cash. And the reason we do this is because we never want to cut it so thin for efficiencies. We want to make sure that we're always in a position to be able to not have any liquidity challenges. I wanted to talk about Botrista because when we announced this late March, the announcement, of course, it's a one-way announcement. So therefore, there wasn't a Q&A session on that. So I want today's session to be able to address any questions. What it is? It's 2 words robot, so bot, and rista as in Barista. So [Technical Difficulty] /technology space. What it is, it's an automated machine with over 100 different IP patents, including self-cleaning, et cetera, which means essentially no additional labor. When these DrinkBots are placed into QSR locations, it gives that store an opportunity to have a more significant contribution from their drinks strategy as part of their menu contribution. We've also seen trends whereby carbonated softdrinks may not always be desired by consumers. Of course, we still have our soda fountains, et cetera, with Coke and the Pepsis of the world, but this is giving an alternative to soda as well. Commercially, when we put these machines into our old restaurants, there will be a sizable uplift, which makes this investment actually a very quick payback investment. But beyond that, we think this is a very innovative way, and we want to be part of this in terms of distribution strategy for beverage in markets like the U.S. So it's predominantly U.S. It's a U.S.-based company. And as I've always said, we are in some ways underweighted in the U.S. And so I've also said that we'll look for strategic partners and alliances so that we can actually muscle up in the world's biggest QSR market. That goes for beverage as well. So this is a strategic intentional investment. It's an investment. It's an acquisition, but we'll also get very good commercial upside from this. The second item that's been in the news as well. April 4, we announced Titan Fund as a reminder for those who may not be familiar, is a private equity registered in Singapore and one of the brands it holds is Tim Ho Wan. And as you know, we have 4 pillar strategies, Chinese cuisine being one. So we are 92% LP contributors to that fund. So it's the [ same ] fund, but this is now fund #2. And as we all know, at some point, brands do exit funds -- and once it does, then we like an opportunity because we enjoy working with this team to really just see what's out there in terms of synergies and being able to supplement and complement one of our 4 or 2 or 3 or all 4 categories of our 4 pillars. So again, I want to make it very clear. There has been no investment into this fund from us. We have a participation rate of 90%. We have not injected any capital for any identified investments. But we want to think ahead, and we want to make sure that we muscle up with good partners. So that's what this was. I think it's a good transition because I know this is on a lot of people's mind, our capital allocation strategy, our acquisition strategy and the rest. I want to be very clear -- we have not bought and we will not purchase anything that is not strategically fitted into our tripling NIAT in 5 years, which, again, Q4 last year, we put the stake in the ground. We're confident enough. We've done the analysis, and we were confident enough to put that statement out there. We are tracking -- I know it's only been a quarter [Technical Difficulty] and I put this out there because it's important that we will not do random acquisitions, but it will only be those that will enable us to deliver this promise to our shareholders. Point number two, in terms of investment criteria, superior cash returns. So this will be mentioned by incremental EBITDA, both in terms of margin rates, but also dollar contribution. So the acquisitions will be funded by the acquired targets in the future. So again, we will not be acquiring businesses that require 2, 3, 4 years of patience and building up the cash returns. So that's a significant change as well. I think the third point just goes to emphasize again that it will be accretive multiple to our group EBITDA multiple. We also will look for a business is, again, in those 4 categories only, where we believe that we're also acquiring [indiscernible] resources in place to drive winning performance, not just average performance, but a great team that is actually beating the competition in that set market. We've done well historically when we looked at single market acquisition. It's been a bit bumpy when we went a bit wider. But nonetheless, I think we've -- as I've said in past earnings calls, we've learned our lessons with CBTL. That brand will do well. It is starting to turn its corner and is performing as many KPIs that I'll be proud to share in Q2. That's going to make proof of the statement I'm making here. So hard work has gone into it. But again, anything that we acquire in the future, we'll make sure that these learnings are incorporated. And fifth point, of course, is growth potential in a targeted market with a very focused ability to really drive operational leverage, meaning we don't need to add a ton of infrastructure or G&A, but we can really start to generate cash very quickly post acquisition. So our process of due diligence, a process of thinking about fit and the rest of it, we have made a change in that. And I don't want to put this up front because I have quite a bit of questions around this topic. Just to wrap up, we're on track. So SWS growth rate, RB growth rate, store network growth rates and of course, our operating income and also not publish here, but our NIAT on track to publish consensus that's out there from many of you who are on this call. So with that, I shall stop showing the file and take on any [ and all ] Q&As. So we have about 30 minutes remaining.

Thank you, Ms. Shin. [Operator Instructions] We do have about half a dozen questions that have already come through. So let's go through those first. I'll try to group them. Some of them are obviously similar. So we can start off with the international business. The first question on the international business is that why has China's same-store sales growth become negative again? And have we actually lost market share? Are we seeing any improvement quarter-to-date? And how does Jollibee plan to differentiate itself versus leading retailers who are also expanding very rapidly there through the franchise model?

Yes. Thank you for the question. So in China, we are -- again, as a reminder, [ only in ] the Chinese QSR space. So we do look at public listed companies like Yum China, but we do understand that there are differences between Western QSR and Chinese QSR. So that's the first point. Having said that, I believe Yum China published that they were 3% down under RB, and we were also 3% -- moving more towards Tier 3, 4 and 5. So again, we're in it for the long run for China. It is bumpy. It is rough and the recovery from COVID has not come back. And I don't think this is new news for anyone on this call. I think you're seeing that in many sectors. So our decision is we will stay in China with Chinese cuisine. We'll expand asset-light, i.e., franchise model. We'll work with the right sort of regional franchisees were able to succeed because they know that region or their town or their city. Our price point is very attractive. So what we're trying to do is we're trying to really work on some [ material ] menu brands. And the reason for that is there's so many choices out there. Roughly half our business passes through delivery. And when you're on delivery platforms, that's another world of discounting and all that stuff that we get into. So we want to be very careful not to erode our margins away. But we're extremely positive in the sense that we're testing a lot of different models, and we are starting to find models that are getting some good traction. So I think we'll continue to report soft performance in China for next a little bit. The good news is it's not a big part of our business. So it's not going to drive down our enterprise targets that we have set. But yes, we're going to weather through this one in China. So that's what we're seeing.

Got it. The next question is on the 2 favorite brands that are most asked about always, CBTL and Smashburger. So specifically for Smashburger, the question is that the same-store sales growth was negative. Can you provide details and outlook for this business in terms of growth and profitability and [ particularly ], for CBTL, what was the EBITDA for both these brands in the first quarter? How did it change year-on-year? And what are the latest turnaround targets for both these brands?

Yes. Okay. So let me start with Smashburger. So roughly, we have about 230 stores now, which is less than what we had last year, which is to say that -- and you may have picked that up on the new store, it's actually negative, which means we've closed some underperformers and outlier stores that are in geographies where they shouldn't be. We've also converted and sold geographies to franchisees who then are taking on a network development contract to build more stores. So certain places where we believe others can do better than we can because they have other businesses there in supply chain [indiscernible]. We've done that as well. That is to say then the P&L gets stronger. It's also to say that we have royalty income coming in, which is more of a guarantee. What's very interesting is when you look at the franchise business and our company-owned business, it's roughly similar -- but within franchise business, and there is what we call traditional or -- sorry, nontraditional and traditional, the nontraditional are things like airports, et cetera, and we're seeing significant growth in those places. So my conclusion is the brand isn't damaged per se. I think people are more conscious about whether they want a $10 better burger or whether they want a $5 QSR burger. So we're conscious about pricing and the rest of it. So we're going to lean in now and really emphasize our strength, which is the quality of the burgers and so forth. Operationally, since Denise has come on. And for those of you who don't know Denise, but she is certainly Googleable. She used to be a very senior executive at Starbucks for 25-plus years. And as you run the Starbucks U.S. business at 1 point, along with a few other key senior executive roles. She knows company-owned store. She knows franchise, franchisee, she knows store ops. And one of the first thing that we changed early on, so this is around February time, is that our performance, variable performance incentives for our store operators, we shifted from 2/3 to variable cost controls to driving top line. And there's a history and reason why cost was important focus for us, but this has yielded in your average daily sales going up because there's a lot more focus now on that component. So it will take a bit of time, not too long, but it is still EBITDA positive, and it will continue to traction well. On CBTL, we are starting to see month-to-month better performance. And again, I don't want to prespeak to Q2, but what's very interesting there is our U.S. company-owned store business is starting to perform in a different way. in a more positive and better way. So we're very happy with all the work put behind there. We have 2 other markets in the world that are company-owned and that's Malaysia and Singapore. And those are very profitable markets. Malaysia, we're also starting to see some really interesting return of transaction count. So what happened in Malaysia in 2023 was over 400 new coffee shops come into that market, and most of them were in the value segment. And as you know, CBTL, we are not in the value segment. We're in the better coffee segment. So we're not going to reposition the brand. That's the wrong thing to do. But what we did, for example, just again, this is very tactical, but I just want to illustrate the point that the brand is not damaged or weak. We did a MYR 5.5 [ any and all drink ], single drink on May 5. So what happened there is we got 90,000 customers lining up for hours, other stores to purchase our product. So that tells us the brand is strong. It also tells us that there's an opportunity. And this was all then through social media and that digital site that I always talked about. And what's very interesting there is that there is a way to get stickiness and there's a way to get repeat and so forth. So working on those opportunities as well. So we are accelerating our app launch and so forth. So CBTL is starting to, I would say, taper off into that trajectory of actually outperforming its peers. But at the moment, we all saw Starbucks earnings results as well, but the premium segment has been a bit challenging in some markets -- but again, for us in the U.S., it's been slightly different experience in the most recent months.

Right. Maybe there are lots of questions that are actually asking for the Smashburger EBITDA number. Is that something that you can share? Because it seems that this quarter, that number wasn't there? And how does that compare year-on-year? And when do we kind of expect EBIT positive for Smashburger?

Yes. So if it's okay, Divya will get that circulated. We do have those numbers. And EBIT positive. Our target is 20 -- let me get this right, early 2026, EBIT positive. So we'll continue to improve on the positive EBITDA. And in terms of real money or dollars, we're talking about $8 million to $9 million. Again, I know there's a lot of question on the brand, et cetera, but it's not a brand that is PHP 50 million in the whole. We're very close to EBIT positive. We're already EBITDA positive, but we'll publish the specific numbers after this call.

Sure. The next question was just explaining why international EBITDA margins fell in the first quarter on a year-on-year basis, which geographies and brands are the main drivers for the net income after tax losses for the international business?

Yes. I think -- it's exactly what we've been talking about Smash and CBTL [ and it's ] China. And so when we get those businesses gearing up again to growth, you'll see a significant uplift. Now on a percentage, and I think one of the slides I showed gross profit as a percentage. It is slightly lower than the Philippines. But again, I want to emphasize and I've said this in the past on a unit basis, it's a lot more dollar. So we have to look at dollar end percentage because, for example, in the Philippines, what we're seeing with competition is they're doing add-on soft drink. So you buy a chicken, you get rice and you can add on. So add-ons typically around PHP 20 to PHP 30 for a soft drink. That is to say less than [ USD 0.50 ]. In the U.S., soft deans are now USD 0.50, as we all know, they're closer to $2 or $3. So that's the kind of significant delta on a unit basis. So I think that's why we're seeing the number and the shape that way. But once those profitabilities come through, then you'll see those margin rates closing GAAP pretty quickly.

All right. And maybe one last question on Smashburger that's coming is, again, a number question if you have it. What is the current [ ADS ] for Smashburger and where you need it to reach basically to become [ EBITDA ] positive?

I think that's a fair question. So we ended the year around PHP 3,400 million. We're now running around PHP 3,600 million after Denise's leadership. I would love it to be at PHP 6,000 million -- we're not talking about breakevens at PHP 6,000 million, we're talking about, should we be thinking about IPO type of level. But let's not get ready. I think getting to PHP 4,000 million solves a lot of the negative profitability issues. Our organization isn't big, and we're keeping that very lean. So the operating leverage on 4,000 per day will be quite significant. And we're getting there. again, each day, each week, I'm starting to see these numbers inching up.

Right. Then moving on to the second bit of questions. This is more on quarter-to-date trends in terms of same-store sales growth for both Philippines and International. Specifically, any indication that same-store sales growth for the Philippines can be maintained at the first quarter level also in the second quarter? And do you expect the higher traffic to continue to drive same-store sales growth for Philippines?

Yes. So the short answer is Q1 is not loaded with promos and loaded with sort of lapping on a soft quarter in the previous year. That's why I kept referencing Q1 2023 as the reference to Q1 2022, where Philippines was essentially locked down. So the answer is yes because what we're doing is fundamentally what we're doing and what we're seeing fundamentally is the same as Q1. We're not taking price. We're not launching anything that is sort of a one-off per se. I'm also very encouraged by the double-digit return in dine-in and the double digit -- twice the double-digit return on return growth in delivery. So I think yes, our challenge really it's not going to be the Philippines to rolling base, but is there an opportunity really to penetrate quicker into outside of Metro Manila where we're still underpenetrated. For me, I see that as more of an opportunity for growth.

All right. Then we have a bunch of financials related to questions. The first of that is what caused inventory cost to sales to increase year-on-year in the first quarter? Which input cost pressures are you seeing? And how are you dealing with high coffee prices?

Yes. So inventory costs went up proportionately to our volume or revenue. So the absolute increase is because we're growing. But as you can see on a margin basis, which is inventory, packaging costs, et cetera, you're seeing an uplift of 10 bps -- so yes, inflation is a reality, and I'm not going to say it's not. When we look at inflation, we look at it against the prior quarter, and we also look at it versus 2023 full year as well. What I'm saying is it's flattish to December of last year for our basket of goods. That's not to say -- because I think the published inflation rate in the Philippines last I saw was -- was 3.3% versus 8.3% the same quarter 2023. But again, that's the Philippines. I'm talking about our basket of goods. Within that, what I'm seeing is things like rice is going up, and it's going up right across the board for all companies. But packaging supplies is coming down at a high single-digit inflation rate. So we've locked in pretty much all of our key suppliers like chicken, et cetera. And I think that's why we're able to live with inflation, manage inflation. And as you can see, we did not pass on any cost to the consumers in the first quarter. So I think it's important to look at dollar increases and look at that in terms of our business increase. So that's what happened there. Coffee [ price ], I'm not the expert, but when I talk to those who are the experts in our business, we did do forward, et cetera. It's going up is not going up to the point where you're squeezing our margins. So we're not seeing coffee gross profit margin just from the beams being squeezed. But I think we're taking a moderate price increase. We took a moderate price increase in March in CBTL in the U.S., and we still saw that our volume went up. So -- we're not the biggest out there. So therefore, I think we're in a good space. What is, I guess, the bigger question really is the fast-growing value segment. So I'm talking about $1, $1.52 U.S. [indiscernible] Americano versus, let's say, $4, $5 U.S. Americano such as Starbucks for us. So those are the areas we're looking at to make sure we have a play but not jeopardize our brand premium as well.

All right. The other question that was asked quite often was on the other income. So we've seen a significant jump in other income in this quarter, specifically on the write-off of liabilities. How do you see this moving forward? And why did it go up in the first quarter?

Yes. So I think there was about a SEK 400 million is thereabout. So that -- those are all the [ goals ] reversing through -- so I think a few years back, we had significantly higher reversals. We call them write-offs and liabilities, but the key component is really old accruals that were not tagged, so therefore, have had to be reversed. Most of that's been cleaned up. So we're still seeing some of that coming in. But when I look at it versus where we were and where we're headed, I think that it's reasonable. So nothing really special there other than all the A&P accruals that in the past, we used to accrue based on percentage -- estimated percentage spend. And because we are franchisees with A&P commitments in contracts with them. So that worked when things were stable. But when things are less stable, then we have to start accruing in a slightly different way. So it's, I think, remnants of that coming through.

And just on A&P, there's another question that are you expecting to ramp up on A&P in the coming quarters?

I'm laughing because we've had this conversation twice last December and the December year before. So it's not going to be like December year before. So I'm happy to announce that we spent PHP 2.8 million A&P as a percentage of rev, which was exactly what we spent in Q1 of 2023. Now I did also show a chart in the past that shows that Q4 typically is slightly higher. And the reason is because there's a lot of catch-up of A&P in terms of suppliers invoicing us to make sure that they get paid, et cetera. So there's always been a [ PHP 3.1 million to PHP 3.3-ish million ] fourth quarter. But barring that, and again, that to me is a trend. So barring that, no, the answer is PHP 2.8 million in the first quarter is a good A&P spend.

All right. And another question on financials is that there was a decline in cash provided by operating activities, which was driven by a change in net working capital. Can you provide some more color on that?

Yes. The biggest impact, if you will, 2 biggest impacts were some tax settlements -- and again, this is not to say anything negative about Bureau of [ DIR ]. But the reality -- and everyone knows who offer a business in Philippines that department has been significantly more aggressive in tax collections, tax assessments and tax collections, et cetera. And of course, that relates to settling that and all the sort of the halo effect of that. So the major movement really was related to our payables and tax. But -- it's not -- how do I say, it's not a reflection of inefficiency of FCP, sorry, FCF. And the reason is because we actually added percentages or favorable to -- sorry, FCF percentage from the main working capital components of inventory and [ Ars ]. So I just see quite a bit of money flowing through there. And our CapEx has pretty much been managed to where it is. So it's ensured it's a different tax environment that we found ourselves.

Yes. Then we have a few smaller questions. I'll just go through them quickly. The first one is, can you tell us why Tim Ho Wan particularly underperformed in China with same-store sales growth down [ 16% ]?

I think when Tim Ho Wan first took the brand position in China coming off of the one Michelin-starred brand that it was. It took a positioning of closer to fine dining, if you will, but I shouldn't say fine-dining but higher in terms of QSRs [ price ] cash flow, cash flow, so somewhere around cash flow to slightly above in Tier 1 cities principally. And as I mentioned earlier, those food companies who are positioned in Tier 1 are getting hit the hardest. So more specifically -- sorry, in addition, I should say, in addition to that, a lot of our restaurants were in malls. Malls traffic as significantly come down in Tier 1 cities. In addition to that Monday to Thursday, average daily sales is very different than Friday, Saturday, Sunday, in malls. So those are the elements. So we're addressing that so that the day parts. I think there's repositioning. And of course, there's eventual -- if the stores are underperforming, we're okay, again, it's not a significant part of our entire business, good learnings, new brand, new market learnings, but the growth of Tim Ho Wan will take a different strategy in the future and one that addresses the current environment in China. So different tier cities and different channels, et cetera.

Got it. The next question is, is there any boycott impact in Malaysia due to the war in the Middle East?

Fingers crossed, and I shouldn't say too loudly, but not for us. I know there's been significant impact on Starbucks in Indonesia and Malaysia and of course, Middle East. Our Middle East CBTL business has grown significantly, again, fingers crossed. But the answer is no. We haven't seen it in Malaysia. We're not in Indonesia, and we've seen upside in Middle East.

So in fact, there is some -- I would say, some market share gain because of the impact from Starbucks?

Yes. Again, I never wish to on anybody, including competitors, but yes, there has been for us.

Got it. And then there's a question on guidance. And given that we are almost at the hour, maybe we can wrap it up with this question. Could you talk about the guidance in more detail in terms of store openings by country? Also, what are your plans for the international business expansion, not just in 2024, but for the next 5 years? And then there's a related question on same-store sales growth guidance by country and brand, specifically for China, North America and CBTL?

Okay. If it's okay, Divya on that one, we'll publish it because it will take me more than 4 minutes to go through all that. But our guidance [indiscernible], I think it's around 700 stores.

Yes, sir, 700 to 750 stores.

And of that, about PHP 150 million is China. We always have the 80-20, so 20% of the Philippines, 80% will be international. But why don't we get back to you with detailed numbers on Highland Coffee. That's a big one in terms of expansion. CBTL, China and then the Jollibee brand. I think that's an important one also to show the split of new stores, but we'll come back on that. And what was the second part of the question?

Same-store sales growth guidance, specifically for China, North America and CBTL?

Yes, for the full year. I think North America, we're going to exceed it the general group guidance number. I think China is going to be a challenge. We'll continue to monitor it. But -- so that one will be a bit of a challenge. But our growth in the U.S. will more than offset that. CBTL, I think the back half of the year, it's going to start to really look different versus the first 3 months of the year because we're already starting to see some difference in month #4 and 5. So CBTL should be better. China will be softer. U.S. will be better. EMEA will be better and Philippines, they always deliver well. So...

Right. And since -- before we wrap up, maybe one balance sheet question, what is the refinancing strategy for the upcoming step-up for perpetuals?

Yes. [indiscernible] have we disclosed or announced on our preferreds, yes?

Well, we've announced the preferred shares, sir. Okay. So we have a PHP 3 billion denominated preferreds. I think the coupon was around 4%. So that's coming due towards the latter towards Q4 of this year. We're well entrenched in the process. So we're going to actually go for PHP 8 billion instead of the PHP 3 billion. So we'll use PHP 3 billion to refinance that. And the remaining PHP 5 billion will be for growth of CapEx support in Philippines -- and we'll leave a little bit for a buffer as well. We recognize that the rates will be higher. We recognize that. So we're working through some of other instruments, the perps and the senior. So we're working on that to try to balance back down as well because there's new tools out there, new options out there that we're exploring that could actually give us better rates. So we're looking at that. So perps don't have to [ mainly ] sit until they mature. We might have the ability to address some of that earlier. So this cash will go to very good usage.

Okay. There are a couple of questions that [indiscernible] answer. I'll share them with Cossette off-line -- but let me hand it back to Hazel to close the call.

Yes. So with that, we end this session on Jollibee Foods. We thank you, Richard and Cossette for sharing your views. And as Divya had mentioned, if you have any additional questions, you can e-mail us and we can send it over to Cossette and Richard to answer. So to all the participants, thank you for joining us. If you -- again, if you have further questions, let us know. Take care, and you may now disconnect.

Thank you.

Thank you. Have a good one.