Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good day, and welcome to Monde Nissin's First Half 2022 Earnings Briefing. I am Mike Paska, Director of Corporate Business Development and Investor Relations. On today's call are Henry Soesanto, Chief Executive Officer, Jesse Teo, Chief Financial Officer; and Marco Bertacca, Chief Executive Officer of Quorn Foods. By now everyone should have access to their earnings press release and today's presentation all on the PSE Edge website posted earlier today. These documents are also available on the Investors section of Monde Nissin's website at www.mondenissin.com. Just as a reminder before we begin, please note that the financial information presented is unaudited and during the course of this call management may make forward-looking statements based upon current expectations and assumptions. These are not guarantees of future performance. I encourage everyone to read the legal disclaimer in today's presentation. Now I'd like to turn the call over to Henry for introductory remarks. Henry?

Thank you, Mike, and good afternoon, everyone. The first half of the year has been strong top line growth. For our APAC business, growth is across all major categories. While our Meat Alternative business continues to face challenges in retail, it continues its strong momentum in foodservice, making its channel -- this channel a more significant part of its overall business. Before we discuss our first half performance, I would like to provide an update of a recent issue on Lucky Me! This is about ethylene oxide. Ethylene oxide, or EtO, is an antimicrobial compound that is used globally, among others, in processing of spices, seeds and other agri products. Because EtO exposure has been linked to certain health risks, a number of countries have imposed a strict standard on its presence in food. EtO breaks down very, very quickly to other much less harmful compounds such as 2-Chloroethanol, or 2CE. Monde Nissin doesn't use or add EtO to any of our products or any of our production process. Some of our noodle products sold in the EU were found to have trace amounts of 2CE present, and thus, the regulatory authorities have assumed that our products were exposed to EtO. However, 2CE can be present in some foods naturally at very low levels. We do not believe that these levels pose a health risk, but there is a very low tolerance in European Union or EU. Each country has their own specific standards for allowable trace amounts post processing. So what we did, we immediately had our products tested by independent and reliable laboratories abroad, which found our products meet regulations. The Philippine FDA subsequently confirmed the safety of our products after their inquiry. While it is not a safety issue, it is apparently a regulatory issue. So this incident has made us immediately aware of the regulatory nuances found in different territories. The standards range quite widely, with the EU being one of the most rigid, while other countries have very interesting protocols and allowable levels. For our region, this is a new or emerging issue. As we said, this is a regulatory issue. I give you an example. Like in different countries, there is a speed limit on the street, right? In Germany, for example, there is no limit of speed driving in autobahn. In the Philippines, the expressway speed limit is 100 kilometers per hour. If we drive as if we are at the autobahn, we will be apprehended here. That's what I mean the regulatory issue. So moving forward, we need to strengthen our understanding of the regulatory standard in every territory that we wanted to export to. And we are currently evaluating our process -- export policy. We are also working with our suppliers to institute testings at key points throughout our supply chains before shipments. And for sure, there will be more new regulations in the future. So immediately, we will further invest in the capability to anticipate and put them as part of our quality system. Lucky Me! has been providing great products for more than 30 years. We have had a longstanding relationship with our stakeholders, and we have further put in place various marketing campaigns across channels and we believe this will enable us to reinforce the goodwill with our customers. Finally, it has been and it will always be our commitment that we ensure our consumers they will continue to receive only the good quality and safe products. And now, I would like to turn the call over to Jesse to talk about the financial impact.

Thank you, Henry, and good afternoon to everyone. So while this incident is beyond Q2, we deem it wise to share with you -- with everyone in a public forum the results -- the financial results of these incidents. First of all, on an export front, the affected geographies are immaterial. They're less than 0.2% of the turnover of the group -- of APAC Branded Food and Beverage. Domestically, though, because of the noise that was caused by the incident, July had a soft month for instant noodles and it declined 15% versus a year ago. However, because we had very strong momentum in our other businesses, which continued to grow double digits, we overall had a flat month in July. August for instant noodles was a record year last year. And with the continuing effects of this incident, we believe that there would be a dampening effect on our overall Q3 results because of this incident. Because of the marketing and sales interventions that we are making to give assurance and provide good -- or reinforce goodwill with our consumers, we believe that this issue is transitory and that we should be able to overcome and restore our path for growth for noodles and all our categories subsequently. We will now focus on Q2. Next slide, please. Next slide. So we had, as Henry said, a very strong quarter and first half for Q2. Our growth accelerated in Q2 to 13.1%, bringing up our first half growth to 10.1%. This was around 7% as of Q1. Leading the charge is our APAC Branded Food and Beverage, which grew at 18.1%, highlighted by the domestic business, which grew at 18.9%. And as Henry mentioned, the growth is broad based. All of our categories grew double digits in value terms. And moreover, except for noodles, which had a very high base because of the pandemic demand for instant noodles, all the other categories grew double digits in the first half in volume terms. This is highlighted -- punctuated by the strong growth in bread, fresh bread, which we declared as priority, which grew almost 100%, and our packaged cakes, which grew more than 20%. For Meat Alternative, we had a soft month -- a soft quarter, where we declined 3.5%. Part of this -- organically, we declined 2.3% in value terms. However, this is the first quarter since we have been reporting quarterly that exchange rate has become a headwind for us. Exchange rate brought the sales down by 1.2% as the sterling weakened relative to the U.S. dollar, even as the peso weakened against the U.S. dollar. The first half, though, our Meat Alternative business is relatively flat at negative 0.8%. For gross profit, we were able to achieve what we said we will do, which is to keep the absolute amount. We grew gross profit by 7.4%. In the first half, it's up 1.2%. However, because of the lag of pricing relative to the commodity price increases and also our intention not to fully pass on the price increases of the commodities to our consumers, we had margin declines. You'll see that our margin decline versus a year ago was 1.8% at 33.6% and overall on the first half it's 34.4% or 3 percentage points lower than a year ago. For core EBITDA, the decline is a bit higher than gross profit because of our continued investments in OpEx, particularly in our Meat Alternative business in the U.S. More on that when Marco takes on -- discusses the Meat Alternative results later on. For core net income and core income net at the ownership, we were able to churn out positive growth. We had a more favorable tax rate. Last year, we had several big ticket deductions that -- where we deemed some provisions would be necessary. This year, those deductions are no longer present as we have a more steady state business. And we are now applying a more steady state 24% blended tax rate. This helped us achieve growth on a core net income and a core net income attributable to shareholders. You will also notice that the difference between net income and the ownership would be now marginal as we have now the full year impact of the July -- January 2021 acquisition -- full acquisition of our major subsidiary, Monde M.Y. San. Noncore items is now a insignificant part. This has led to a big increase in reported net income. In fact, last year -- Q2 last year, because of the extraordinary items related to the IPO expenses and the Arran convertible note expenses, we reported a negative PHP 2.9 billion loss on a reported net income basis. As you recall, we excluded that from the core. And therefore, the turnaround from a negative PHP 2.9 million to PHP 1.9 billion is a PHP 3.8 billion turnaround. Overall in the first half, right, we report -- we are reporting PHP 4.3 billion on a net -- all-in reported net income. The same number a year ago for the first half is negative PHP 0.5 billion. Next slide, please. Now zeroing in on APAC Branded Food and Beverage. As I mentioned, sales increased 18.1% led by domestic business, which grew 18.9%. Our international business also had a turnaround. We experienced difficult challenges on the logistics front in Q1, but we started back at the growth front for international, growing 7% in Q2. Gross profit grew on absolute terms and EBITDA as well. EBITDA grew a little bit lesser because of the investment in OpEx, particularly in advertising, promotion and selling expenses. On the core net income, we had a spectacular growth of 27% largely due to the tax -- the high tax base that we had for the previous year. First half, our APAC Branded Food and Beverage reported close to PHP 30 billion of sales, representing 13.2% and a core net income of PHP 4.1 billion or a growth of 3.9%. Clearly, we are able to use our sales growth to cushion the blow on rising commodity costs to keep the profit -- gross profit and net income at least at par versus a year ago. Next slide, please. Just to remind everyone also, we never had a difficult year. There was never a collapse in our historical performance even during the most difficult phase of the pandemic. We were growing with some quarters of modest growth, but we never had a decline. And so this 18.1% versus a year ago is impressive because we never had a bad quarter in our history. In fact, this quarter is stronger -- is even stronger than our previous quarter, growing by 4.3% quarter-on-quarter on top of the 18.1% year-on-year. Overall, in the last 3 years, with the pandemic included, we have been growing steadily at close to 7% on a 3-year CAGR basis. Moreover, as I mentioned earlier, our growth is good growth, good sustainable growth. We had to take some pricing to offset the commodity costs, and we had a huge pricing increase in our -- that drove our revenue. But we also had good revenue growth from volume. ForEx contributed very little to our overall growth for revenue. Next slide. Now on to share, where we continued to maintain #1 position -- #1 or #2 positions in all of our major categories. In noodles, though, after a high during the pandemic, where consumers flocked to our brands during the pandemic, we suffered a letdown in share, ending the Q2 with 67% share. Still, our opportunities are in the areas of cuts and some challenges in our dry pouch business. On the dry pouch business, we have now introduced our Kasalo Pack nationwide and have introduced it in our 2 most popular variants, the Kalamansi variant and the Extra Spicy variant. In order to excite the category also, we introduced a mix-and-match variant, the Extra Chiliman Hot and the Sweet & Spicy Mansi. This is the combination of our most popular variants. In fact, these are ideas coming from our consumers where they mix and match our flavors, and we made them our limited time offerings to excite the category. We also have the Milky Me initiatives. In particular, the chicken variant for Milky Me is doing well. To remind everyone, this is a value-add Instant Mami with the creamy goodness of milk added to it and fortified with vitamin A and iron. We believe that these initiatives, along with our communications of assurance, should lead us to growth path and lead us to growth recovery. For biscuits, we had a spectacular growth with volume up double digits, along with value. Our biscuit sales and value sales have exceeded pre-pandemic levels. So we have recovered the weakness in the weak out-of-home consumption that we experienced during the pandemic. However, we have not been growing at par with the category growth. The category has recovered faster than us, and there are several competitors that are doing better. In order to address this, we will focus on our distribution downline or to the general trade with a more focused set of SKUs. We have several SKUs in our stable, but we deem it better to focus on a few bigger, better, fewer in the general trade. We will also partner more aggressively with modern trade. We determined that visibility is one of the key business drivers in the modern trade, and we will invest aggressively in order to get a rightful share of shelf in the modern trade. Finally, we will renew value proposition communication in all of our key brands. Now on to the other categories, starting with culinary. In Oyster Sauce, very happy to report that we have further increased our share lead, where we now have a 61.2% share in our Mama Sita's Oyster Sauce brand. For Yogurt Drinks, with Proyo! helping us lead the way, we have further strengthened our position, reaching now a 90% share position in the yogurt drink category. For Cultured Milk, very happy to report that we have now solidified our #2 position. Recall that we had supply chain issues as Delight was being brought in by a cold chain from Thailand. We now have more stable supply, and this has led us to full recovery and then some in our Cultured Milk business. I'll now turn it over to Marco, who will start -- who will discuss our Meat Alternative results. Sorry, sorry. Just one more slide before I turn it over to Marco. A word on the key commodity trends, wheat and palm oil. Wheat and palm oil are key commodities. After experiencing record surges to all-time high levels have now been softening. Recall that in the first half, our lock-ins really helped as we were buying our wheat and palm oil at much lower than spot prices. However, with the sudden downturn on these prices, our lock-in positions are now higher than spot prices. Recall that we mentioned in previous forums that we have been employing tranche lock-in approaches because we didn't know -- nobody knew what the trends will be. This partially mitigated our position relative to the spot price. But overall, our lock-in prices are still higher. To remind everyone, for wheat, we are secured or locked in up to Q4 of this year. And for palm oil, we have positions up to Q1 in '23. We will fully enjoy the lower prices of these commodities by the beginning of next year. On an exchange rate front, we continue to have the stockpile of U.S. dollar, over 100 million net of U.S. dollar positions. And this helps us with the peso weakening relative to the U.S. dollar. I'll now turn it over to Marco to discuss the Meat Alternative business.

Thank you very much, Jesse, and good morning, good afternoon to everyone. Even before I go into the financial performance of the Meat Alternative, I just want to give a very small -- a very short intro and maybe take the last slide has a bit of a reflection of where our key markets in the Meat Alternative business currently is. So first of all, it's fair to say that we play mainly in the U.K. and we have a business in the U.S. and we have a global QSR business, which I'll spend much more time on. But the U.K. is not exactly in -- well, let's say, is in a particular challenging situation in terms of economy, and also, I would argue, in terms of the current forecast also for -- very recently, the Bank of England has talked about a 13% inflation, which is something that the country has not seen for a very, very long time, talking about the recessionary behaviors. And in particular, also, a continuous increase in the commodity. Unfortunately, I cannot report the same trend of slowing down of some of the commodity. One of the latest numbers that I was looking at -- as an example, the U.K. gas cost has doubled from already very, very high prices in the last month. So this is putting a little bit of a picture around the kind of challenging situations, certainly from the economical perspective, but also from the overall category perspective. I'll share a little bit about what the category is doing overall. And therefore, it's very important that we discuss -- and I will be extremely open with you how are we doing compared to the competition, how we're doing in absolute terms and what are we focusing on in order to find a way to save through these turbulent times for category and the regions where we play and exiting this situation with a much stronger business. And this is done by working on some of our fundamentals and some of the areas that I will touch upon, in particular, foodservice and QSR. So maybe, I'll start from the financial with the next slide, please. So as Jesse has already introduced, our net sales for Q2 is minus 3.5%. On an overall reported basis, we are kind of flat year-on-year. And what is important to notice here is, let's say, the trend in the volume. We have a decline of 7.9% in the volume, while the overall category was down 13.4% overall in volume. So this is where I'm saying -- I would say, the entire of the category is suffering a moment of slowdown, not only overall, but also a bit of a shift from retail to foodservices, as you will see. And we, at Quorn, are really focusing on ensuring that we're doing better than the category. This is why -- while the volume decline is never good and it has an impact throughout the company, that's not why we're here for. What is the good aspect of that is that we are declining less than the market, and therefore, this is resulting in a stronger share for the company. And I will address that later, in particular, about the U.K. While in the U.S., we still have a bit of a challenge also from the share perspective. The other big element that I want to highlight here is the growth in foodservice. Now what I -- I'm sure you remember our key strategic drives have always been in the U.K. as our core market over investing in the U.S. for growth, and foodservice, QSR on a U.K. and global basis. So touching upon the foodservice and QSR, I'm extremely happy. Even Henry mentioned in his introduction, we have experienced a growth of around 45%. This is absolutely in line with our strategic intention. And this is taking the foodservice area from an 8% contribution to the total Meat Alternative business to a 15% contribution to the Meat Alternative business. And this is extremely important for us because we are then able to stand on 2 legs, not just to rely on retail, but we have a very strong foodservice business. And in this area, we're doing extremely well. We've also passed price increase in the first half. I will come back to that in the next of the slides. If I then move to gross profit, our gross profit is at 35.6%, a decline compared to the first quarter. And this is essentially driven by, as I said, lower volume and the fact that our price increases at the time lag compared to the increase of the cost of raw materials. I want to put a little bit of a personal reflection on this. You may have seen a number of Meat Alternative companies reporting their numbers in the last couple of weeks. I confirm that our long-term trajectory is to restore our percentages. But for sure, we want to always pass on the consumer, as also Jesse has mentioned, our cost increases, but not to fully recover our margin per se. So we want to pass over what is our cost as such. So we are planning to recover clearly some of our margin. But we are extremely happy to report that our business is extremely solid and we are the most -- we have the most solid business in terms of Meat Alternative across the world in terms of gross margin. So we're still in a very, very healthy position. This has always been one of our intention, because we have been here for the long term and with the intention of investing below the gross profit. Gross profit stability is very important for us. If we then move to the EBITDA and the core net income. I want to highlight one element in the presentation, which is, despite the fact that this is clearly lower than the first half of 2021, one of the key element is in line with our strategic intent to heavily invest in the U.S. I want to be able maybe to start to separate what is related to our heavy investment in marketing and in activities in the U.S. and what is our, let's call it, core business. So if we exclude the U.S. investment in this case, our core EBITDA is in the region of PHP 1 billion and our core net income is in the region of PHP 0.5 billion. So very, very strong and very profitable business in the core, with a very conscious decision to invest in the U.S., in particular. Next slide, please. So here, I want to do a little bit of reflection on -- I talked about in the introduction what's the environment around us. And of course, together with the team -- when the environment around us is putting pressure, it's always very important to go back and reflect on what are the key activities to focus on, where the focus of the organization has to be. And here, I want to share with you some of the key activities that are really tailored at making us a stronger business for the future. I really fundamentally believe and you can -- there's plenty of articles that they refer to history. Those -- there is always an opportunity to get out of a downturn with a stronger business. So those businesses that are able to focus on some key actions will get on the other side stronger. And this is what we're really focused on doing. So if we start from some of the actions in the first half and focus on the second half, you see on pricing -- for us, pricing has been extremely important. This is why we've been able to keep and to really work on restoring progressively our margins. We have been putting price increases in the market. Our brand is extremely strong. And in Meat Alternative, there's a number of brands out there that are reasonably young. Our brand is solid. Our brand has been around for many, many years. So what we see is we've been able to price twice actually, for example, in a market like in the U.K. But I also want to highlight that the last pricing activity that we undertook was much, much harder than the first one. And so it is -- the overall -- with the very, very high inflation and the cost of living that is extremely high in the U.K., the overall trend for price increases is really creating tension between suppliers, customers and consumers. So what -- the success that we've been able to achieve so far, I really believe is a big confirmation about how we've been able to restore the relationship with some of our fundamental customers, in particular with Tesco. And I will show you some specific number of Tesco on the next slide. Clearly, consumer offerings, we have chosen a very clear activity to focus on fewer initiatives, but very critical to the time we are living in. So we're not going to go for a wide number of new launches. We focus on 1 or 2. The daily range, which is actually happening as we speak -- in fact, this morning before joining the call, I was on the line because we are commissioning and we are producing for the launch of this product. It's a fantastic new range of deli slices. And this is one -- actually, one of the first projects I worked since I joined Quorn. I said -- I'm currently leaving my baby. I will come back with the results in a few months. I'm sure about that. But it's a very important project. So it's a key launch for us. We're putting messages. We're putting marketing. We really believe that even in difficult times, spending behind a few things that it is crucial. And also, we do a value proposition. So we are really stepping up in our messaging to the consumers that our Meat Alternative business is now able to provide pricing that is very, very close, if not, at times even lower than the meat business. And that is some of the key messaging that we provide. And I will tell you more in the next meeting. Key is also to continue to work on the basics. Distribution and market share are some of the key indicators of the day-to-day that will drive ultimately success in the future. So I'm extremely happy to report that the distribution, in particular in the U.K., is up 12%; in the U.S is up 4%. And this is why with the category that is declining, our U.K. market share increased to 31.2%. I'll come back in the next slide. And what is the focus for the second half is very clearly on: given that the space for the Meat Alternative on the shelf of retailers is currently constrained, so it's not expanding at this stage as it was a few -- a couple of years ago and I believe it will continue to be in the future, fighting for that space, taking a very visible proposition on the shelf, inviting new consumer in is very important. So that's what we're actually focusing on the second half. Foodservice and QSR combined, it was an incredible growth. It's something that is continuing as we speak. We're talking about 51% in the first half of this year compared to a 2019 run rate. So we have extrapolated -- we have completely removed the pandemic effect out of these numbers. And you can see that our 2022 first half is actually 50 -- more than 50% higher than the 2019. So one of our strategic pillar is really giving us a lot of source for encouragement for the future. I'll talk in specific later on KFC launches and limited time offerings, maybe giving you a couple of news pills that are just happening. And we're strengthening on our -- for example, on our Sodexo relationship globally. And this is what is really driving our growth. And also, let's say, given the extreme volatility of the inflation and the, never experienced before, size of the cost inflation that is really pushing a number of Meat Alternative businesses to have to find new homes for their businesses -- that's why we've been contracting a number of times for this -- is ensuring that we are very, very thorough and very, very clear inside our company on cost control. So our quarter 2 overall cost is lower than quarter 1 costs across all the different segments, including SG&A and marketing. So our key intention is to continue to invest, but we're becoming even more choosier than before in the areas where we want to invest. We are also clearly working on supply chain simplification. We have, for example, moved one line that we have in one plant in another factory in order to optimize what we had. And we want to continue with this tight control also in the second half. We are looking for further and further supply chain initiatives, because it is absolutely needed not just now, but also for the next coming years to continue to recover our gross profit percentages. Last but not least, given the stretched supply chain and some of the possible implications also during the winter time driven by gas and availability of some of the raw materials, our key focus is on maintaining a high level of customer service. Being there on the shelf is fundamental now. And we still have more than 95% customer service. And we want to maintain a healthy level of stock and procure the key ingredients from also some of the suppliers that are also finding it tough in the current environment. So next slide, please. Here, I'm going to do a bit of a deep dive -- can I have the next slide? Thank you. Thank you very much. So a bit of a deep dive on something I mentioned. This is the U.K. And I want to just look at some of the key metrics. One of the biggest issues that we had in Quorn for a number of years since the introduction of new brands and the category explosion is that we have been losing market share for a number of years. And now, I'm extremely happy to report that for the last few quarters, and you can see on the top left of the chart, we are really growing market share. So if you see the number June '21 and June '22, on an aggregated level, we're growing. But then we're also growing year-on-year on both chilled and frozen. And that is very, very important for us because our business has always been very strong in frozen, but now we are really stepping up also our presence in chilled. Now this is within the reality of a category that has declined. So you see on the slide -- let's say, on the chart below that we are declining, but much lower than what the category including private label is. So it is not where we want to be in the long term, but when the time is difficult, looking at how people around you are doing, it is also very important. Now having said that, I just want to confirm one thing, which is also a bit of a message that I continuously give inside the company, which is we are the market leader. Our role is to expand the category. It's not just to do better than our competitors. But I have to admit that in difficult times, I think a win of market share is a very, very good sign. But our objective is much bigger. Our objective is to increase penetration. Our objective is, back to our purpose, ensuring that more and more people eat our mycoprotein instead of eating meat for the good of themselves and for the planet. So strong market share growth, very important for us, but with a bigger objective that we need to continue to strive for -- and that will ultimately take us back into growth. Now if you then go to the distribution. This is extremely important, because you will remember we had a tough time in distribution also in the U.K. And here, you can see that our distribution cumulatively versus a year ago has grown 16%. And that is what you see on the chart above. Now what is even more impressive and more positive for the future is what you see on the graph below on Tesco. So first of all, you see on the first bar, the orange bar, this is the -- let's say, the changing number of points of distribution by account. The first bar refers to Quorn. The second bar refers to everyone else, including private label. And the third bar is the net result. So you can see that in Tesco, for example, we have been growing in the last year at 31% point of distribution, while everyone else declined. And a very similar number has been achieved for Asda. While in Morrison and Sainsbury's, we've done similar level than the competition. Now Tesco is our biggest customer, and we are clearly winning with the biggest customer. And that is a very strong testament of the robustness of today and also going forward. Next slide, please. Now I've been very and I am very positive and very pleased with the results that we have achieved in the foodservice and QSR. I'll come back to QSR in the last slide. And I'm also very -- I think a very strong position and results that we are achieving in the U.K., particularly versus the other players. I have to -- I'm not as happy about the results that we have so far achieved in the U.S. It is one of our 3 strategic pillars. We have started to invest heavily in the last 8, 9 months with a number of activities. But you can see on the left, this has not yet translated into -- no market share growth, no growth in volume and in net sales. In fact, our sales has declined. It's actually flat in quarter 2, but it's down year-on-year. So quarter 2 is a bit better than quarter 1, but not where we want to be, particularly not for the drive in investment that we are putting in the market. So you can also see that while our points of distributions have increased, they've not yet increased to the level that we want them to increase. So it's a tough going in the U.S. It's not an easy market at this stage. You've seen it also from some other results. But this is only -- not even the first half of the whole match. And we'll still in it. We're still heavily in it. And we are monitoring and trying to identify what is working, and that will double down; what is not working, and therefore, we should stop it. So we have invested significantly, as I'll show you on the financial slide, behind our awareness. Now awareness is really starting to move, is now 62% in terms of aided brand awareness, which is an increase of 11% since we started to monitor. We also have some great results in repeat rates at Kroger, which is one of our biggest customers. We're second only to MSF. So it's really growing very well there, but it's only one customer. We're also seeing that when we do sampling and our consumer have the possibility to taste the product, that, it's bringing -- then they come back. And so also on the distribution, we've started to gain. We're not where we want to be. We're really driving to get by year-end the same level that we had at the end of 2022, which is where we want to be. But we're not there yet. And so a lot of work to do. And in particular, what our focus is for the second half, it's we want to build on increased brand awareness. We need to find a way to translate the brand awareness increases into increased penetration, increased sales. And we want to really obtain a higher repeat purchase by increasing the trial activity that we do. So we continue to invest. We have rephased and revised our investment. And we try to really put the investment behind those activities that we see are working. And some of the activities that are not working, we're stopping. Next slide, please. So I think this is my last slide, and I just want to close with the area of foodservice and KFC. In particular, this is our other big strategic belief and this is where we have a number of successes. And the team was invited in the U.S., and we have launched, which is interesting. I always said, "Let's not count on us being able to sell our products to KFC in the U.S." But they've done some -- they had some failures with some of the competition. They have invited us, and they've already tried our products twice in the U.S., which is encouraging, but no progress on that yet. Where we have very clear, visible and tangible progress is launches in Europe. What I am extremely happy to share is that recently we had a conversion from what was a launch, for example, in the Netherlands and in Germany, from an LTO to a permanent listing. That is very important. That has created a bit of an uplift also in the forecast. I don't want to say too much about this because it's about the future, but we're very pleased about the consumer response to our products in Europe. That's the most important, because that creates excitement and that creates -- it takes our brand very much out. We have a number of continuation of conversation also in Asia and LatAm that is preparing for some very interesting prospects ahead. If we then look at -- I already mentioned our foodservice growth. We had the best ever first half in foodservice. And we have been able to put price increases also across all our markets, including the European market. There's a big effort in rolling out the Sodexo concept across the European market and others. And what we are also doing, which is really very much at the crossroad of both our purpose and our commercial intentions, we are partnering with some of the big foodservice providers to be able to provide Meat Alternatives at an appropriate price for schools, for the health care sector and many other sectors of the foodservice that are catering for people in need, in particular, during a recession with a proposition that is even better in terms of not only nutrition, but also pricing than meat. And there's a number of activities that are hitting both on our purpose to do well in society and also to find a way to convert more and more consumer from meat to meat alternatives. And the strength and the overlap of some of the purpose, some of the wives of Sodexo and Compass with ours has really made us step up these efforts. And there are a number of activities that are really happening in particular in the U.K. society, where we are the protagonists of this shift. And also the assurance that people in need, in particular during the crunch time of much increased cost of living can still afford healthy nutrition and they don't have to pull back to unhealthy nutrition. Having said that, I think this is my last slide. So before passing back to Jesse -- we are in turbulent times. The increase of the cost is evident. We've been taking a number of steps on that. We want to get at the end of these times as a stronger company. We are doing that by strengthening our U.K. positioning through market share and distribution. We have a very successful QSR and foodservice business. And we have much more work to do in the U.S., but we believe we will be able to make it up. Back to Jesse.

Thank you, Marco. Yes. Just to -- and before our Q&A, just a few remarks on cash and dividends. So you will see it in the package that we have a very healthy cash levels of PHP 13.8 billion. Not much has changed versus our position -- versus in 2021. This is despite the fact that we have invested in a lot more inventory to protect ourselves from issues on supply. With that, we have declared -- we have decided to declare a dividend of PHP 0.14 per share. This is equivalent to PHP 2.56 billion or 79% of our consolidated net income after tax in 2021. Recall, we said that we will declare dividends of at least 60% of our net profit after tax. We are declaring 79% of the amount, and we just posted that news today. So with that, we start with our Q&A.

Thank you, Jesse. This concludes our formal comments. So I will now moderate the question-and-answer portion. Questions can be submitted via the chat box, and we'll attempt to address as many as we can, time permitting. Our first question is for Henry, and this involves ethylene oxide question. And the question is, how is Monde Nissin addressing the Lucky Me! issue in Europe? Is it still selling to EU?

Currently, we are still trying to understand how they test this EtO. So we are still assessing whether or not we are going to keep on exporting to this area. Until we fully understand, we may want to stop it for a while.

The next question is for Jesse, and this involves noodles. And Jesse, can you discuss or comment on the margin difference between Kasalo versus regular pack? And also how much of Kasalo revenue is a portion of overall noodle revenue during the second quarter? And then if you could just remind everyone on the split between dry and soupy noodles?

Okay. So Kasalo Pack versus the regular pack, it has about 600 to 800 bps difference in terms of gross margin. Kasalo Pack was just a big pipeline in May and June. So the number is less than 2% as of now. But 2% for dry pouch to us is a huge number because we are actually more than 80% of the dry pouch subsegment of instant noodle. So it is off to a good start. What we can say is that in the areas in the test markets in north and central zone, we have been able to see that there is minimal cannibalization, number one; and that the volumes for Kasalo Pack has been incremental. As far as the split is concerned on our noodles, the main part of our business is in dry pouch, which is 60% of our instant noodles. You have wet pouch around 30% and then 10% would be cups.

Next question is for Marco. And this is, what are the recent trends in Beyond's discounting? And in face of this pricing environment, can Quorn continue its current pricing strategy without losing market share?

Yes. Look, it is a very good question. I've been looking at recently the announcement from Beyond. I think they reported a decrease in revenue per pound of around 15%. So that's what they've been doing. That's why you've seen a ballooning gap at the bottom of the P&L. In the latest reading that we have, we still have headroom because we are still priced below the overall average of the category. So our position is -- we have something unique. We make our own protein. I continuously say that. And I think this is what is giving us the strength of being able to position ourselves in that situation. That's why we are currently growing market share despite being the few that have been able to pass the prices up. Because I just want to remind, some of the very, very smaller brands have not been able to put the prices up, because the retailer will just delist that and he will see many, many more to come. Having said that, we've done 2 big price increases and we will be monitoring -- we are monitoring very, very closely the trend on the volume, because, of course, volume is also important for us. So I believe we are well placed. Our brand is extremely solid, is certainly -- that's also why -- if you want -- I'm currently talking from the U.K. perspective. You can imagine that our U.S. perspective is weaker, right? So we are not the #1, and that's why we have not been able to grow market share there. So our core market, which is 80% of everything we do, is we have a very, very strong position. If we can continue -- and we'll continue to monitor the elasticity of our volumes following the second price increase that we've just put in the market. So we have a good platform, but we'll continue to monitor that.

Jesse, the next question is for you, and this is in the Philippine's domestic food business. How would you characterize the level of inventories in the channel? The distributors front-load buy-in sales are on an expected recovery?

No, we do not -- we do not note the trade -- in fact, there are limited warehouse space that our distributors cover, and modern trade does not have a lot of space. Our products are lower in value and are quite bulky. So it doesn't make sense for people to stock up when there is no uptake. So you can see the trends immediately reflect in our shipments. And to be able to stock up is very, very expensive given the logistics cost vis-a-vis selling price of our products.

Okay. And Jesse, another question for you. How much of the 2022 CapEx guidance has been spent? Could you provide details on what CapEx spend was used for?

Yes. So out of that PHP 9 billion that we have communicated during the IPO, only PHP 2.3 billion has been spent in the first half. We are deliberately controlling some of the spending given the difficult economic times. Some of the key spendings that we made in APAC Branded Food and Beverage are the investments in bread. We are bringing in new equipment for our bread facilities, as we communicated. And we are finishing our [ Malbar ] plant -- and it's already running, but we have spending for that in the first half. In the U.K., we are finishing the harvester that is associated with our fourth mentor and also purchasing a deli line, which will be launched in second half of next year.

Okay. Jesse, another question for you and it's 2 parts. The first is, where do you source flour? And if you have secured flour requirements both in terms of volume and price? That's the first question. The second is regarding biscuits. What is your view on competition, especially the new players entering the space in the Philippines like Munchy from Malaysia?

Yes. So flour, we don't -- we actually buy wheat -- we have our own flour mill, and this is one of our distinct advantage. So we buy wheat, mostly sourced from North America. As we communicated, we have locked in the supply and the prices up until Q4 of this year. So until the end of this year for that. Again, this strategy of locking in served us very well in the first half when prices were on the rise. But again, in the second half, as I mentioned, since the prices of wheat and palm oil have gone down, our lock-ins are now higher than the current spot. And the competition on biscuits. Actually, the key players that are making a lot of strides in biscuits are the local players. There are 3 main players in the biscuits in the Philippines. All of them are local companies. There's one particular company that is actually surging the highest. Most of the biscuit players are enjoying a surge in volume, going up with the high tide as there is a strong recovery in demand in biscuits anyway with the resumption of out-of-home consumption. But one particular local company is doing a bit better than the rest. There are competitions coming in. We see the Indonesian players, Mayora, Nabati, playing a key role. We don't see Munchy yet, but we assume that the parent company will try to bring some of their products in, in the future.

Another question for you is what caused consolidated core net income in Q2 to grow despite the decline in margins?

Quorn...

Sorry, core net income.

Core net income, okay. So for our core net income, I explained earlier that in Q2 of last year we had several big ticket reductions as part of noncore. We took some provisions under core for tax, and therefore, we assumed a higher than normal tax rate of 39 plus percent. The normal going tax rate with the [ accounting law ], tax rate is 24%. So there's a significant delta in the tax rate between what you're using in Q2 2022 versus Q2 2021. And that accounts for the huge delta. There is also some benefits from the volume leverage on depreciation. Depreciation, obviously, is fixed. And we had much higher sales volume in Q2 2022 versus a year ago. And we also had the -- we -- it contributed to the operating leverage for depreciation.

Okay. This next question regards Quorn in the Philippines, and it's 2 parts. First part is, do you think they are competitive enough? Or is the ongoing supply chain crunch pushing them to push -- to price their products at the higher end of range? Second part is, does Monde Nissin's price point affect its acceptance among Philippine consumers?

I think the prices of -- several local companies have introduced their own meat alternative brands and the prices are significantly lower. Ours is important. It's cold chain. So naturally, it will be more expensive. Yes, I think the price would be a factor in getting scale in the short to medium term. We are looking for interventions on how we are able to bring in the product or make the product in a much more efficient logistics way to solve that riddle for the future.

Thank you, Jesse. This concludes the Q&A. I would now like to turn it back over to Henry for closing remarks.

Thank you, everyone. Let me -- I was on mute. Thank you, everyone, for your participation and continued interest in our company. At midyear, we are seeing double-digit top line growth driven by our APAC BFB domestic business. While we had a disruption in July with the EU ethylene oxide news, we will continue to work to recover lost momentum. Additionally, we are cautiously optimistic that the recent pullback in commodity prices may benefit our margin in the long term, but caution that substantial uncertainty still remains. So I look forward to speaking again when we have our Q3 earnings call in November. Until then, stay safe and healthy. Thank you.