Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good afternoon, and welcome to Monde Nissin's first half 2023 earnings briefing. I am Mike Paska, Head of Investor Relations. On the call with me are Henry Soesanto, Chief Executive Officer; Jesse Teo, Chief Finance Officer, and Marco Bertacca, Chief Executive Officer of Quorn Foods. By now, everyone should have access to their earnings press release and presentation, all posted on the PSE Edge website posted earlier today. These materials can also be found in the investor section on Monde Nissin's website. And finally, before we begin, please note that the financial information presented today is unaudited. During the course of the call, management may make forward-looking statements based upon current assumptions and expectations. These are not guarantees of future performance. And I encourage everyone to read the legal disclaimer in the presentation. Now I'd like to turn the call over to Henry for introductory remarks. Henry?

Thank you. Thank you, Mike, and good afternoon, everyone. I'm happy to report that during the second quarter, our APAC BFB businesses saw continued top line growth. This growth was modest compared with the first quarter as we have also observed some moderation in consumption across food and beverages categories. Despite this, our APAC BFB business saw further improvement in gross margin and as our input costs for the remainder of the year have largely been locked in at lower prices. We expect additional improvement in our gross margin in Q3 and Q4. Additionally, while it is still halfway in the quarter, we expect our year-on-year Q3 revenue for APAC BFB to grow stronger compared to the lower pace of last year. Moving to the meat alternative business. The category continues to face headwinds. But Quorn has managed to gain market share and has substantially completed the restructuring plan that we announced previously. The targeted savings from this initiative is about GBP 5 million to GBP 7 million for this year and going forward, an annual savings of GBP 8 million to GBP 10 million. The Quorn team has been working hard to implement this restructuring and improving the bottom line, so efforts are already showing positive results with EBITDA this quarter back to breakeven. With that, I would now like to turn over to Jesse to provide more details for our APAC BFB business. Jesse, please.

Thank you, Henry. As Henry mentioned, our results for Q2 is marked by challenging top line growth as our growth went from 10.9% in Q1 down to 7% with the most slowdown in both APAC and meat alternative. But the good news is the structural economics of both businesses, the gross margin for APAC has improved sequentially and versus a year ago. And for meat alternative, the restructuring costs that have been implemented -- the restructuring initiative that has been implemented is now yielding savings, enabling us to achieve breakeven EBITDA despite a challenging top line. The gross profit is largely affected by the meat alternative business, which we will discuss later on in more detail. APAC, as I said, has very good progression, especially with the raw material, key raw material prices that we have locked in. On a core net income or an EBITDA basis, it is lower, because of unfavorable phasing, especially for advertising and promotion. A&P or APAC has an unfavorable phasing compared to the same period versus a year ago, but this is still below than the full year A&P percent of sales. For perspective, last year's full year A&P percent of sales for APAC, branded food and beverage was 3.7%. And despite the negative phasing, it's only 2.6% in the first half. For the reconciliation between core and reported income, this is largely the restructuring costs that we have booked largely during Q2, offset by some impairment reversal for machines that we will end up using, especially in the bakery department. We have reported before strong progress in the volumes for bakery. And we are putting online some of the machines that we have previously impaired. Next slide, please. Drilling down now to APAC, growth slowed down a bit to 4.9%. But biscuits and others, which is culinary and beverage continued to have strong growth. The slowdown was noticeable in noodles. And later on we'll provide the split of the growth by category and by net price and volume and mix. Gross margin, however, grew sequentially by 101 bps and 46 bps on a comparable basis. Net income, as I mentioned, is affected by the phasing of A&P, though this should not be a problem for a full year. Now drilling down to the growth of each of the category, next slide, please. You will see that in Q2, we managed to grow both volume and sales and value for both biscuits and others, culinary and beverages are the same trends for others. But noodles experienced some elasticity effects with volumes declining 8.6% versus the price -- net price increase of 6.3%. This is off a high base last year, where there were a lot of election spending related demand, especially in the Visayas and Mindanao regions and also a general slowdown in the category which we will share. There was a profound effect on us, because of our dominance in this category. On the first half, we are still above volume growth is still offset fully by net price. We're growing net almost 4% for noodles and double-digit growth for biscuits and others. Next slide, please. As Henry mentioned, the slowdown is across the board in retail for food and non-food. You will see the chart based on retail chart from independent market measurements shows local foods slowing down from March to April to May. And there is hardly a category that is not experiencing the same. So with that, next slide, our noodles were not able to – our noodles business was not able to defy gravity and therefore, fell along with the category. The good news, however, is that we have been -- we have bounced back quite strongly in July and early part of August, as Henry mentioned. In fact, July was 10% above the average of Q2, the monthly average of Q2 and 15% higher than the June numbers. So we are seeing a strong bounce back in July after softening of demand in Q2. Next slide, please. Next is share. We have stabilized our shares to 66.1%, slightly below the same period versus a year ago. Now that the ETO issue has been largely overcome, we will now revert back to reporting shares on a more stable quarterly basis. It is like -- it's flat, kind of flattish versus the same period a year ago. It's the same level from which we entered the regulatory crisis almost a year ago. But we have plateaued from that point on. Many of you know who follow us and follow our competitor know that our -- one of our key competitors had supply chain hiccups during the first half of the year. They have been able to solve those supply chain hiccups. Thus it has become a little bit harder to grow further from our share positions. But the good news is some of our key initiatives in order for us to continue to grow share have been quite successful. The Kasalo Pack, which is the bigger size and price, Pancit Canton, or dry pouch offering is doing well with past 12 weeks share being 3.8% in past 4 weeks at 4.5%. So there's clear momentum on this Kasalo Pack as we are now almost 1/3 of the leader in this sizing and pricing segment. Because of the success there, we are launching a version of the bigger pack on our wet pouch. The wet pouch offering will contain consumer preferred garnish. And we expect it to be as successful as our dry pouch version. We have mentioned about our easy prep cups. So far, consumers are now enjoying sachet-free for our most popular variants, but the business results are yet to come. We will reinforce the communication in order for people to realize the benefits of our new cup features. Turning to biscuits, biscuits, we continue to be #2, a local company has overtaken us as the #1 biscuit company. We do still have the #1 and #2 SKU with SkyFlakes and Fita in that category. But the competitors has used a value approach in coming up with different offerings by region that aggregate to market leadership overall. The good news is, however, is that in sandwich, which is an important sub-segment of biscuits, we are gaining ground. We have to fix the pricing to be able to address the fundamental structural economics. But despite the pricing, we have been growing volume and share for our sandwich portfolio. For culinary, on oyster sauce, we reflect some share loss due to some supply chain constraints. We experienced some quality issues, necessitating us to add an extra care in our production process. These extra steps curtail supply and thus we lost by default by not being able to serve the demands. Penetration continues to be strong in oyster sauce. And we will see a strong bounce back once the supply issues are overcome -- are fully overcome. For yogurt, we have maintained our close to 90% shares and this is a category that continues to grow. It is -- I think there's a strong migration in the milk-based beverage. And we are with our 96% share, a primary beneficiary of that trend. Next, on margins, as Henry alluded to, we have substantially locked in our key raw material inputs for wheat and palm oil in the back half of the year. I know there's some noise in the wheat prices. It has gone up quite high due to the news in the Black Sea region. And it has gone down. But we are substantially protected from those noises as we have locked-in in at much lower prices than current. For palm oil as well, we have good positions even versus current. That will ensure that our margin progression that we started reporting this year, both up sequentially and versus a year ago will continue on in the back half. Next slide. I'll now turn it over to Marco, who will talk more about the meat alternative category.

Thank you very much, Jesse, and good morning, good afternoon to everyone. Can we start with the next slide, please? So as a matter of introduction, I think I just want to bid on what Henry has already mentioned. We see clearly an economical and category environment that is still difficult. And on this environment, in this environment, we are making good progress as we have announced and we have planned. So we see, for example, that from the growth perspective, our sales declined by 3.7%. Our volume decline was a bit stronger than that. And so, the overall sale has also been impacted by an element of destocking at our biggest customer at Tesco. We've also seen in this area that we have finalized another round of price increases in quarter 2, 2023. Also from the gross profit margin, we still, let's say, see the impact of the very high inflation that we have. And therefore, our gross profit is still challenged, in particular versus a year ago. We're still reporting a co-gross margin of 24%, which is a positive gross margin, but of course, our ambition is different. And we are continuing to work to compensate the high level of material variances. We had in the month -- in the quarter actually. We also see that the dilutive effect of price versus inflation continued. And of course, the volume decline has also impacted on our gross margin. So the challenge on the top line, our gross margin is challenged this quarter. And at the same time, what we are progressing on is that we are at the breakeven of EBITDA. So we see a recovery compared to quarter 1. And very importantly, also towards the future, we continually see a growth in market share year-on-year. So to some extent, the way I look at this picture is we start to see the light at the end of the tunnel, but we're not yet fully out of it. So can we move to the next slide, please? So I want to deep dive a bit in the U.K. market. Of course, many of you would be fully aware of the situation in the U.K. in terms of U.K. inflation. We start to see that the general inflation is starting to come down, not as fast as everyone is driving for. The food inflation is still higher than the overall inflation. So in, let's say, in the U.K., the food deflation remains twice the rate of the general inflation, which is still having an important effect on the consumer. So we see that the consumer confidence is getting slightly better because we see actions that are starting to have a bit of an impact on the overall inflation. But still, in terms of consumption, I'm just reporting here in the slide, one interesting statistic, which is 46% of U.K. adults are really reported that they buy less food in the last few weeks. So from that perspective, we're still in a challenging economical and inflationary situation, which, of course, is having -- is having an impact on a category like meat alternatives as well. Now, if we then look at the chart on the right, here, we see the overall market trend. Here, we see that -- and first of all, the overall market is minus 6%, which means that it is slightly improving to the previous -- compared to the previous reading. We see that the biggest losers in the current environment, is the private label. This is quite peculiar because normally private label is an area that is able to win in a difficult market economical market circumstances. In the meat alternative business, what we see is the power of our brand is really, really strong. In fact, you see that Quorn in the last 12 weeks is just count flat, so performing much better than the private label and performing better than the other private brands. And this is because people tend to go back to what they know, tend to go back to the brands that they know and to the food that they know. And this is why we see that Quorn is performing better than the category and the other brands. Also, what is important to note is that the last 12 weeks, this minus 0.3% is actually better than the last quarter, where I think we were at minus 1.9% in the last 12 weeks. So we see that market still challenge. We're gaining market share within this market and the market is slightly improving, but still the inflationary pressure is still present. And this is what is having an impact on consumer confidence and the category overall. Next slide, please. So this is, again, a very important element for us to look at because in this area of the last year, say, 15 months where the category is challenged, everything that we're doing is to get out of this moment with strength and with present and with relevance for consumers. So that when the market starts again, we are there to capitalize on that. And this is why looking market share is extremely important. And you can see with the graph we have -- we continue to grow with the previous year. If you look at the second quarter 2023, we are 32.3%, which is 1.1% higher than the second quarter in 2022. So year-on-year, we are continuously improving. In particular, we're improving with our strong customers, Tesco and Salisbury we continue to become stronger and stronger with those. What is also very important for us is that we are improving both in chilled and in frozen. Historically, we've always been strong in frozen, but also in chilled, we're making very, very good progress. But with the graph on the right, we can see that we continuously drive our distribution and number of point of distribution. This is a 3% -- a bit more than 3% higher than last year. This is actually important because in a category that is challenged what the big customers are doing is indicative of the future of the category. And I was having a meeting with Tesco just a few weeks ago. And they are extremely keen. They're extremely -- they have a strong belief in the category. And this is why when they do new planograms for the future, new assortment for the future, we have a key role as a category leader, not only defining those the shelves, but also in designing them and in ensuring that our brand is very prominent on the shelves. So the collaboration with the big customers that really believe in the category for the future is a key and this is what is making us very promises towards the future. Next slide, please. Food service, food services has been one of our strong strategic choices a few years ago. I remember where we were talking initially just 3 years ago at Balfour it was about 7% to 10% of our business. Then, we moved to 12%. We moved to 14%. It is now more than 17% of our business. So food service; is becoming a very strong engine of our growth, not only in the U.K. but also in Europe and the rest of the world. Here, we can see that we continue to grow in food service. This is extremely important. And it's really unique whatever you read out of other meat alternative businesses, they're really finding it difficult. Why, also because the inflation, for example, in the U.K. in restaurants is actually higher than the food inflation. And this is why the restaurants having to optimize their menu, they having to offer better choice to their consumers. But the strength of our team, again, U.K., but also rest of Europe, in particular, helped us to -- you can see the quarter -- the second quarter 2023 in terms of daily sales of PHP 6.7 million, it's higher than the quarter 1 of 2022. So year-on-year growth is still 5.8%. It's less than it was in the first quarter. But we believe that we can continue to capitalize on that. That also helped, as we move to the right, by a new listing, new wins. We are working a lot with the National Health Service in the U.K. This is particularly significant, because there is a lot of noise about the category at the moment. And one of the big challenges is meat alternatives really healthy. And our unique capabilities with microprotein and the health characteristic of that enabled us to develop a partnership with the different energies departments around the country because they see a reduction of meat and an inclusion of microprotein for example, in our 50-50 menu, where part of that is meat and part of that is microprotein gives them not only a better overall carbon footprint in line with the national objectives but also a better impact, a healthier food for the consumers that they treat in their hospitals. So for us, it's extremely important. So we continue with our strategic alliances in Compass and Sodexo, but the NHS is becoming a big player for us. And super exactly to report that KFC Europe continues to grow with 110 new restaurants. They're adding in the quarter and now we are in 24 countries. So you can see that the strength is -- I come back to that actually with a bit of a summary slide. But our customers believe in us in terms of retail. Our food service customers believe in us. And they continuously grow with us even when the market is under pressure from really economical and category situation. Next slide, please. So what are we doing in order to restore our margins, which are very, very important for us to grow and to continue to invest in a market that we believe is going to recover? So as Henry has mentioned, in the year savings, PHP 5 million to PHP 7 million and PHP 8 million to PHP 10 million full-year. Happy to report that what we plan to do, we've actually done. At the end of the quarter 2, we have substantially complete with the plans we've done it across the board, both in commercial and admin areas. And we've done in the supply chain, where we're organized for efficiency and while maintaining the capability to -- actually to return to growth when this happening. I already -- I just want to remind this. We're kind of flat in the last 12 weeks. So we see signs of a turn in the market. We haven't touched our food service QSR businesses. So we've been very selective in where we wanted to reduce our costs. Our U.S. organization is also gone to -- through the restructuring that we discussed in the past and is now really stabilizing the business over there. Next slide, please. So in essence, as I said at the beginning, the challenging growth driven by the really the outside circumstances, why do we believe in the core business, but also in the category of the world, we have a massive presence, we're the #1. We're gaining market share in the biggest market, which is the U.K., and major retailers and customers in food service are very supportive of what we do and of the category, and this is crucial for our future. Our food service business continued to grow. That has been a strategic pillar, and it still is, now 17 a few more than 17% of our total business. Microprotein is unique. We see -- I told you in the past. We see a number of players trying to jump on this microprotein, because of its lower impact on the planet and better health characteristics. And our brand is very, very strong. So we've invested relentlessly for 35 years in this brand. People go back to it when it's difficult. We continuously improve our market share. And we continuously, of course, target cost initiatives in order to be able to invest in our brands for the future. So I close with the remark that I made earlier, we start to see the turn we start to see the light at the end of tunnel, we're not out of it yet. There's still few months of challenging environment and we are recovering our margin. That's why we have a breakeven in quarter 2. And we remain very positive about our unique position in this sector. Thank you. Back to Jesse, I think.

This concludes the formal presentation. I will now moderate the Q&A portion of the call. Questions can be submitted via your chat box. We will attempt to address as many time permitting. Jesse, the first question is for you. And you mentioned earlier that you saw softer noodle trends in Q2. Can you elaborate a bit more on the trends you're seeing in July?

Yes. First of all, on the Q2 weakness, there's a general slowdown in the food category, as you mentioned. Secondly, particularly [indiscernible] when we started to analyze where the softness is coming from, we zeroed in on this Visayas and Mindanao the now and in particular, several chains. And the bar, simply the base bar is high because of a lot of local government units' purchases during the base period. So it was a difficult period to overcome from a volume standpoint. Plus, it was rather right, even June was rather dry when the rains were coming in. Rainy weather is actually our friend. Our demand naturally goes up when -- through the rainy season. When July hit, right, we have a robust demand for our instant noodles led by our wet pouch, which is a -- that has a high correlation with weather. And that's why I think July is above 10% -- 10% above Q2 average and also 15% above June. So August is trending the same way, even stronger actually. So we're hoping that the challenges that we saw intuitive for noodles are temporary. There is good reason data to believe that it is all. But we are cautiously optimistic that this trend will continue.

Thank you, Jesse. Jesse, next question is for you as well. Given that over this past quarter, you had a significant debt repayment and restructuring costs. Yet you were able to maintain a fairly stable cash position. Do you see this sustainable going forward?

Yes. Thank you, Mike. As to remind everyone, we did announce infusion of cash to pay down the sterling note in the U.K. We have made a significant tranche already. We target to pay down half of that outstanding debt. Yet our cash balance remained at almost PHP 11 billion, level which is fairly constant versus where we ended up as of last year. We had a strong net cash flow from operations of PHP 3.4 billion. This is up 30%. The margins are translating into cash. And as I mentioned earlier, we project that even better margins, so that should translate to even better cash flow. So we should be able to pay down even more debt and still maintain a good cash position going forward.

Thank you, Jesse. Another question for you. Given that the previously announced restructuring in the meat alternative business is largely complete and savings are tracking as planned. Do you see any further risk-mitigated measures being implemented in the near to medium term?

Yes. Well, through the efforts of Marco, we have been able to successfully implement the restructuring initiatives that we have. We are very happy with those results. But we cannot rest on our laurels. We need to be mindful that the category is still in decline. It's still challenging. So while we are trying to ensure that business remains in a very good position to capitalize on eventual bounce back, which we believe will happen. Out of prudence, we need to explore other risk mitigation measures. However, it's too early for us to discuss the details. We are not yet ready to discuss the details. But we want to assure everyone that we are looking into further risk mitigation measures to limit the downside risk for investors, including looking for ways to minimize disruption in the intended dividend policy, which we communicated during the IPO.

Thank you, Jesse. Next question is for Marco. What is the meat alternative business seeing in terms of input cost inflation?

Thank you. Thanks, Mike. So I think the exact to the summary is that we believe we have seen the peak in Q4 last year and in Q1 of '23. And in fact, we start to see some of the input key materials and cost drivers coming down. So we see -- we clearly see some benefits ahead of us. To some extent, we believe that the worst is behind us. Having said that, there is, a couple of additional elements that I would like to share. First, it's interesting also when Jesse was described a risk mitigating factor. We've done an awful lot to reduce our cost base to become leaner, to become more agile. The truth is we are now more ready to kind of face whatever else the market [indiscernible] would throw at us. And the only thing we are sure about is something that will happen and something else will come our way. What I believe when I look at positively the last 3.5 years, I think our organization has really learned that never, never give anything for granted and be ready for what is going to happen next. I'll give you a specific example. We saw one of our high input costs is glucose. We saw glucose costs coming down. And all of a sudden, as Jesse had mentioned earlier, political war forced or pushed the wheat price big hub and then low again. So there's still a lot of volatility. And also, we need to take into account that our inventory level, the fact that some of our products need to mature, need to be staying stock for a period in order to crystallize and create the texture that is specific about microprotein of our Quorn. Means that still we have 4, 6 months before our inventory flushes through our numbers and therefore, we take the full benefit of the input prices. So we've seen the peak. We see some reduction. We see some positive news ahead. Volatility remains very high. We are learning to deal with that. We are trying to implement further measures to -- for example, to reduce our stock levels. And yes, overall, we see that that's why I mentioned earlier, the light at the end of the tunnel, we see that there's further improvement ahead. But it's not going to be radical. It's not going to be that quick. It's going to request a few months to happen fully.

Thank you, Marco. Jesse, the next question is for you. And this is -- can you provide any updates on the equity restructuring?

Well, the equity restructuring has been approved officially by the SEC as of June 9, 2023, it's one of our -- it's in our disclosure. You could look at it at PSE Edge. That's one of the key steps for our risk mitigation. But it's not the only step. But we are happy that we got a successful approval from the regulators on this equity restructuring.

Thank you, Jesse. Next question is for next quarter, do you expect gross margin improvement to be larger than an increase in A&P and operating costs?

Yes. So just to put the A&P increase in perspective, as I mentioned, even with the unfavorable phasing, the 2.6% first half A&P is substantially lower than the 3.7% that we spend. That's a percent of sales, right, last year. So it is largely a phasing issue. We expect the percent of sales to be in line versus previous year. We are keeping the percent of sales target for advertising promotion. And on the other hand, we do have the large input cost reduction. It was a high base last year, which helps. But moreover, these lock in prices are good prices even relative to the current prices that you were seeing in the various indices.

Another question for you, Jesse. Can you comment on the proposed junk food tax and what business segments will likely be impacted, such measures were implemented?

First of all, I don't have inside information. What I know is what we all have read in the papers. The only positive things are the biggest business. I think there was a categorical statement from the DOF secretary that institutes will be exempted. So that is a welcome relief. Inter noodles is a 4-month source of systems. So when the sugars within beverage, tax was implemented, 3-in-1 coffee was exempted for the same reason. So I think noodles are much in line with that, even more irrelevant actually because this is basic sustenance of the everyday that we do. So we'll see what happens. There's also some challenges, of course, of defining what junk, what actually junk means. So I think that has to be sorted out. So it's unclear. And lastly, there is no global presence unlike sugar, sweet and beverage tax. There are some precedents before different pits implemented it. Our junk food that's because of the difficulty of defining what's junk, there are no precedents to kind of peg our loss with.

Jesse, another question for you. Can you comment on dividends for investors?

So dividends for investors, so one of the important steps to be able to dividend out as many of you know, one of the requirements for dividend is that we need to have opacity in earnings. One of the steps is to get -- is to be able to take out the deficit. That step has been successfully completed with the equity restructure approval last June 9. So that's step 1. There are -- we are evaluating our results, our business results and are looking for ways to be able to issue in dividends as soon as we are able to. We cannot elaborate on any specific lines at this point. But management is committed to fulfill the progress that we made during the IPO, which is to be able to dividend out 60% of the consolidated net income after tax as long as it's permitted by law to do so.

Thank you, Jesse. Jesse, I have another question for you. And the question is, can you comment on the increase in APAC A&P, what's driving this increase?

It's phasing of when we do the initiatives. We had a low A&P in Q1. And so there were some more activity that spilled over to Q2. So it's more -- and it happened more in Q2. As I said, it should not be a source of worry as it's still the 2.6% of the first half is substantially lower, more than 110 bps lower in the full year percent of sales for A&P last year.

Thank you, Jesse. The next question is for Marco. And Marco, this question is can you comment on the outlook for our meat alternative business in the industry in general?

Yes. Look, I tried to answer a little bit earlier, in particular, on the development of the materials, right, of the input cost. So on one element, we can see the peak of the input costs. We see it coming down; still a bit of volatility, but there is a positive progression in that sense. If we then think about the overall category, look, it's the question that I received the most whoever I talk to, whoever I meet. And I can continuously reiterate that the big players, the long-term players, which are some of our big customers, some of the big industries that we collaborated, I was with Migros a few weeks ago, which is a very, very big companies in Switzerland, very, very long-term oriented. Meat alternatives, is a key part of the strategic direction. And all of them are always referring to the key changes that were happening before the pandemic, that were happening before the war, where there will still be there, and they would survive after us. And in fact, one of the very true, even if a current superficial way I always have to answer is. We are not the one that will drive the meat category for the future, our kids are. And this is because when I interact with them at universities, as consumers, in the stores, they are the ones that are there for the future. And as soon as they have a bit more disposal income to spend on food, as soon as they came in their right choices for themselves for the planet, that's what would drive the category. And so there is a big fundamental belief. We see that the category as Jesse was saying is still declining. There's no denying, the numbers speak very clearly. This decline is low in down. And we see that Quorn is starting to move from a decline into a closing back to the 0 and hopefully, to be positive growth by next year.

Thank you, Marco. Jesse, the next question is for you. And this is, should we still expect more price hikes for APAC BFB in the second half of this year?

We don't comment on specific price hikes, because we don't want to lead anyone on looking at pricing -- pricing action publicly. But what I can say is that we have -- even if we don't implement a price increase, our input cost reduction as we should be able to enable us to have strong margin progression already in Q3 and Q4, whether it's eventually or a year ago. We also have the recent worry as most of you might be powering is the FX rate. We also have good risk mitigation measures. We have substantial stockpile of U.S. dollars. So we're also -- we're substantially protected against that. So unless there's a big factor, another black or event and foreseeable input costs that will become major. That is not required, but we need to be agile, of course. No one can predict what will happen next month or next quarter in this volatile world.

Thank you, Jessie. Jessie, another question for you. What is the A&P as a percentage of sales guidance for this year?

It should be utmost at par versus a year ago. One of the things I forgot to mention is Q3 last year, because of the regulatory issue, if people recall, we had to up our A&P spending. There was a lot of unscheduled A&P spending in order to restore the trust went on with heavyweights, and did promotion to win back the trust of our loyal consumers. So with the regulatory issue; being a thing on the past that that need not be anniversaried this year. And so that should help us actually in the overall year A&P as a percent of sales.

Thank you, Jessie. Marco, the next question is for you. And this is what are the developments for the ambient product for Quorn?

Thanks, Mike. So yes, I'm assuming that the question is related to a little bit of anticipation that I mentioned at the last quarterly review, we are setting up. We have already set up our ingredients business. And we are developing ways to be able to provide our microprotein to a wider audience. And we are developing ways to be able to do that at the, let's say, the wider group of consumer with different applications. We are at early stages of that. We see a very exciting potential for that. But I will come back with more information and updates where we believe this is relevant and that we have some results instead of just intentions.

Thank you, Marco. Jesse, the next question is for you. This is -- can you help us reconcile in Noodles 9% volume decline in the second quarter despite industry volumes growing by 4% to 8%.

Yes. If you could stroll back to that slide, please, so I can help point out the key numbers. All those numbers are year-to-date numbers. So if you have a growth number that is slowing down, actually, that means that it's becoming more negative, right? It's either, slower than the previous year-to-date or even negative, right? If you look at actually the more recent periods, last 4 weeks, past 4 weeks, actually, noodles on retail audit basis is in decline versus a year ago same period year ago. And we along with it because we are the biggest player and we are not able to define gravity. There's also the base year effect, as I mentioned earlier, that's particularly in this win. So the volume -- the category is in volume decline if you want to drill down specifically on noodles. For other categories, we don't have the granular data. But in noodles, if you look at volume, they're in decline. Those numbers are value by the way. Those numbers earlier year-to-date added in the charts are value numbers. So there's -- you have to reconcile volume versus value. And then on volume, specifically for noodles, they're actually in decline.

Thank you, Jesse. Jesse, next question is for you. And this is -- the question is could El Nino be the black swan event that drives prices back up, which raw material inputs would be heavily affected. And what are you looking to do to mitigate risk from El Nino by hedging?

I would think that our main input cost of wheat and palm would be affected. But since our positions are already not -- it's fully locked in Q3 because it's already current. So there's -- it's already -- and substantially locked in Q4. We are not quite worried about the effects of El Nino. If there are worsening effects, if we don't plan well, I think more of the effect would happen in next year, if ever, if it's a continuing issue. But we are not in a rush. We have some positions starting next year, some small positions. But we are not in a rush to fill those positions when the costs are quite high these days.

Thank you, Jessie. Jessie, another question for you and this is how much of the meat alternative business restructuring cost was recognized during the second quarter?

Most of it was recognized were already in second quarter. 369 million, to be exact.

Okay. Another final question for you, Jesse. And this is total operating expense sales for APAC BFB was 16.8% in Q2 versus 12.7% in Q1. Apart from A&P, which was just a 100 basis point increase, is this, a seasonal pickup or are there any other cost increasing?

A&P is the most substantial one. Other than that, all the other costs out there, whether it's general admin or salary costs or logistics were fairly stable actually on a percent of sales basis.

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

Thank you, everyone, for your participation and continued interest in our company. So in summary, the second quarter of the year showed continued recovery of gross margin in our APAC BFB. We expect further gross margin improvement through the remainder of the year. And so far, the third quarter has started off with strong year-on-year top line growth. As earlier discussed, we have made meaningful progress at our meat alternative business through our restructuring. And we continue to be vigilant while also ensuring the business is ready to capitalize once the category begins to recover. With that, I look forward to talk to you again when we have our Q3 earnings call in November. And until then, stay safe and healthy. Thank you.