Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good afternoon, and welcome to Monde Nissin's First Half 2025 Earnings Call. I'm Mike Paska, Head of Investor Relations. On today's call with me are Henry Soesanto, Chief Executive Officer; 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 posted earlier today on the PSE Edge website. 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 half business performance. Henry?

Thank you. Thank you, Mike, and good afternoon, everyone. Before we get into the details, I want to share the takeaways for this earnings call. First for APAC BFB. Top line growth continues to be driven by our biscuits and culinary businesses with noodles experiencing improving sales trend. Gross margin took a hit but we have mitigation measures in place. For Meat Alternative, we achieved positive results in our U.K. retail business. Increased gross margin and had another quarter of positive EBITDA. We believe our gross margin progression is sustainable thanks to the transformation benefits, lower inventory, lower input costs and targeted selling price increases. Lastly for guidance, top-line remains on track versus our full year guidance. While we have updated -- we have updates for our guidance on APAC BFB gross margin. Jesse will discuss this later in more detail. Now let us move on to our first half business updates. Next slide please. Let's talk about the APAC BFB market share of noodles. Our consolidated revenue increased by 3.8% year-over-year in Q2 and 3.3% in first half. Our APAC BFB business which comprises 84% of top line for Q2 grew by 5% year-over-year in Q2and 4.6% in first half. With our growth, we sustained our market leadership position for Q2 2025. Noodles experienced market share growth of 160 basis points to 69%. We have shared growth across the segments. On macro level, our noodles business outperformed the category. Our shared growth is led by our Kasalo Pack and we will talk more about this in the next slide. In addition, our chicken kalamansi and beef kalamansi instant mami familiar flavor borrowed from our dry pouch variants that represent a premiumization of our instant noodle portfolio continue to thrive incremental growth. We now see K curve at place as we continue to enjoy good growth in modern trade and cups while our general trades and instant money businesses with cater to the less affluent socio economic consumer segments are seeing decline. We will continue our brand building efforts on our Kasalo Pack for our value driven consumers and post [ boulder ] flavors through our spicy variants and premium flavors. Our Philippines business improves sequentially by 4% and this continues into July which help us by -- and will be helped by the raining weather and was the best month of the year so far. Next slide. Specifically on Kasalo, we are proud of what the product has achieved. It started when a competitor launched a value proposition of bigger packs. It immediately gained acceptance from the value conscious consumers and we did not wait too long and decide to launch in 2022 to arrest our share decline. After less than 3 years, Kasalo Pack helped by the strongest leading brand LuckyMe! was able to take the lead versus our competitor in this month -- last month June 2025, and has been propelling our dry pouch market share upward to 81.7% in the first half through the incremental share gain. On regional and channel basis, year-to-date market share data as of June 2025 shows that Kasalo is bigger than its key competitor in Greater Manila Area in South Luzon, in Mindanao, in supermarket and grocery channels. At the same time, Kasalo provides better value on per gram basis for consumers while giving us better gross margin per pack. All this was accomplished through the strength of our brand with aggressive across the line and grassroots efforts and we will work on maintaining this growth momentum. Next slide please. For biscuit, market share grew by 40 basis points to 29%. On the macro level, our biscuit business outperformed the category. Our shared growth is driven by our SkyFlakes, M.Y. San Grahams and Nissin Butter Coconuts. Back-to-school campaigns and new usage occasions supported the quarter, while a growing number of Filipinos are discovering snacks through social media and advertisement. With this, we will sustain heavy above the line and below the line supports for SkyFlakes, Fita, M.Y. San Grahams and Nissin Butter Coconut to strengthen brand power including via social media. Next Slide. APAC BFB market share culinary and beverage. For oyster sauce our market share improved by 70 basis points to 60%. Mama Sita's continues to drive penetration and consumption for the category. As of May 2025, category household penetration increased to 61%, 45% of which is driven by Mama Sita's brand. There seems to be a resurgence of home cooking as Filipino consumers adopt more cautious spending habits. We will continue to emphasize the overall value advantage of oyster sauce over soy sauce to drive category and brand relevance. For beverages, yogurt drink shares remain stable at 88.4% and cultured milk remain a strong challenger with 26.6% market share. Category slowdown is softening but continues due to aggressive growth of lower price ready to drink category. The category is expected to become more relevant and recover with a back-to-school season. Let's talk about the highlight of Meat Alternative. Our Meat Alternative business which comprises 16% of top line for Q2 is starting to show benefits, thanks to the Transform to Win program we talked about in the previous earning call. On top line, we saw some positive progress in U.K. Chilled driven by U.K. Quorn snacking which grew 62% -- sorry, 42%. While U.K. Quorn snacking is only 14% of the Meat Alternative business, it helped taper top line decline to mid-single digit this quarter. On gross margin, we previously shared strong progress in Q1 and this further strengthened in Q2. Lastly on core EBITDA we are in positive territory after funding A&P investment made in Q2. For July, we saw the first time in several years, year-on-year growth. While still early days in our turnaround, this is a very encouraging sign. With that I will hand over to Jesse to talk in more details about our financial performance. Jesse, please?

Thank you, Henry. Next slide please. I'll start with the top line which I described to be improving trends with acceleration on consolidated basis and APAC Branded Food & Beverage basis and decelerating declines for the Meat Alternative business. Top line for consolidated basis grew at 3.8% in Q2. This compares favorably with the 2.8% consolidated growth in Q1, and brings half 1 growth of top line to 3.3%. Zeroing on APAC we grew 5% right at our guidance level in Q2. This compares favorably with the 4.1% we delivered in Q1 and brings our half 1 growth on top line to 4.6%. For Meat Alternative, we declined only -- negative 2.1% for Q2 and this compares favorably with the Q1's decline of negative 3.8% and brings our half 1 decline to now just 3%. Next slide please. However, on a bottom line basis we have big challenges on gross profit primarily in the APAC BFB business. This is due to the high commodity costs, specifically palm and coconut oil. We will discuss these commodity trends later on. Because of the challenges in these commodity costs, the gross profit on a consolidated basis declined by 3.4% in Q2 with gross margin going down by 240 basis points. For first half, the decline on gross profit was 1% and the decline in gross margin was 140 bps. Moving to core net income, the gross profit -- on top of the decline in gross profit we saw a unfavorable movement of exchange rate. Recall that we have north of $100 million in U.S. stockpile to hedge against our U.S. dollar short position. We had a huge gain last year in the base period in 2024 compared with a modest loss -- FX loss this year as the peso settled at PHP 56.33 at the end of Q2. This contributed to decline of 18.5% on core net income on top of the gross profit decline that we talked about earlier. Of course today, the USD, PHP exchange rate is now hovering at PHP 57.50. So whatever loss that we had booked in the first 6 months should now be an exchange gain. This brings our core net income to a negative 7.2% decline ending the first half at PHP 4.7 billion. This represents a 1.3% decline in the core net income margin. On a reported net income basis, we compared favorably versus the base period, but it is due to a noncash adjustment. The base period in 2024 included a PHP 1.5 billion adjustment on the guarantee asset for Meat Alternative. Compare that with the current year adjustment of PHP 15 million, this resulted to the huge increase. We urge the audience to focus on the core net income to evaluate our results. Next slide please. We were able to translate most of the core net income of PHP 4.7 billion in the first half into cash as we delivered a strong PHP 4.3 billion in cash in the first half on a consolidated basis. This brings our cash and cash equivalent level to PHP 11.1 billion, very robust considering that we paid PHP 2.7 billion in dividends. We paid PHP 2.4 billion in debt primarily in the U.K. and we paid down U.S. dollar trust receipts to take advantage of the favorable exchange rate in Q2. Moreover, our retained earnings in the 2 key Philippine entities, Monde Nissan Corporation, the parent entity and Monde M.Y. San Corporation has robust retained earnings balances. For dividend purposes, these are the 2 entities which are the source for RE that we make available for dividends. As of the first half -- end of the first half or June 30, 2025, we have accumulated PHP 8.1 billion in retained earnings. Next slide please. Now drilling down on the by category growth rates, as Henry mentioned, our growth continues to be fueled by biscuits and others primarily by culinary as we experience double digit volume growth for these 2 categories. Noodles was flat versus -- in Q2. This compares favorably with the negative 4.5% decline that we reported in Q1. The trends are improving. In fact, Henry alluded to a strong July. We started to see growth in -- back in noodles in July. One other noteworthy point is the contribution of others. You would see on the left side of the chart that others is not just now a growth accelerator. It's becoming a meaningful part of the APAC Branded Food & Beverage business. As of 2Q it is now nearly a quarter of the business. Next slide please. Zeroing in on the gross margin challenges by talking about the key input cost trends. For wheat we have good lock-ins with favorable trends for the rest of the year. We expect these to flow through the bottom line to gross profit and gross margin and onto the bottom line. For palm oil, we had advised before that we have sequentially better prices quarter-on-quarter. However, the thing that was not according to our expectation was the slow volume for our noodle business. Palm oil is mostly used by noodles and because our noodles volume were soft, the consumption of more expensive palm oil was delayed and so we will have to wait a few more months to start enjoying the lower price palm oil that we have already locked in. Our lock-ins for the second half is substantially covered already for the full year. Now onto the big change with the next slide. Coconut oil had a very steep increase of 109% versus year ago. Coconut oil because of this steep increase is now 7% of APAC BFB COGS. As you can see from the long-term chart that we are showing, coconut oil has been quite volatile with high peaks and low values primarily driven by supply and supply is largely driven by the climate. Dry weather means less productive trees and wet or rainy season signals more productive trees. When there are pronounced weather disturbances like El Nino, you will see production and productivity go down significantly. Based on past trends, there is commonly a reversal after a prolonged dry season when the rain start to come. However, one of the things that have changed recently is there had been rising demand for coconut oil not only here in the Philippines. As you know, Monde Nissin launched our own packaged coconut cream recently. There's also rising international demand for coconut and coconut related products not only for traditional food item but for health and industrial purposes. In addition, there is that Philippine biodiesel mandate which up to now is at 3%. The biodiesel consumption is roughly about half of the domestic consumption of coconut. As soon as we saw that the steep increase was out of the ordinary and coconut prices were reaching uncharted territories, we immediately took action by making surgical and calibrated price increase. Surgical because we only increase prices for coconut oil affected SKUs and calibrated because we still believe that there will be a reversal of course on the prices as supply improves in the back half. And so we did not price ourselves out in the market by assuming that prices will remain forever. But as we hope for the best we need to be prepared for the worst. Certainly, the climate effect is nothing new, but the demand increase is quite unprecedented. We need to be able to be ready and agile to take further pricing action and even review our formulation for potential substitution if the current high prices are persistent. Of course, formulation will take a little bit more time because we need to make sure that we vet those new formulations so that we don't disappoint our loyal consumers. Next slide please. Now onto the financials. Bottom line financials for APAC. As I mentioned, these 2 commodities, palm oil and coconut oil drove gross profit down by 4.7%. Gross margin down by 330 basis points for the first half. Gross profit is down by 2.1% due to the performance in Q2 and gross margin is down 240 basis points. OpEx is quite steady. You will see A&P is very much in line with year ago. That's why on EBITDA gross profit is just a flow through. The decline in EBITDA is just a flow through of the declines in gross profit. Core net income declines a little bit more than core EBITDA because of the unfavorable FX movement that I explained earlier. Now on to Meat Alternative with the next slide. Meat Alternatives as I mentioned softness declined to 2.1% for the quarter. Transparently the 2.1% decline in peso terms was helped by a favorable GBP, PHP exchange rate. On an organic constant currency basis, the decline was actually 4.8% on volume declines of 8.5%. The business was helped, as Henry mentioned, by 42% growth in U.K. Quorn snacking which is now 14% of the total Meat Alternative business. The highlight of the Meat Alternative financials however is gross margin progression. We have 254 basis points improvement in gross margin in the first half, over 200 basis points improvement in Q2 and we believe that these are sustainable because we are funding it with transformation programs. Lower inventory which results to lower obsolescence, lower carrying costs, lower input costs, some of which are already locked-in all the way to 2026 and prices that have been increased on a targeted basis. This is only partially offset by the lower production volume. We're hoping that the July trends that Henry talked about continue so that the penalty on lower volumes on gross margin will be lessened through time. And as Henry mentioned, we reported -- we booked positive EBITDA despite the A&P investment we made to promote the Q2 snacking campaign in the U.K. With that, I'll turn it back over to Henry to talk about the guidance on top line, bottom line and on CapEx.

Thank you. Thank you again, Jesse. As mentioned, we have some updates to our full-year guidance. Top line remain the same. For APAC BFB, we expect mid-single digit growth for the full year. So far this quarter we have experienced good growth across all our APAC BFB domestic categories. For Meat Alternative, we aim to continue to slow down our sales decline through the team's transformation efforts. On profitability, we are updating our gross margin guidance for APAC BFB. Full year gross margin may be 1% to 2% lower versus 2024 with second half margin at least 1% better than our first half. This is assuming that coconut prices stay high in the coming quarters. For Meat Alternative, a guidance of mid-single digit core EBITDA in GBP million for the year remain unchanged with uneven profitability through the quarter. On CapEx, we are updating our APAC BFB CapEx guidance from PHP 6.6 billion to PHP 3 billion mainly due to more realistic construction progress. This brings our total CapEx guidance for the year to PHP 4 billion. We continue to focus on our CapEx spending on APAC BFB while keeping CapEx for Meat Alternative. With that, we are now ready for Q&A.

Thank you, Henry. This concludes our formal comments. [Operator Instructions] First question is for Jesse, and the question Jesse, is the coconut oil upcharge is a surprise. Why was this risk not highlighted before and is there any hedge against this?

Yes, so coconut and coconut related input costs actually was previously about 4%, right? And frankly in [ '20 ] -- it was out of our radar screen primarily because in 2024 it was a big tailwind for us. Coconut prices, coconut input costs were actually going down. Moreover, I think you saw the extreme seasonality of that. When we saw initially that the prices were going up, we thought that, well, it's just the normal cycle. Once the rainy season hits, it will go down. However, something probably fundamentally has changed making coconut reach uncharted territory. There is no viable exchange where we could do a hedge for this. We can only adjust the volumes based on our projections. Of course our projections right now is as I said, we believe that eventually supply will improve. That will lessen the pressure on the prices. We also got word that the National Biofuels Board, I talked about the biodiesel mandate. There was a planned increase of biodiesel mandate from 3% to 4% and on to 5% by 2026. I think there is a move where the NBB, the National Biofuels Board will be recommending to the Department of Energy to suspend that increase that show the -- and we're hoping that that is already built into the expectation and that will -- the lesser demand due to the suspension of the increase in the biofuels mandate would lead to better prices going forward. Now that we saw the effect of coconut, we are now monitoring it. We're looking for ways to do some hedge, a financial hedge and also look at the future prices. Although most likely because there's no exchange, tradable exchange. We might have to look for surrogates.

Just as a follow-up, Jesse, to that, in terms of recent month trends, what are you seeing in coconut oil?

Yes, on this one actually we were a bit surprised. True to form, I mean June prices were lower than May prices. But we were surprised when we looked at the July prices. It inched up versus the June prices. And you know, July is a rainy season already for the Philippines. That is why we are not now -- that's why we espoused the thinking that we need to be hoping for the best but we need to be prepared for the worst.

The next question is for David, and this is, can you say more about the 42% growth in Quorn snacking?

Sure. Thank you, Mike. Yes, significant growth in snacking in Q2 has been really driven by 2 main drivers. Greater execution and improve availability which result into market share gains and penetration gains for the Quorn brand and also for the category. On the improved availability, the more distribution we've been able to gain and a deeper distribution has been driven by broader pack range and longer shelf life. On the execution of the plan we focused on targeted promotions with shopper marketing investments. These combined with digital and national TV campaign which has been successful. It resulted as you said in significant growth, 42% in snacking in the quarter. And actually, even more importantly it has been helping us to increase penetration on Quorn chilled by 3.6%, 35% on snacking itself, more buyers which -- of which actually a third were new buyers to the category.

David, I have a follow-up here for you. And this is, can you comment on the progress of the Meat Alternative transformation program?

Yes, sure. And thanks for this question as well, Mike. Good progress for sure on our transformation journey. We are on track to deliver the benefits highlighted in Q3 2024. We always continue to look at more efficiencies and cost savings. But I would say that as part of our Transform to Win strategy, founding the journey is our first strategic pillar and in there there's 2, let's say, priorities. The first one is to operate with a lean organization. I think on that front the program is almost completed and then we have the full transformation of a supply chain which will help us to deliver more efficient flexible factories, reducing cycle times, reducing waste, insourcing more production and of cooperate with more skilled workforce. On that journey which is a 2-year plan here we already start to see the benefits in our gross margin improvements. So I would say that both combined helping us to invest behind the brand and the category but also founding profit recovery.

Jesse, I have a question for you and this is regarding CapEx. Can you just give us a little bit more details on what led to the lower CapEx budget for APAC BFB.

Yes. First of all, we would like to reiterate that our commitment to pursue with additional capacity for biscuit business. Our biscuit business is growing volumes and we need to support it via capacity CapEx in order to further fuel the growth. We have seen this happen with butter coconut. As we unlock more capacity, we were able to grow the business. The same thing is happening for our cakes business where we opened up a new plant in Davao and it unlocked growth. However, for our new plant in Mabalacat, Pampanga for M.Y. San we just need to calibrate it with the construction progress. Obviously, we want to build that new plant as fast as humanly possible. But based on the timings for constructions this is how fast as fast as we could get. We are still committed to open up that plant by next year, hopefully by Q2, latest by Q3 but the spending would just reflect the construction timing.

The next question is for David. And this is, can you share what SKUs are counted under Quorn U.K. snacking?

It's a range of different formats including cocktail sausages and small bowls and bites which actually covers a lot of occasions that consumers enjoy in snacking season.

Jesse, the next question is for you. And this is regarding noodles. There was a notable slowdown in Q1 particular in soupy noodle segment. And management previously mentioned that a study was being conducted to understand the drivers. Can you share any findings of the study? And then as a second part to this question, what specific action is management taking to improve noodle volumes going forward?

Yes. So first of all, we'd like to reiterate what Henry said, that we observe a K curve. Some parts of noodle business, like cups, which are more premium, are actually doing well. And modern trade is actually growing. So we want to be able to also take advantage of that trend, right? Fuel the growth of cups even further. And our modern trade business -- drive our modern trade business even harder. For the parts that are weak, which is primarily the soupy noodle or instant mami segment, when we did the study, tried to find out what alternative food they are buying in lieu of instant mami. The conclusion of the study, and this is a Kantar analytics, is that they are buying less food across the board. That means that they're tightening their belt on their food purchases. Because of that finding, we are refocusing our marketing campaign, especially for instant mami, to a value messaging that our instant mami offers great value. And it is at $8.75 a pack, it offers great value to feed a family. And when you share it, it's even more -- it's even greater value.

Jesse, as a follow-up to the noodle question. How did the soupy noodles do in the past quarter in terms of growth?

Yes. Just to give you context, in the first quarter, the soupy noodle declined 13% in volume, 13, 1-3. For Q2, there's a marked improvement in the decline. It's only declined 1.8% for that. So that continues to be a derailer on overall noodle growth, but it's now less so versus previous quarter.

Okay, great. The next question is for Nick. And Nick, the question is, are you on track to avoid an impairment in Meat Alternative business?

Thanks, Mike. As I think we've discussed on previous calls, there are a number of variables that go into the impairment calculation, but the delivery of the year 1 EBITDA is probably the most important one. The guidance that we've given at the start of the year is broadly in line with the values in that model. And as you've seen today, we are confirming that we're affirming that we're on track to hit that guidance. So, that's a very important measure of where that calculation will be heading at the end of the year.

Okay, great. Nick, I have a follow-up question for you. And this is, Meat Alternative sales value declined slowed in the second quarter, but volume decline did not slow. What is driving this stronger value performance compared to volume?