Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good afternoon, and welcome to Monde Nissin's First Quarter 2025 Earnings Call. I'm Mike Paska, Head of Investor Relations. On today's call with me are Henry Soesanto, Chief Executive Officer; and Jesse Teo, Chief Financial Officer. And from the Quorn team, we have David Flochel, Chief Executive Officer; and Nick Cooper, Chief Financial Officer. By now, everyone should have access to the earnings press release and presentation. These are all on the PSE Edge website posted earlier today. This information can also be found in the Investors section on Monde Nissin's website. And finally, before we begin, please note that the financial information being presented is unaudited. 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 I encourage everyone to read the disclaimer in today's presentation. Now, I'd like to turn the call over to Henry to discuss first quarter business performance. Henry?

Thank you, Mike, and good afternoon, everyone. Our consolidated revenue increased by 2.8% year-on-year in Q1. Our APAC BFB business, which comprises 84% of top line for Q1 grew by 4.1% year-on-year. We sustained our market leadership position for Q1 2025. Please note that Nielsen has undergone a universe update and panel enhancements, and this makes the Nielsen reports a better representation of reality. Noodles gained market share of 160 basis points from 67% in Q1 2024 to 68.6% in Q1 this year. The share growth is led by our Kasalo Pack. This is the sizing and pricing segment. And we are now leading in supermarket channels and in the Mindanao area market. Moreover, market share data for past 4 weeks as of March 2025 shows that our Kasalo is now bigger than its key competitor in Greater Manila Area in South Luzon and Mindanao. We hope we can still improve this by strengthening our downline distribution. Despite our market share growth in Q1, our volumes for the quarter are down by 2.9%, driven by our basic instant mami SKUs. We are commissioning a study to further understand the consumer trends. One good news is that Lucky Me! has once again been awarded in the Kantar independent study as the #1 most chosen FMCG brand now 10 years running. This track record is strong proof of Lucky Me!'s unparalleled brand strength, deep consumer trust, everyday relevance and enduring leadership in the market. For biscuits, market share remained stable at 29.1% with strong demand and supply improvement. Versus Q4 2024, market share increased sequentially from 28.7%. Our M.Y. San Grahams brand continues to grow quickly, with volume up by 74%. Consumers learn on the alternative uses of Grahams as an ingredient for desserts. We also continue to see growth for our flagship SkyFlakes brand, supported by successful marketing campaign. Lastly, Nissin Butter Coconut is experiencing volume growth due to additional capacity from our Davao plant. Alongside Lucky Me!, SkyFlakes and Fita were also among the awardees as the most chosen food brands in the same Kantar study mentioned earlier. Next slide, please. For oyster sauce, our market share improved by 110 basis points from 55% in Q1 2024 to 59.1% as Mama Sita's continues to drive penetration and consumption for the category. We recall that as of December 2024, category household penetration increased to 60%, 45% of which is driven by the Mama Sita's brand as we market oyster sauce as an alternative to soy sauce. Our efforts over the years have proven successful. As for the first time, the total Mama Sita's brand is recognized as the #2 fastest-growing brand in total FMCG by Kantar, with penetration and frequency as the key drivers. For yogurt drink, we further improved market share by 150 basis points from 88.6% in Q1 2024 to 90.1%, thanks to our popular variance. With that, our DutchMill brand was ranked the #11 Most Chosen Brand in Dairy by Kantar. Lastly, our cultured milk, Delight, remains a strong challenger, with 24.8% market share. While we have defended our market position for our beverage segment in Q1, our volume were flat for the quarter across the brand. Next slide, please. Now, turning to Meat Alternative. I'm pleased to say that the business has made significant progress in the first quarter under the Transform to Win Together program that David talked about in our last earnings call, with a strong focus on back-to-basic on in-store execution. This progress includes a better top line performance, with sales decline slowing to 6% and the Quorn brand winning shares led by snacking products, which delivered 19% growth alongside an increased consumption penetration. Profit performance was also strong, with the effect of the transformation program helping to drive gross margin expansion, plus a positive EBITDA and near breakeven on EBIT and also the decrease in core net loss after tax of PHP 55 million (sic) [ PHP 58 million ] compared to PHP 216 million. All of these metrics show significant improvement against Q1 2024. We continued with a strong focus on cash in quarter -- strong focus on cash in the quarter, and business has been able to pay down GBP 12 million of external borrowing through internally generated cash, driven by further inventory reduction and disciplined capital investment. While I'm pleased to -- I'm pleased with this performance, there is still work to do and challenges ahead. The U.K. market remains depressed and both of our Cauldron brand and our foodservice business had a strong challenging quarter. We remain focused on key priorities on delivering our supply -- supply chain transformation, fixing our U.K. retail business, relaunching brands and returning our foodservice business to growth. We expect the Meat Alternative business is on track to deliver its full year guidance. With that, I will hand over to Jesse to talk about in detail on our financial performance. Jesse, please?

Thank you, Henry. In Q1, we [ achieved ] PHP 20.9 billion of sales. This is divided into 4.1% growth in APAC Branded Food & Beverage. As Henry mentioned, this is driven by biscuits, culinary and packaged cakes categories. For Meat Alternative, the growth -- the decline has slowed down. And on a reported basis, we just declined less than 4%, while on a constant currency basis, we declined 6%. Gross profit on absolute had a modest increase of 1%. However, gross margin was down 50 basis points on a consolidated basis. APAC Branded Food & Beverage actually had a decline in gross margin versus a year ago, but its gross margin is in line with year ago gross margin for the full year. The pleasant surprise is Meat Alternative with its 300 basis points increase in gross margin, actually was accretive on a gross margin on a consolidated basis. Core EBITDA also increased slightly at 3.4%, again, helped by the improvements in Meat Alternative. Meat Alternative actually turned from a negative EBITDA to a positive PHP 140 million EBITDA, helping the group show a positive EBITDA. Core net income as well benefited from the turnaround in Meat Alternative, where the negative numbers were not -- net income were also reversed substantially. This led to a consolidated net income and net income at ownership increase of 1.5%. In all, our core net income at ownership is PHP 2.9 billion. There is a PHP 186 million non-core item, the biggest of which is the non-cash accounting loss on the fair value restatement of the Meat Alternative guarantee asset. The drivers of this are the lower stock price and the higher volatility that the stock markets of the world are experiencing right now. Next slide, please. For APAC, as I mentioned, the growth was driven by biscuits, culinary and packaged cakes, offsetting the slight decline in noodles and the flat volume of beverage. The key highlights for biscuits are Grahams, which grew 74%; Butter Coconut, which had better supply, growing at 39%; packaged cakes growing at 45%. Gross profit increased slightly 0.2%, was basically flat on an absolute basis. On gross margin, while it's a decline of 1.4 percentage points versus a year ago, the 37.1% gross margin in Q1 is in line with the full year 2024 gross margin, which is consistent with what we are guiding on a full year basis. Core EBITDA on absolute terms has a slight decline of 1% due to slightly higher SG&A. And core net income decreased a bit more because of unfavorable FX gain and loss positions. Next slide, please. Now drilling down to the specific top line trends for each of our key categories. Noodles, as Henry explained, had a difficult quarter, where sales were down 4.5%. This was led -- this is driven by the 2.9% decline in the volume segment. As Henry mentioned, the decline in volume is basically -- is primarily driven by our most basic instant mami chicken and beef SKU. We are commissioning a study to understand this further. However, under this backdrop, our biscuits, which are a bit more discretionary than the basic IM beef is enjoying good growth at 13.2%. I mentioned the great progress of our big brands. Even SkyFlakes is increasing share and growing volume as it increases share. Others continue to see volume growth led by culinary. You have seen the share gain of our oyster sauce business. Added to this is good progress in our Goodnom coconut cream product. Next slide, please. Now on bottom line. The good news is we believe that the edible oil upcharges that we experienced in Q1 has peaked. Zeroing in first with the palm oil trends, which is 7% of our APAC Branded Food & Beverage COGS, you will see that the quarter-on-quarter lock-ins that we have is down. We have almost fully locked in for the entire year. Wheat also is on a downward trend. And in fact, just a few -- just a day ago, wheat registered a fresh 5-year low, and we're looking to book the remaining positions that we have in the year with those 5-year low prices. So, we do expect -- in addition, the exchange rate has been quite benign with the peso trading at near 55 -- at 55 level. We have been able to rebuild our U.S. dollar stockpile to be able to protect our FX positions at that level. Next slide, please. For Meat Alternative, while we continue to have the decline of 6% on a sales basis and 7.6% on a volume basis, we have very good news on bottom line. Cash and cost management was the real highlight for Meat Alternative business. We had almost 11% increase in the absolute gross profit, with a 304 basis points improvement in gross margin. This is driven by lower input costs versus the base, the supply chain transformation that David has talked about in the previous calls and the lower inventory, which Henry highlighted. Core EBITDA turned into positive from negative in the same period a year ago, contributing to the consolidated numbers. So, ditto for net income. So while the core net income is not in positive territory, it is substantially now close. And with our plans to pay down further loans in order to reduce financing expenses, we have a good shot of getting also breakeven -- closer to breakeven net income. Next slide, please. Now, I'll turn it over back to Henry for the guidance for the full year 2025.

Thank you, Jesse. So, our guidance for the full year remains the same. On the top line for APAC BFB, we expect mid-single-digit growth for the full year. On profitability, margins will be broadly in line versus last year, with trends varying quarter-to-quarter based on our cost saving plans, commodity lock-ins and base comparisons. For Meat Alternative, we aim to slow down the decline through the team transformation efforts. We expect to achieve mid-single digit in GBP million core EBITDA for the year, with varied profitability through the quarters. With that, we are now ready for Q&A. Mike?

Thank you, Henry. Okay. This concludes the formal comments. I will now moderate Q&A portion of the call. Questions can be submitted via your chat box, and we will attempt to address as many as possible. Jesse, the first question is for you. And this is related on today's 17-Q filing. Note 4 in today's 17-Q, the segment P&L had an impairment line item under APAC BFB. Can you explain what that is?

For the alert analyst who noticed that, thank you very much for noticing that. We have actually identified that error, that schedule -- Note 4 schedule of the unaudited FS featuring the segment P&L, had an erroneous line on the impairment, that should not be there. We apologize for that mistake. The new number, the new schedule, the new 17-Q will be published tomorrow as the PSE has to do some due diligence before they upload the revised numbers. If you are interested in the right segment P&L, you could either refer to the earnings deck presentation that we just presented or the MD&A section for the segment -- the correct segment P&L. Again, apologies for that mistake. We will get the right number in PSE Edge by tomorrow.

Thank you, Jesse. The next question is for Nick. And Nick, it's with Q1 results, are you on track to meet the impairment calculation guide path?

Thanks, Mike. Yes. So the Q1 performance supports the guidance for the full year, which we are reconfirming today. And that guidance for the full year is in line with the valuation model that underpins the impairment calculation.

Thank you, Nick. David, the next question is for you. And this is, what drove the decline in foodservice in Q1? And what is the outlook for that part of the business?

Thank you, Mike. Yes, foodservice sales were down mid-single digits on an underlying basis in Q1. The core of our foodservice operates on menu cycles with updates in Q4 and Q2 every year. The business had disappointing menu wins in the last year Q4 cycle, which have been impacting the performance in Q4 and Q1. We are working very hard right now to improve the execution of both cycles for this year, so Q2 ongoing and then Q4 later in the year, focusing very much on the execution of the strategy, Transform to Win Together. We're seeing encouraging signs on the Q2 cycle in terms of new listings. However, it will take a bit more time to really see the rate of sales. Meanwhile, I just want to say that we're also making some good progress in a couple of important areas in foodservice. The first one I want to call out is KFC, where we're building stronger and stronger working relationship with them. And we're trialing and expanding our menus in France right now with KFC. The second one is that we are working on a number of big customers, big caterers to help them blend our mycoprotein in their meat products to improve their health profile and environmental footprints of those products. In terms of outlook, we are working to get the foodservice channel and business back to flat by end of the year. But as mentioned, we are seeing some challenges to overcome, and we'll keep you updated quarter-on-quarter.

Thank you, David. Next question is for Jesse. And Jesse, with the strong volume growth in biscuits, do you have capacity to meet the demand?

Thank you, Mike. Yes, we actually shared with you our CapEx plan in the last earnings call. Majority of those CapEx plan goes towards building new plant site exactly to provide for the volume growth that we are experiencing in the biscuit segment. Most of that will be able to produce more Grahams and more SkyFlakes, which are experiencing a demand boom during this time.

Thank you, Jesse. Next question is for David. And this is, what impact do the tariffs have on your U.S. business? And what are your plans for that business?

Okay. Thank you, Mike. Yes, I mean, the U.S. business accounts for 5% of our total sales. We are importing all of our food from the U.K. Most of it is finished goods and some semi-finished products as well. From April this year, we faced an additional tariff of 10% of those imports. But even with those new tariffs, our U.S. business makes a small positive financial contribution. However, the market conditions in the U.S. remains tough, as we know. And we are reviewing the outlook and the strategy for our U.S. business and Transform to Win Together. And we'll come back definitely later in the year with the strategy for the U.S. going forward.

Thank you, David. Next question is for Jesse. And Jesse, with the year-over-year gross margin decline in APAC BFB results during the first quarter, how confident are you in your margin guidance?

Yes. As we have shared in the commodity slides, we think that palm oil has peaked. Other edible oils continue to be persistently high, but palm oil is the biggest of the edible oil usage. Peso has been benign, and we have already locked in a lot of that with our U.S. dollar stockpile. And wheat, as I mentioned, currently is now trading at 5-year lows, and we are about to lock in on those good prices. We also have a slew of cost savings projects, which unfortunately, I cannot elaborate at this point, but we're quite confident that these cost savings programs will deliver substantial savings in the next few quarters. So, this gives us confidence on the achievability of our guidance of in-line gross margin for the year.

Thank you, Jesse. Jesse, I have another question for you. And this is, can you share more color on what led to the noodle price and volume decline in the first quarter? How much of the volumes is from PC, Instant Mami and cup noodles? And how was the volume growth for PC and cup noodles on a standalone basis?

Yes. First of all, our most important subcategory for noodles is pancit canton. For Q1 2025, it represented 66% or 2/3 of our volume. The portion that is this challenge is instant mami, basically the most basic beef and chicken SKUs. This comprised about 29% of our volume, and this had a 13% decline, okay? Pancit canton grew 1%. Cups grew 1%. Cups is 4% of the volume -- of our volume in Q1 2025. So clearly, the instant mami with its beef and chicken are the problem area. Typically, these SKUs are the ones, which experienced a demand boost when times are hard. For instance, in COVID, Instant Mami beef and chicken are the ones who had the surge in volume. I guess part of the factor that is contributing to its decline is that there is more money these days with lower inflation, print and elections going on. There's a little bit more money. So, people probably are trading up versus instant mami. However, we are not ready to conclude that. We are conducting, as Henry mentioned, a wider share of wallet study to understand what the users of Instant Mami are spending their money on.

Thank you, Jesse. The next question is for Nick. And Nick, this is, what led to the change in source of market share information for U.K. retail? And also, why is Cauldron lagging behind Quorn brand?

Okay. So, you will have seen that the market share information that we're using has shifted from Circana to NIQ at the start of this year. And in the appendix, we've provided a parallel track, which reconciles the 2 data sets. The main reason for the shift is that NIQ provides us broader visibility for the market. So it adds in the discounters. And so the overall market size has increased by about 15%. So, that gives us a better visibility of the total market in the U.K. In terms of Cauldron, and I'll let David jump in if he wants to add anything here. So, Cauldron is principally made up of products in 3 areas; falafels, tofu products and sausages. And Cauldron for probably the last 12 months or so has been battling specialist competitors in all 3 of those segments. And we are doing some work, which hasn't yet fed through into the results, but it is coming in terms of innovation in the tofu space and in terms of falafels. And we're also looking at the competitiveness of our sausage offering and also how do we communicate with consumers about the Cauldron brand. But understandably, the focus has been first and foremost around driving our primary brand. And I think in the Q1 results, you see the impact that that's having, both in terms of the performance of the brand, specifically what we've been able to do in snacking, where we've actually been able to drive growth in that exciting part of the market. And now in the very, very recent data read, we're actually seeing increased penetration with U.K. consumers, driven by that focus on Quorn snacking. So, I think a good data point that shows that where we focus, we can start to get the brand and the category moving. David, I don't know if you want to add anything to that?

No, not really, but I think maybe just echo what you just said. In simple terms, yes, Cauldron has been into some difficult times. We are now protecting the brand, with the focus on snacking with the business we have in falafels. And we have strong plans, I believe, really strong plans for next year to reignite the brands with the different categories we operate into, absolutely, yes.

Jesse, the next color -- the next question is for you. Can you provide more color on the 144 basis point contraction in gross profit margin? And are there any nuances in the first quarter of 2024 or 2025 margins that we should be aware of for APAC BFB?

No. I think the key driver there is edible oil. So beyond palm oil, coconut oil shortening, these are costs that went up. And fortunately for us, again, as I mentioned, palm oil, which is the biggest usage, has peaked. In fact, it's on a downward decline. And moreover, it's not just a theoretical downward decline. We have locked in on those lower prices with the backwardated curves. So, that gives us the confidence that the edible oils, while not partially -- we will not be able to address all the edible oils that we use. Palm oil, which is the biggest edible oil has been addressed for subsequent quarters.

Thank you, Jesse. The next question is for David. And this is, how has the rightsizing of Quorn been going? Can we expect further cost reduction?

Listen, I think we -- it has gone actually very well. I think we are definitely much on track, driving our lean organization according to our plans on the one end, on the SG&A side. And then we have the whole kind of transformation going on, on the supply chain side, which is an ongoing process and execution going on for this year, but also next year. So yes, there will be further improvement, and we'll keep looking at the best fit between our focus areas and the organization to deliver that strategy in the focus areas we want to deliver, absolutely.

Thank you, David. The next question -- and this is, I think, probably for both Jesse as well as Nick. But first, can you comment on how impairment charges are calculated in the Meat Alternative segment? And can we expect lower impairment costs going forward? So, that's the first part of the question.

Yes. So the only general comment I have is we follow IAS 36. EY independently vets our IAS 36 exercise. Nick will provide the details of the key variables that go into the IAS 36 exercise that we do annually with our auditors.

Yes. Thank you, Jesse. So under IAS 36, we run a 5-year cash flow forecast for the business with then a terminal value on the end of that, which is reviewed with the auditors, clearly, as Jesse said. And as you can understand, that cash flow forecast has a number of important variables, including probably most importantly, the performance of the business in the current year, so the starting point for the business. And as I mentioned earlier on, I'm pleased to say that the Q1 results are in line with our expectations for the first year of that cash flow forecast. But there are then other elements that go into that forward-looking cash flow forecast, which at the moment seem to be on track, but are difficult to predict with certainty at this stage. Those include market growth rates, interest rates and what's happening to the WACC, commodity prices, et cetera, et cetera. And so all of those will feed into that full cash flow analysis. But as I say, the delivery of the first year is the most important step that's within our control, and we are on track for that at the moment.

Thank you, Nick. Another one for you. And this is, how secure are your margins given your price lock-ins?

We are pretty well covered for this year. I don't see commodity inflation as a significant risk for us this year. So our -- if you look at our main input costs, glucose is a big input into our fermentation. That's largely covered for -- into the start of next year, egg as well and power. We have decent coverage for power, and some of those prices are coming down. So at the moment, I don't see a margin risk in terms of that space.

Thank you, Nick. Next question is for David. And this is, can we expect changes in the Quorn brand to try to battle lower overall demand in the industry?

I believe that we have a wide spectrum of product that we cover, the different sectors with the Quorn brand. And as we mentioned as well, we have quite targeted sectors where we operate with Cauldron. We enjoy a very good growth within snacking. We will definitely double down on that sector while we keep fixing others. So overall, I think we have a very wide range, covering most of the consumer needs and occasions. And it's very much for us to make sure we focus on the right ones, the growing areas and keep reviewing permanently our portfolio in that context as well based on consumer insights and customer demand.

Thank you, David. Next question is for Jesse. And this is, any reason for the slower deployment of CapEx for BFB versus the 2025 budget.

Sorry, I was on mute. We're still finalizing the plans for the new plant. I think the building will start soon, and it will -- the spending will accelerate in the next few months, next few quarters as we target to start up some parts of the new plant, Northern Philippines plant sometime in '26 and '27.

Thank you, Jesse. Next question is for Nick. And this is, can we expect EBIT turnaround in the Meat Alternative business to be sustained for the rest of the year?

Thanks, Mike. Well, we're not guiding in terms of EBIT specifically, but clearly, we've shared EBITDA guidance for the full year. What I would say about that is, as was highlighted by Henry, the delivery of that is not going to be entirely smooth through the year. So in Q2, we are planning to invest more in media behind our Quorn snacking to build on the momentum that we've got there and to build on that sales growth and the penetration that we're driving there. That will impact our EBITDA delivery and give us lumpy EBITDA delivery through the quarters. But as I say, that we're on track for the guidance for the full year.

I would just like to add to what Nick said that the spending on the media to fuel the growth that we already have in snacking will be self-funded because of the strong cash flow of the Meat Alternative segment. We now can fund -- self-fund our media spending in order to drive the top line growth.

Thank you, Jesse. Jesse, I have a question for you on noodles. And this is, are we continuing to see the sustained volume decline in noodles so far in April and May?

April is a short month because of Holy Week. So it's not very conclusive. But May is a much better month, so for noodles specifically. So, we hope that sales are starting to normalize.

Thank you, Jesse. Jesse, a question for you on just APAC margins. Can we expect to see sequential improvement in margins due to favorable lock-ins? Or are there other considerations that might offset this?

For the major variables, exchange rate, wheat and palm oil, they're more or less locked in and Q4 wheat might even be better than what we guided earlier. But there are other factors like edible oils. I mentioned that part of edible oils is coconut. So, that is precisely very high, although the harvest season is coming. So, we expect that the prices will soften a bit later. That should provide some reprieve on the high cost of that particular edible oil. Sugar prices are quite benign. It had a large spike last year, but we hope it doesn't happen again. There are still those commodities that are quite chunky that could have -- that had historically meaningful spikes. They could affect the aggregate, but we do have good positions on the biggest commodities that we use. So, we have to be vigilant in all of those commodities that I mentioned.

Thank you, Jesse. Jesse, a question for you on noodles. And can you help us understand what's driving the 1.6% net price decline in noodles?

I guess maybe in an attempt to spur the volume growth, there's a bit of a promotion to the stores. So it's a sales reduction that's being reflected in that. So, there is no price decrease. There's no sales price decrease. It's just a bit more of contra revenue being booked for the quarter.

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, for your participation in this call and continued interest in our company. In summary, our APAC BFB business delivered modest top line growth for the first quarter, driven by volume growth in biscuit, culinary and packaged cakes. We reiterate our full year guidance for 2025 of mid-single-digit revenue growth and gross margin to be broadly in line with last year. While it is still a bit early, we are seeing encouraging progress in Meat Alternative business, with gross margin improving over 300 basis points in the first quarter. We achieved positive EBITDA by continuously focusing on cost reduction and efficiency improvement, and we are performing in line with our expectations. With that, I look forward to speaking to you again in August when we hold our first half earnings call. So until then, stay safe and healthy. Thank you.