Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good afternoon, and welcome to Monde Nissin's Fourth Quarter and Full Year 2023 Earnings Call. I am Mike Paska, Head of Investor Relations. On today's call with me are Henry Soesanto, Chief Executive Officer; Jesse Teo, Chief Financial Officer; Marco Bertacca, Chief Executive Officer of Quorn Foods, and Nick Cooper, Chief Financial Officer of Quorn Foods. By now, everyone should have access to their earnings press release and presentation, all available on the PSC Edge website posted earlier today. This material can also be found in the Investors section on Monde Nissin's website. Before we begin, please note that the financial information being presented is unaudited, and during the course of this call, management may make forward-looking statements based upon current assumptions and expectations. These are not guarantees of future performance and encourage everyone to read the disclaimer in the presentation. Now I'd like to turn the call over to Henry for introductory remarks. Henry?

Thank you, Mike, and good afternoon, everyone. I'm happy to report that we finished fiscal year 2023 with another strong quarter for APAC BFB business. All of our categories showed strength. We achieved all-time high core profit for our APAC BFB business. Along with the strong growth, we saw a significant expansion in gross margins as key input costs moderated. Moving to the Meat Alternative business. The category continues to face headwinds. We are keeping a close eyes on costs, which have enabled us to get breakeven on EBITDA this year. However, the environment remains challenged. We were required to take another impairment in the business. While the impairment was significant, the listed company was substantially insulated from the impact due to the financial support announced earlier this year that was provided by the family majority shareholders. Overall, the company had a good year, finishing with substantial cash and retained earnings, allowing us to announce another dividend today, which will represent over PHP 4 billion in capital being returned to investors in the first 6 months of 2024. Now I would like to turn the call over to Jesse to provide more details of our consolidated performance and APAC BFB business. Thank you. Jesse, please.

Thank you very much, Henry. I'm very pleased to share that we ended 2023 with a strong performance on top line, recording a record quarter sales of PHP 20.9 billion representing 5.2% versus the same period a year ago. This brings us to an all-time high revenue on a consolidated basis as well at 9.2%. Within the segment, though, APAC led the growth 7.7% for the quarter and 12.6% a strong double digit for the year. Meat Alternative had declines in peso terms of negative 4.2% for the quarter and negative 4.3% for the year. More on that later on when we discuss the financial performance of the Meat Alternative segment. From a gross profit standpoint, we had strong margin accretion of 232. Within that, APAC grew 416 basis points in gross margin, reflecting the continued decline in our key raw materials and also the sticking of the prices that we took when the commodities initially went up. For the year, overall gross margin is flat. However, APAC increased gross margin by 193 basis points. Core EBITDA is largely due to APAC BFB, as Henry shared that we were able to achieve about breakeven EBITDA for our Meat Alternative segment. EBITDA grew faster than gross profit because of our control on OpEx. For APAC Branded Food & Beverage, we experienced good economies of scale on OpEx. While for Meat Alternative, there was a deliberate reduction in OpEx spending, funded partially by the restructuring that we announced previously. For net income, the direction for the quarter and the year is a bit different. Core net income was higher than EBITDA growth because of favorable FX gains for the quarter. But overall, for the year, it was an FX loss, thus core net income was slightly lower than core EBITDA growth. There's not much difference between core net income ownership and our core net income. As Henry mentioned, we had to take a PHP 10.1 billion after-tax impairment on our Meat Alternative segment. This is the key item on noncore and reconcile -- is the key reconciliation item towards our reported net income. The PHP 10.1 billion impairment was offset by PHP 1.3 billion of the guaranteed asset brought about by the family guarantee that we previously announced. This brings reported net income for the quarter to negative PHP 6.4 billion and negative PHP 625 million for the year. Next slide, please. We will now talk about the impairment starting with a review of the history. You will recall that in 2022, we took a GBP 290 million impairment. During that year, there was a GBP 245 million goodwill that we wrote-off and we wrote-off as well GBP 60 million of brand value. In 2023, our updated value in use or enterprise value calculation is down to GBP 242 million. This is because of the lower projected cash flow as we only turned in at breakeven EBITDA for the year and also higher WACC. WACC went from 7.9 to 8.45 and thus put pressure on the VIU of our Meat Alternative business. This necessitated a GBP 145 million impairment. The balance that is left is PHP 115 million of brand and GBP 85 million of property, plant and equipment. For this year, because of the decline in the volume, we had to take an impairment on the PPE because the current volume does not justify the additional capacity that we have built using the IPO funds. To continue on with the impairment. We move to the next slide. The GBP 145 million underlying impairment has to be adjusted in our Monde Nissin Singapore Private Limited entity. MNSPL is our international hold co. You will recall that our Meat Alternative business is under Monde Nissin U.K., which is directly under MNSPL. When evaluating the impairment at the MNSPL level, we had to adjust for net debt adjustments that is additional debt and movements in cash. We had additional debt of GBP 13 million and a reduction in cash of GBP 3.1 million. Together with the additional equity infusion to fund the restructuring of GBP 5 million, this resulted to an impairment amount of GBP 167 million at the MNSPL books. Since the guarantee of the family was done at the Singapore level, the guarantee asset was also booked at Singapore. The total amount of the guarantee that was booked is GBP 148 million divided into a day 1 entry of GBP 129 million, which was -- which is a direct charge to equity under other reserves, equity -- other equity reserves and a P&L mark-to-market December 31, 2023, adjustment of GBP 18.8 million. Only GBP 18.8 million benefited the P&L, the consolidated P&L. Meanwhile, at the listed co, because of the guarantee asset, the GBP 148 million that was created at the Singapore level, it protected GBP 167 million impairment. And together with the favorable ForEx, were the sterling appreciated versus the peso from 67 to 70, the net impact on the listed co books is only PHP 245 million or GBP 3.5 million. The retained earnings thus for the listed co went from PHP 7.2 billion before impairment to PHP 7 billion after impairment. On the consolidated P&L, only the key underlying transactions will be considered. The key underlying transaction amount is GBP 145 million, which is the amount that we book for the U.K. impairment at the U.K. level. This understates the PHP 10 billion offset by the P&L portion of the guarantee asset, which is GBP 18.8 million or PHP 1.3 billion. Overall, the impairment effect is, therefore, PHP 8.8 billion after tax. Now all of these impairments and family guarantee benefits are all noncash. I'd like to shift gears and talk about cash. Next slide, please. For cash, we have a fantastic operating cash flow performance in 2023, where we more than doubled our operating cash flow, the PHP 13.3 billion in 2023. The strong operating cash flow led to the all-time high cash and cash equivalent balance of PHP 16.7 billion and because of the high cash level and the strong cash accretion we were able to do the dividends, the previously announced dividend of PHP 2.2 billion and then further dividend declaration just announced now payable in June. We were also able in Q1 to channels GBP 27 million of the cash to pay out our sterling debt at the U.K. level. This was done in Q1 of 2024. The cash flows obviously are a reflection of our higher operating income and lower inventories as input cost has come down. Next slide, please. As I shared earlier, our retained earnings at the listed co level is PHP 7 billion. For purposes of retained earnings available for dividends, this has to be adjusted by noncash profits. The total noncash profits, primarily deferred tax asset brings down the total retained earnings available for dividends to PHP 6.2 billion. Out of the PHP 6.2 billion, we are declaring PHP 0.12 per share or PHP 2.2 billion declared yesterday during our Board meeting, and payable on June 5. Next slide, please. On CapEx, we have shifted gears on CapEx, primarily now focusing our CapEx spending in APAC. You will notice that in 2023, most of the CapEx is now from our forte, the APAC Branded Food & Beverage business, primarily to catch up on capacity as volumes has been good. We will further invest in capacity in the APAC operation in 2024, while keeping the CapEx for the Meat Alternative to a minimum. Next slide, please. Now drilling in on APAC Branded Food & Beverage, as I mentioned, APAC revenue progression led to the all-time high quarter and all-time high year. Gross profit improved 416 basis points versus year ago. And for the year, 193 basis points. Core EBITDA increased stronger than gross profit because of efficiencies in the OpEx spending and also economies of scale advantages of higher sales. Core net income, as I mentioned, for the quarter and for the year are different because of the movements of the currency where we booked a ForEx gain in Q4 and ForEx loss for the year. The very good revenue is backed by good progression in share. Next slide, please. And the revenue is not only broad based, but also due to both pricing and volume and mix. You will see in all categories, we grew, led by noodles in Q4. In fact, Q4 continued the strong performance that we have experienced the first 3 quarters onwards to a very strong double-digit gain of progression in the year. We have strong net pricing effect for the year. As you can see, the pricing effect is going down as we are lapping the price increases that we had got initially where the commodity prices were going up, but volume continues to be strong across all categories. Again, these volumes were supported by share growth, which we will talk about in the next slide. Next slide, please. Noodles continues to have good share progression. We have made a remarkable recovery from the regulatory issue. We have also plugged the leaky bucket that is a sizing and pricing gap that we have in our portfolio. Our Kasalo Pack, or PC, is now 58% of the volume of the current leader in that sizing and pricing subsegment. And in some parts in the Philippines in these 3 regions, we have 65% to 75% share of the leading brand in that higher sizing and pricing segment. For biscuits, we continue to be #2 overall in the category, but we inch up in share, and we are hoping to continue with that momentum by investing in our key biscuit brand, Skyflakes. More on that when we launch our initiative for Skyflakes in the coming quarters. For Oyster Sauce, we retained circa 60% market share. Recall that we had some product issues in 2023, but we are narrowing the gap versus a year ago, and we have made good progress in recovering the share. The product issue is now a thing of the past as well. The yogurt drink doing very well. We have reached 90% market share and are setting our sights in the broader beverage category. Our culture milk business, while not on this slide, is also doing very well. We previously announced we're expanding beyond the zone and so far, progress in these areas is very exciting. Next slide, please. Bottom line, we continue to benefit from lower input costs. Let me talk first about wheat, which is 18.5% of our APAC Branded Food & Beverage COGS. We have made good lock-ins. As you can see from the chart, our lock-ins are sequentially better through the year and we are substantially locked in for Q2, Q3 and parts of Q4. There are 2 varieties of wheat, hard and soft wheat. For Q4, we have locked in 50% of soft wheat, which is the wheat variety that is actually experiencing more soft pricing. For palm oil, relative to the base period, palm oil continues to be lower. However, just to be transparent, crude palm oil is trading at a 1-year high and is on upward trend. The good news, though, because of our risk management, our lock-in policies, we have good protection with about 3/4 of our requirements already locked-in at lower prices in Q2 and about half of our requirements locked-in, in Q3. We have a very small lock in Q4. But if you look at the CPO trends, the future curves are backward dated. And so we are hoping that we can either lock into hedges on those lower future prices or that the future prices will materialize, and we will buy our requirements during that time at lower prices. There are other 2 concerns, I think that people are talking about. USD/peso rate has been hovering around 56.50. We have substantial stockpile of U.S. dollars. We use that as a natural hedge for our U.S. dollar exposure. We have about USD 78 million within our cash. The other key commodity people are talking about is CoCo, which everybody knows it's all-time high and is starting to reset those all-time highs. We are covered for CoCo until first quarter of 2025. Again, just like CPO, the future prices of CoCo is backward dated. And at those locked-in prices, the impact on CoCo is backward dated is very minimal at only 6 bps of COGS. Now I'll turn it over to Marco for introduction of the Meat Alternative results and to Nick as well, who will talk the details.

Thank you very much, Jesse, and good afternoon, good evening and good morning to everyone. As Jesse and also Henry mentioned earlier, it is clear that, unfortunately, both the U.K. and the U.S. market and in general, the global market for Meat Alternative is still very, very tough. This is the key driver for this, as I've mentioned already in previous conferences, is still the cost of living crisis at the element of consumer confidence and the fact that in the circumstances, consumers are preferring cheaper ways of nutrition. And in fact, it was of a recent article, even the fact that even within the meat sector, lower quality cuts are currently preferred by consumer. So this is what we have experienced also towards the end of the 2023 year and unfortunately, also towards the start of this year. We'll talk about it a little bit later with Nick and Jesse. So these markets circumstances, as mentioned and also as Jesse has described, is also the key driver for our further impairment as it has been described so far. However, having said this, it is our role and it is our continuous effort to make good progress and prepare for when the circumstances will change. We're also protagonist of this change. And in fact, we are paying a lot of attention and focus on a number of areas, and Nick will go a little bit in the detail of those. A clear focus for us is cash, is attention to cost, is finding any possible way to recover our profitability and that is the #1 priority we have. And this is why for us is an element of comfort, the fact that we were able to close with the last quarter for a full breakeven EBITDA year in 2023. On top of that, there are a couple of very important areas for us that continue to grow. On one hand, Europe has been growing while the U.K. and the U.S. have been declining. But even more relevant, even more important, our foodservice business continues to grow strongly and profitably and is becoming a bigger, bigger part of our total business. So while we take more steps to improve our profitability, it's also important to share with you that our market share is still very solid. You will see in the course of the last quarter and in the future quarter, our position in the market remains strong and in particular, our position with customers who are still strong believers in particular, U.K., Europe of this category remains very strong. In fact, our stays on the shelfs remains intact or in some circumstances, becomes even bigger. So I just wanted to give a very short introduction. I want to now hand over to Nick. Nick is the Quorn CFO, also because he would be better describing a change in treatments that we have adopted for some of our marketing payments that we made to customers. Over to Nick.

Brilliant. Thank you, Marco. Next slide, please. So moving on to the financials. So as Marco already explained, the quarter saw the business continuing to make progress in what was a pretty challenging environment. But I'm pleased to say that we're able to deliver our core -- positive core EBITDA for the quarter mentioned, which has allowed us to reach broadly breakeven EBITDA for the year. During the quarter, we did change the classification of some of our payments to customers under IFRS 15. These payments were previously treated as marketing expenses. And in Q4, we've reclassified them as deductions from sales. This change is the same as the change implemented by APAC BFB in 2022. It has no impact on profit or EBITDA, but it does complicate the sales and gross margin picture a little. Our reported results include the reclassification of PHP 463 million of payments for '23, PHP 79 million of this relates to payments made in the quarter and the remaining PHP 384 million is the catch-up of payments made in quarters 1 to 3. Comparable results shown here restate the history as if we adopted the revised accounting treatment throughout 2022 and 2023 and an appendix is provided with the slides to give you more details of the impact of this change in both years. So focusing on the Q4 comparable results, the fourth quarter delivered a sales decline of 4.2% driven by an organic sales decline of 6.3% on volumes that were down 9.8%. This was partially mitigated by an appreciation of the pound against the peso. And the fourth quarter gross margin on the same comparable basis was 19.5%. This was down 612 basis points against the same period in '22, driven by lower production volumes and the ongoing gap between input cost inflation and price increases. Inflationary headwinds are starting to reverse for the business, but a significant portion of this benefit is deferred into stock. As a guide, if Q4 actual prices have been recognized without this deferral, the gross margin would have been approximately 200 basis points higher. It's also important to say that the core gross margin in Q4 was depressed by -- compared to earlier quarters in 2023 due to elevated levels of inventory write-off costs. The final point to make on the gross margin is that the change in IFRS 15 treatment does depress comparable gross margins compared to the accounting treatment adopted previously. This impact is about 160 basis points in Q4 and [ 50 ] basis points for the full year. Moving on to EBITDA. We delivered a positive core EBITDA for the quarter. This includes the benefit of some seasonality in sales and investment phasing combined with the benefits of restructuring implemented earlier in the year and strong general cost control. This positive performance in the fourth quarter, combined with the efforts we've made earlier on in the year, have allowed us to close the year with a broadly neutral core EBITDA in the face of a pretty challenging market set of circumstances. Moving on to cost and cash. As Marco mentioned, this continues to be a significant focus for us. In Q2, we spoke to you about our restructuring program, and I'm pleased to say that we're on track to deliver full year benefits in 2024 at the top end of the range that we spoke about with onetime costs aligned with our original plans. And on cash, we're exerting similar discipline. Our 2023 capital expenditure was more than 50% down on 2022 and significantly below earlier years. We also took important steps to reduce our stockholding through the latter part of the year. And this work on cost and cash will continue into 2024. As Jesse mentioned earlier, we anticipate CapEx spent no higher than PHP 1 billion, and we're targeting further reductions in inventory holdings without compromising our service levels. Next slide, please. Moving on to the market situation and the economic situation. It's fair to say the conditions in the U.K., while they have improved, remain challenging. In the latest quarter, inflation continued to fall, but remains significantly above the historic baseline with food inflation running at 8%. Interest rates and mortgage rates are also elevated. And although consumer confidence has recovered from the lows seen in the summer of 2022, those gains slowed towards the end of the year, and the index remains negative. In this environment, the U.K. Meat Alternative market declined by 7.2% in the quarter with Quorn performing broadly in line with that. The U.K. Retail business maintained its leadership position in the quarter with share broadly flat on Q4 2022. Within this, we saw share losses in chilled, largely offset by gains in frozen [Technical Difficulty] important launches in Q4 2022, and we've seen growing competitive pressure in the tofu segment. While in frozen, we continue our share gain, and we now have almost 20 percentage points share ahead of the #2 brand. As you can see from the chart on the right-hand side, our Foodservice business achieved its highest sales quarter so far with growth of over 5%, driven by strong performance in the U.K. and Europe, including growth in KFC, partially offset by lower sales in the U.S. and then some other QSR customers. Finally, before handing back to Jesse, I'd like to make some final comments on the impairment that Jesse spoke about earlier on in the call. As you heard, the impairment is driven by an increase in the weighted average cost of capital plus a more challenging cash flow projection for the business as a whole. And I think this chart highlights some of these challenges and helps put them into context. As you know, and you can see from the chart, this is a business that's delivered consistent growth over a significant period of time. The growth accelerated under Monde ownership and in the period to 2019 and profitability also grew during that period. This was obviously followed [Technical Difficulty] macro headwinds affecting both input costs and market growth and that's led us to a breakeven EBITDA position in 2023. What I hope we've been able to demonstrate through our Q4 results is the determined action we're taking on costs and cash in recognition of the challenging circumstances that we find ourselves in, plus the fact that we are starting to see some of the cost headwinds reverse and this will start to flow more meaningfully into gross margins as we progress through 2024. And finally, while the market trajectory has not improved significantly at this stage, the fact that we've been able to strengthen our competitive position means that we should be well placed to benefit when market growth does return. With this, I'll hand back to Jesse.

Thank you, Nick. Now on to our preliminary Q1 2024 results and further guidance. Next slide, please. So let me start with APAC Branded Food & Beverage. For top line, we expect to report low single-digit growth. This is primarily driven by the timing of the holy week. As many of you know, that last few years, holy week has been in April. And this year, holy week in Philippines, which is a huge holiday, fell at the end of March. This has a significant effect despite the additional day in February, this timing of the holiday had a very significant impact in the overall growth rate. We see good recovery in April so far. And so we think this is temporary. However, on a bottom line basis, we continue to project or we expect to have gross margin improvement of more than 600 basis points year-over-year and versus the 34.1% gross margin, we expect it to improve at least 300 basis points sequentially, bringing us to the 37% gross margin level for Q1. For beyond Q1, because of the charts, especially for wheat, where we see sequentially lower wheat prices, we expect continuous year-on-year margin accretion through the quarters until the end of 2024. Absent a very significant black swan event, we should be able to achieve this. For Meat Alternative, we are expecting a high single-digit underlying decline. Transparently, there's an additional week in our Meat Alternative business. On a comparable number of weeks -- on a reported basis, it is mid-single digits, but on a comparable number of weeks, it will be high single-digit decline. We expect breakeven EBITDA, once again, fulfilling our commitment to deliver -- to manage this business on a cash-neutral basis. And as Nick shared, we expect gross margins to improve based on the year-on-year prices -- year-on-year based on the current input prices. While there will be some lag because of high prices in stock, we will eventually see these lower prices reflected in our COGS. That ends our prepared remarks. We are now ready for Q&A.

Thank you, Jesse. So I will now moderate for a question-and-answer portion of the call. [Operator Instructions] Jesse, the first question is for you, and this is what percentage of COGS is CoCo for the consolidated Monde business?

It is 0.6% of APAC Branded Food & Beverage COGS. So it's not material. And that's why it is in bps even for the higher lock-ins in Q4 2024.

Okay. Another question for you, Jesse. And this is if there are any updates to Monde's investment Figaro, in particular any synergies or new products to be announced related to this investment?

We are currently discussing collaboration plans, but unfortunately we are not ready to announce this yet. We hope to be able to share with more of this in the upcoming quarters.

Okay. Great. The next question is for Nick. And Nick, this is in addition to the 200 basis point gross margin improvement suggested in the guidance slide. How much further could gross margin improve with the ongoing efforts to improve overall business efficiency?

Thanks, Mike. We're very clear that we have an ambition to deliver more than the 200 basis points and potentially [Technical Difficulty] We're not in a position to guide a specific number above that at this stage. We have a number of areas of work ongoing in terms of business efficiency that will impact the supply chain. We have a new head of supply chain who's joined us, Mike Tan from the APAC BFB business. He is just getting his head around the opportunities there. So the guidance that we're able to share today, the gross margin expansion will be 200-plus basis points with an ambition to go significantly further.

Thank you, Nick. Jesse, this question is for you. And this is if you can elaborate on the support that the Quorn team is being provided by the Monde Nissin supply chain head?

Yes. First of all, it starts with a vacancy that is available in our Meat Alternative business. We have vacancy on the supply chain head and since this supply chain efficiency is one of the key opportunities, we thought Mike Tan, who was previously our Chief Operations Officer at Monde Nissin Philippines, he has a lot of experience helping us streamline our supply chain. We thought that he could be seconded to our MNUK business to help Marco out in the key priority. As Marco mentioned, his key priority is cash and costs. And Mike Tan is expert in that cash and cost reduction, helping -- having a good track record in the Philippines. So we thought that it was a good opportunity for us to send Mike to leverage his skill set to help Marco achieve his business objectives.

Thank you, Jesse. And the next question is, I guess, it's either for Marco or Nick, but it's -- should we expect further impairment losses for Meat Alternative business this year?

Let me comment in terms of the valuation exercise that's been performed, and you've seen the results of earlier on in the presentation. So we've worked very, very hard through that exercise to come to a realistic valuation that's neither pessimistic nor optimistic, one that's grounded in the challenging reality that we find ourselves in today. And that valuation does have a more modest growth rate than has been used in valuations previously, but the valuation and the projection does assume that the market stabilizes and returns to growth. So in that sense, it's -- I feel it's a realistic valuation one that we spent a lot of time with our audit team working through, potential catalysts for change either way, our interest rates, as you've heard from Jesse, we've been impacted negatively in terms of valuation from an interest rate perspective, and I'll leave listeners to form their own view of what interest rates will be going forward. And as a team, we are certainly working to over-deliver against the cash flows that are included in that projection, but we have a lot of work ahead of us.

Great. Thank you, Nick. A couple other questions for you, Nick. The first is, how much did Foodservice account for sales in fiscal year 2023?

So by the fourth quarter, the Foodservice business had grown to a little over 18% of our total.

Okay. Great. And then a second question also in terms of Meat Alternatives is, can you elaborate on -- you mentioned that gross profit margin would have been 200 basis points higher and given -- in Q4 given the current input costs. Can you just elaborate a little bit more what you meant by that?

Yes. So we have a relatively long -- a relatively high inventory level and relatively low inventory turn, which we're working to improve. But that means that a lot of the prices for purchasing goods during the quarter are going to the stock valuation at the end of the quarter and are, therefore, part of the valuation of our inventory on the balance sheet and are not, therefore, seen full in the P&L in the quarter. And the 200 basis points that I spoke about is that affect where we're not yet seeing the actual purchase prices reflected in the P&L during the quarter.

Okay. Great. Thank you, Nick. Jesse, the next question is for you. Can you give us guidance on how the gross profit margin expansion will percolate to the EBIT margin? And if you can also give any color on A&P or major OpEx items?

Yes. So I think in previous forms, we guided towards expanding gross margin, which surely partially reinvested in OpEx. With the prices now being stable, we will rely on volume growth to deliver the top line and competition has stepped up their spending as well, so we need to match that. We also have important campaigns that we need to run. I mentioned earlier Skyflakes in the biscuit segment. We will be reinvesting some of that margin expansion into OpEx in order to drive the volume growth in 2024.

Okay. Thank you, Jesse. The next question, it's actually for both you, Jesse, as well as for Nick. Can you give us a breakdown of your COGS? So I guess, Jesse, for APAC and then Nick for Meat Alternatives.

Well, for APAC Branded Food & Beverage, I mentioned that the 2 key items are wheat and palm oil. So wheat is 18.5% and palm oil 6.1%. We have other oils that we purchase for our biscuits and they're significantly less in terms of percentage. So those are the 2 big items. And that's why we talked about it. CoCo is not a big item. I said 0.6% only for APAC Branded Food & Beverage.

Market for Meat Alternatives, if you're looking the second half of the year, our materials and input materials, including packaging is about 30% of our total COGS. Utilities is approximately 10%. And third-party manufacturing is approximately 15% with the remainder, our conversion costs, fixed overheads, labor and other. And within the materials, the big ticket items for us are glucose, egg, other food ingredients and utilities clearly dominated by electricity, but other utilities that we purchased.

Thank you. Jesse, this is for you. Can you confirm that the carrying value of Meat Alternatives as of the end of 2023 is GBP 242 million? And then can you also remind us what drives the guarantee asset gain that was recognized in the P&L?

Yes. So yes, that's correct. GBP 242 million is the latest enterprise value or the value in use calculated together with our auditors. And the family guarantee is actually a put option that only generates value whenever there's an impairment. So it -- at the end of the period, of the guarantee period, which is 10 years, it will exactly match the amount of impairment that we cumulatively have from January 1, 2023 onwards. Of course, from an actual accounting booking because of different factors on volatility, including assumption on stock price volatility, the amount will not be exact. But as you can see in this year, it substantially covered whatever impairment that was booked. Both impairment and the family guarantee that was booked are both noncash in nature.

Okay. Thank you, Jesse. Another question for you, and this is what is the current sales breakdown by category for APAC? And also if you can talk about how much noodles sales is now coming from the kasalo pack and remind us of the margin differential that basically, the difference between the regular size pack and kasalo?

Yes. So for kasalo, it is about 5% on the latest past 4 weeks share out of the 85% in the dry pouch segment of the business. So it's not that big as a percent of our total business, but it was a leaky bucket for us before as competition had a double-digit share level on the sizing and pricing back, that we did not participate in. Now we are, as I mentioned, 58% of the volume were key competitors in that size, and we have effectively plugged that leaky bucket -- leaky part of our bucket. On the APAC Branded Food & Beverage, noodles is still by far the biggest, over 50% stake of our sales is noodles and then followed by biscuits and then beverage.

Okay. Thank you, Jesse. Nick, the next question is for you, and this is how many months' worth of finished goods are you holding now? And what would be ideal for the company?

Thanks, Mike. We've been holding at a peak more than 150 days and by approximately 20 days we are -- we will continue to drive that down through 2024. We are working, as I mentioned, with Michael Tan, on a number of aspects around the supply chain. And with Mike, we are working to define a target level to get down, but it will certainly be lower than where we are today.

Okay. Thank you, Nick. Also, next question is for you on the Meat Alternative impairment. Can you share what are the underlying projection assumptions that were made in terms of growth, interest rate levels, margins?

I think Jesse has mentioned some of this. And I believe this will be shared in the financial statements. The interest rate that's been used as a discount rate is 8.45%, up from 7.9% in the previous exercise. The growth rate over the 5-year period is between 4% and 5% on a compound annual growth rate with a terminal rate 2% after the end of those initial 5 years.

Okay. Thank you, Nick. Jesse, the next question is for you. And this is, can you provide more color on the PHP 6.2 billion APAC CapEx budget?

Yes. But before that, I do have more exact numbers on the split of the business for APAC. For full year 2023, noodles accounted for 46% of our sales, biscuits 34% and the rest would be beverage and culinary. On PHP 6.2 billion, we are building more capacity. We've started building capacity in our Davao plant for cakes and biscuits. We have also -- this also includes the long-term lease amount that we have paid for a new site in Pampanga, more on that when we concretized the plans, but this reflects the continued conviction in our bakery business, where we will build capacity -- additional capacity in the north, where we are experiencing a lot of growth.

Thank you, Jesse. Next question is for Nick. And this is, when do you expect to fully flush out the higher inventory holdings?

Yes. I think I mentioned this a little bit earlier, Mike. It will take us through 2024 to get down to a target inventory level. So I would expect it would run through the quarters of 2024.

Okay. Great. Jesse, what is your A&P to sales ratio target for 2024?

Yes. For APAC, it's 5% of sales.

Okay. And then -- okay. This actually concludes the questions that have been asked today. So I will now turn the call over to Henry.

Thank you, everyone, for your participation in this call and continued interest in our company. In summary, the fourth quarter showed continued strength across our APAC BFB business, resulting in a record full year core income for our APAC BFB business. And while our Meat Alternative business is still facing challenging times, overall, we ended the year with significant cash and a very meaningful improvement in retained earnings, giving us the ability to announce another dividend. This dividend, along with the one paid out in January this year, represent a combined total return of capital to investors of over PHP 4 billion in the first half of the year and demonstrate the strong cash-generating power of our APAC BFB business. With that, I look forward to speaking to you again on our first quarter earnings call next month. Until then, stay safe and healthy. Thank you.