Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good afternoon, and welcome to Monde Nissin's Third Quarter 2025 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; 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 today's press release and earnings presentation. These are all available 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. 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 I encourage everyone to read the disclaimer in today's presentation. Now I'd like to turn the call over to Henry to discuss our business performance. Henry?

Thank you. Thank you, Mike, and good afternoon, everyone. Before we get into the details, I wanted to share the key takeaways for this earnings call. For APAC BFB, top line growth continues to be driven by our biscuit and culinary businesses. Gross margin took a hit year-on-year. But as mentioned last quarter, we have mitigation measures in place, and we are already seeing early benefits versus Q2. I think it is also good to know that almost all our core categories that we are in are market leaders. At the right time, and if necessary, we can adjust the pricing to regain the margin as we have done in the past. For Meat Alternative, we achieved a second consecutive quarter of U.K. retail sales, marking an improvement from prior declines. We also saw another quarter of increased gross margin and positive EBITDA with our year-on-year gross margin progression driven by transformation benefits, lower inventory, lower input costs and targeted selling price increases. Lastly, our guidance. Top line remained on track versus our full year guidance, and we have updated for our guidance on APAC BFB gross margin. Jesse will discuss all of this in detail later. Now let us move on to our 9 months business [ phase ]. Next slide, please. On consolidated revenue, we increased by 3.8% year-on-year in Q3, better than 3.5% in the first 9 months. Our APAC BFB business, which comprises 84% of top line for Q3, grew by 4% year-on-year and 4.4% in the first 9 months. With our growth, we sustained our market leadership position for Q3 2025. Noodles experienced market share growth of 40 basis points, to 67.6%. We have share growth in cups and wet pouch segments, supporting our overall share increase, while share in wet pouch slightly dipped. Meanwhile, cups and dry pouch shares increased as we grew faster than the category. We continue to see K curve at play as we enjoy good growth in modern trade and cups. The increasing share by premium players in the dry pouch segment also supports this. On the other hand, our general trade instant, which cater to less affluent and socioeconomic consumer segments, are seeing declines. We will continue our brand building efforts moving forward. Next slide, please. For biscuits, market share was stable at 28.3%. On the macro level, competition is stable also. The category grew slightly faster than our Biscuit business due to the faster growing wafer and cookie segments where the market shares are more fragmented, outpacing cracker segment growth, where we are the dominant player. Our share growth is driven by our M.Y. San Grahams, Nissin Butter Coconut, Nissin Bread Stix, and Nissin Eggnog Cookies with cold pack in season during the quarter. Our M.Y. San Grahams brand is particularly growing by 60% year-on-year in Q3, while our Nissin Bread Stix, and Nissin Eggnog Cookies combined grew by 29%. With this, we sustain heavy above the line as well as social media support for SkyFlakes, Fita and M.Y. San and Nissin Butter Coconut to strengthen brand power, including social media. Next slide, please. For oyster sauce, our market shares improved 40 basis points to, 59.2%. 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 resurgence in home cooking as Filipino consumers adopt more cautious spending habits. We will continue to emphasize the overall value advantage of oyster sauce -- of our soy sauce to drive category and brand relevance, sorry. For beverages, yogurt drink and cultured milk declined to 88.1% and 25.4%, respective. Category slowdown continues due to the aggressive growth of lower priced ready-to-drink categories. Dutch Mill saw a decline in distribution due to supply challenges. Meanwhile, Delight has a pricing gap versus the market leader, with the market leader stepping up with [indiscernible] activity. We are already bouncing back from this with improving stock from Dutch Mill and new campaign for both brands. Next slide, please. The highlight for Meat Alternative. Our Meat Alternative business, which comprised 16% of top line for Q3 is continuing to show benefit, thanks to the transformation to Win program that we talked about previously. Our progress is driven by stronger performance in our U.K. retail business, which is 68% of our Meat Alternative sales, where we delivered a second consecutive quarter of stable year-on-year sales, continued growth in our Quorn Snacking range and ongoing market share gain despite the challenging environment. We also saw continuous gross margin expansion, which, with an increase of 5.5% in Q3, driven in part by the transformation program we are undertaking in supply chain. This progress, along with the operating cost reductions, resulted in a significant improvement in core EBITDA in the quarter and year-to-date. With that, I will hand over to Jesse to talk in more detail about our financial performance. Jesse?

Thank you, Henry. Let me start with the financials with the top line. Just to recap what Henry said. We grew top line by 3.8% on a consolidated basis in Q3, bringing our first 9 months top line growth to 3.5%. This breaks out to 4% in APAC Branded Food & Beverage and 2.5% in Meat Alternative. With these results, the first 9 months of the year shows that our total sales is now 84% APAC Branded Food & Beverage and 16%, Meat Alternative. Next slide, please. Moving to consolidated bottom line. We have a tale of two segments. This time, with APAC Branded Food & Beverage experiencing challenges in gross margin and gross profit due to continued high prices for edible oils, this was, however, partially offset by gross margin improvements in our Meat Alternative segments. For the quarter, gross margin declined to 2.1%, leading to 2.4% decline in gross profit, bringing our gross margin decline for the first 9 months to 1.6%. However, core profit -- core net income at ownership grew by 4.6%. In addition to the help of the increase in gross margin and gross profit for Meat Alternative, there was a significant foreign exchange gain that we experienced in Q3. Recall, the peso closed at PHP 56.34 as of June 30. For September 30, the peso closed at PHP 58.2. As you know, we have a risk management policy of keeping our excess cash in U.S. dollars to cover for our U.S. net short position, and this has really worked for us during this quarter. This brings our core net income at ownership to negative 3.5% for the first 9 months. For reported income, we have a much more robust growth of 13.4% in the quarter. This was due to lower restructuring costs, favorable FX movements, partially offset by the reduction in the guaranty asset. On the guaranty asset, the reduction was in the amount of PHP 285 million. This is due to the lower stock price and volatility of the Monde stock. This brings our reported net income for the first 9 months to plus 9.6%. As we have advised, we urge everyone to look at our core net income at ownership when evaluating our performance. Next slide, please. Moving to cash flow on a consolidated basis. We continue to experience good cash flow. Operating cash flow was at PHP 8.7 billion for the first 9 months. Moreover, our cash and cash equivalent balance as of September 30 is now higher than our beginning position despite the fact that we paid out PHP 2.7 billion in dividends, spent PHP 2.9 billion in CapEx and paid down debt and interest amounting to PHP 2.6 billion. This, along with our retained earnings position in Monde Nissin Corporation and Monde M.Y. San Corporation, which totaled PHP 10.4 billion as of September 30, 2025, gives us confidence that we can declare dividends. So we are declaring dividends of PHP 0.16 per share, a 17% increase versus our previous dividend rate for all shareholders as of December 4, payable on January 7, 2026. With this declaration, our 2025 declarations amounted to PHP 0.31 compared with the PHP 0.26 that we declared in 2024. This represents a 19% increase. Just for perspective, our EPS on a reported NPAT basis was [ PHP 0.03 ] per share, while our EPS on a core NPAT basis is 55%. If you look at our 31% -- PHP 0.55 per share in 2024 on a core NPAT basis. If you compare that with our PHP 0.31 per share dividends declared in 2025, that's more than 56% of our EPS based on a core NPAT basis. Next slide, please. Now drilling down to the top line growth of APAC Branded Food & Beverage. You will see that the growth is driven by others on a volume basis and biscuits, which continue to have robust growth. Noodles continued to experience decline. However, the decline is tapering off. Moreover, in the last quarter, at least domestically in the Philippines, only GT now is underwater. MT is showing growth, and cups is growing volume and also growing share. You will also notice that we have declines in net price. The net price reduction does not mean that we've taken our prices down. It is a reflection of higher in-store activities and trade support. From an IFRS standpoint, we need to book these amounts that we pay to the trade as a contra revenue or reduction to revenue. Biscuits took pricing in Q3, and we actually -- the effect of the pricing was 2%. However, with a higher contra revenue, this was brought down by 2.6%. The reason for the 2.6% decline for net price for others is because this includes our sale of byproduct of Polar, which is a byproduct of our wheat milling. We sell it as feeds. And since wheat prices are down, so are the byproducts. Next slide, please. Now moving to the key input costs for APAC Branded Food & Beverage. First, with wheat, which is 15% of our APAC Branded Food & Beverage COGS, we have good positions that we have locked in all the way to Q2 2026. We managed to book a big tranche of wheat, while the wheat was at a 5-year low, just recently. Of course, the latest news is that with the China and U.S. trade agreements, the wheat prices has ballooned quite significantly in the last few days. We are secured though as we have bought in just before those agreements were made. For palm oil, the good news is the trends are now very backward-dated. So we are trying to take advantage of those backward-dated trends to fill in our Q3 '26 and Q4 '26. We already have substantial lock-ins for the first half of '26 with good prices versus a year ago, and we are now trying to fill in the Q3 and Q4 positions in order to have continuous lower CPO prices for 2026. Next slide, please. Things, however, are not as rosy for coconut oil. We mentioned that we will take a review of coconut oil. We have been talking with industry experts, suppliers and other people knowledgeable about the coconut industry. And our conclusion is the coconut prices -- the high coconut prices will probably stay where it is right now. In fact, even with the rainy season, the prices have not gone down. And we have to assume that this is the new normal. And when come dry season, the prices could possibly go up. With this, we have taken pricing to offset some of the gross margin hurt from the use of coconut. We have also operated on a basis that prices will stay up and therefore, have reformulated several of our key SKUs that are coconut oil heavy. Next slide, please. Now on bottom line for APAC Branded Food & Beverage. As I mentioned, we have challenges for edible oils, particularly CPO and CNO coconut oil. And this brought about the 360 basis points decline in gross margin in Q3. However, we believe that Q2 2025 is the nadir of our gross margin. With all the lock-ins that I mentioned earlier, with all the pricing improvements and the reformulation, we are now starting to see gross margin accretion sequentially. Our gross margin accretion in Q3 versus Q2 is 153 basis points. And we are confident that we should have -- based on solid plans or solid lock-ins, we have good chances of having continuous gross margin accretion until the end of second -- until the first half of next year. As I mentioned earlier, we have higher in-store activities. We recalibrated our A&P spend to adjust to the way we support our brands. Thus, our A&P as a percent of sales is 100 basis points lower in Q3 '25 versus a year ago. Core EBITDA declined largely due to the gross profit decline, and core net income showed a lower decline because of the FX -- favorable FX movements that I explained earlier. Next slide, please. For Meat Alternative, top line grew 2.5% transparently. That is partially due to the favorable GBP/PHP exchange rate. On net organic basis, the decline was a low 1.1%. However, the volumes still are declining low single digits of 3.2%. While this compares favorably -- very favorably with the high single-digit volume decline that we experienced in the past, we believe that we cannot cost save our way to glory. And eventually, we need to be able to address the volume decline to be able to continue the very favorable gross margin accretion glide path that we are already seeing. Henry will talk about that in our guidance for top line later on. For gross margin, we are very happy to see the 553 basis points improvement in quarter 3. This brings the margin accretion to 360 basis points for the first 9 months. We're especially happy about the EBITDA that we booked in Q3. Recall, in Q2, our EBITDA was not as big because we were investing in the snacking campaign. But in Q3, we were able to harvest the gains of our snacking campaign initiative. This brings year-to-date EBITDA to PHP 420 million, very, very close to the glide path that we promised our auditors for the impairment testing exercise. Next slide, please. And I'd like to turn it over now to Henry for the guidance.

Thank you, and thank you, Jesse. So as mentioned, we have some updates to our full year guidance here. Top line remains the same. For APAC BFB, we expect mid-single-digit growth for the full year. Our strong start of October with record shipment and domestic sales is very encouraging. We are up double digits for the month, surpassing our previous all-time high by more than PHP 0.5 billion, with noodles growing year-on-year and quarter-on-quarter and even after price adjustment for biscuit in September. Our noodles business in October is also up double digit versus our monthly average for Q3 with all forms and channels growing year-on-year. However, we remain cautious given the uncertainty ahead in the fourth quarter. For Meat Alternative, we aim to continue to slow down our sales decline through Nothing to Hide campaign for our frozen ingredients, which we have just launched. Our Quorn frozen ingredient SKUs are our key volume SKUs, and therefore, are critical to finally arrest the volume decline. On profitability, we are updating our gross margin guidance for APAC BFB. We expect sequential gross margin improvement from Q4 2025 through Q2 2026. While the prices of materials are fluctuating, as I said, our market leadership position in almost all categories give us a better chance to execute the pricing actions at the right time, and if necessary, in order to recover margin. For Meat Alternative, our guidance of mid-single-digit EBITDA in GBP million for the year remains unchanged with Q4 expected to deliver breakeven or slightly positive EBITDA as we look to invest in the Quorn brand as we did in Q2. Now on CapEx. We are updating our APAC BFB CapEx guidance from PHP 3 billion to PHP 3.5 billion, mainly due to the construction progress. We are also updating our Meat Alternative CapEx guidance from PHP 976 million to PHP 1 billion due to the GBP/PHP movement. This brings our total CapEx guidance for the year to PHP 4.5 billion. We continue to focus on our CapEx spending on APAC BFB , keeping CapEx for Meat Alternative to a reasonably minimum. With that, we are now ready for Q&A.

Thank you, Henry. This concludes our formal comments.

I will now moderate our Q&A portion of the call. Questions can be submitted via your chat box, and we'll attempt to address as many as possible time permitting. The first question is for David. And the question is, can you say more about snacking performance in the third quarter?

Thank you, Mike. The significant growth in snacking has been driven through extending shelf life and broader pack range, which has been a key factor of unlocking wider distribution. I think we've also placed a real focus on execution with targeting promotions, improved merchandising in store, driving availability, and we also invested to support this in national TV and digital campaigns. This has led to a 23% year-on-year growth in chilled snacking in Q3, which has taken the total Quorn chilled business to 3% growth. And the total chilled market share is up 120 basis points year-on-year in Q3, to 22.6%, delivering its highest share since October 2020. We also see and believe that there is some halo effect in other parts of the Quorn portfolio, which performed more strongly during the snacking period and the third quarter. That's what I would say, Mike.

Thank you very much. Next question is for Nick. And this question is, are you on track to avoid an impairment?

Thanks, Mike. I think the answer is similar to the answer that we shared in previous quarters. So the guidance for the full year is in line with the EBITDA that underpins the impairment calculation, and Q3 should reinforce confidence that we're on track to hit that. A couple of other points to note that probably builds on what we've said before. Our top line performance is running a little bit ahead of the IAS 36 forecast. So that adds further to the confidence. There is a question in the chat about whether a reversal of impairment is likely. And whilst we're building confidence that we're on track with the IAS 36 model, I think it's premature to start thinking about reversals there, and we do have further work to do to start to rebuild the value of the business. So I would say, so far on track with the assumptions in that impairment model.

Thank you, Nick. Next question is for Jesse. And the question is, can you provide more color on the quarter-over-quarter decline in market share across some of our categories in APAC BFB? Jesse, I think you might be on mute.

I'm sorry. So while we reported year-on-year increases, we acknowledge that there are sequential declines in market share, noodles and in biscuits. For noodles, competition has just intensified. I think our key competitors has probably stated that they will try to regain some volume share through promotions -- more aggressive promotions, and they did that. We had to match some of that and thus our in-store support also had to increase. Moreover, we saw accretion of shares for premium products -- premium imported products that eat away some of our shares sequentially for noodles. For biscuits, it's all about the different forms of biscuits. We are very strong in crackers, as we explained, and we grew share in crackers with our SkyFlakes brand, in particular, M.Y. San Grahams, which grew 60% for the quarter. However, the growth for crackers is lower than the growth of wafers. And unfortunately, two Indonesian brands -- imported brands are doing much better and growing much faster for wafers and for cookies. We have other competition, local and multinational competitors that are growing much faster. And these subsegments are growing much faster. So while we're maintaining or gaining share in our own segments, the growth is not as exciting versus the other, biscuit segment. So it's about the mix of, I guess, growth in the different subsegments of the biscuit category.

And Jesse, just related to that, can you talk a bit about just dry pouch in general? What drove the decrease? And are there plans to address this in terms of market share recovery either in the fourth quarter or next year?

Yes. We are committed to having strong programs -- brand building programs for dry pouch. This is our most important business, which is 60% of our business, highlighted by our programs for [indiscernible] and inviting people to do smart pairings with our Pancit Canton, meaning pairing our Pancit Canton with something to excite -- to break the monotony and to excite the consumption.

Thank you, Jesse. Henry, the next question is for you. And this is, can you elaborate a bit more on the record October result?

Sure, Mike. So just to give everyone more perspective. So our record high sales domestically was PHP 6.3 billion. It was back in November 2024. So we shipped over PHP 6.8 billion in October this year. This is not only more than PHP 0.5 billion than the previous all-time high, we also registered double-digit percentage growth versus a year ago. As I mentioned, noodles had a very strong recovery in October. This is double digit versus the monthly average of Q3. However, to be transparent, there were a number of calamities, earthquake and typhoon that generated calamity orders in the month, in October, that helped us reset the record. But our other business, biscuits and other also grew strongly. We are particularly pleased with the biscuit results as this came after our price increase in September. So our new addition, GoodNom coconut cream also shipped over PHP 40 million with improving coconut supply. So we are cautiously optimistic that the boost we experienced in October is beyond the one-off calamity orders, beyond that.

Thank you, Henry. Nick, the next question is for you. And this is, Q3 year-to-date performance delivers your full year EBITDA guidance. Why are you not revising guidance upwards?

Thanks, Mike. I think Henry has touched on this, I mean, in his comments around the guidance, but I'll unpack that a little bit further. So in Q4, we are planning to invest -- we are investing further behind the Quorn brand. And similar to Q2, we expect Q4 to be a breakeven or slightly positive EBITDA quarter. So it doesn't move our full year performance on from an EBITDA point of view significantly, but will be another driver of turning the top line performance of the business around, building on the success that we've had in the snacking campaign. So the campaign that's underway in Q4 focuses on our frozen ingredients range with the biggest frozen campaign that we've seen in 3 or 4 years. It's looking to bring new consumers back into the core part of our frozen ingredients range, which has been reformulated to be free from artificial ingredients and is running under the Nothing to Hide banner. So that's a big driver. I think the other point that's worth noting is that we do see seasonal mix effects through the year, which depressed the gross margin a little in Q4 and Q1 compared to Q2 and Q3. So therefore, whilst we're confident that in Q4, we'll see -- we'll continue to see year-on-year gross margin expansion, we don't expect to see significant quarter-on-quarter gross margin expansion. I think those two are the main dynamics affecting Q4.