Monde Nissin Corporation (MONDE) Earnings Call Transcript & Summary

Good afternoon, and welcome to Monde Nissin's First Half 2026 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 with us 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 available on the PSE Edge website posted earlier today. This information can also be found in the Investors section of 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 would like to turn the call over to Henry to discuss first half 2026 business performance. Henry?

Thank you, Mike, and good afternoon, everyone. Before we get into the details, I want to share the key takeaways for this earnings call. For APAC BFB, top line growth was driven by our biscuits category and our strategic growth category. This is formerly known as others, which we will discuss later. Gross margin improved year-on-year, reflecting impact from pricing actions and our cost management initiatives. However, it declined by over 200 bps sequentially due to the normalization of contra revenue spending and higher energy-related input costs. For Protein, we saw continued positive trajectory driven by U.K. retail and snacking. We also saw another period of increased gross margin with our year-on-year gross margin progression driven by transformation benefits, lower inventory and targeted selling price increases. Lastly, our first half EBITDA exceeded our full year 2025 EBITDA and EBIT continued to stay positive for second consecutive quarter. All in all, our first half resulted in a record core net income attributable to the shareholders as well as a solid operating cash flow that is 77% higher than the cash flow for the same period a year ago. Now let us move on to our first half business updates. Next slide, please. Our consolidated revenue increased by 4.6% year-on-year in Q2 and 6.8% in first half. Our APAC BFB business, which comprises 83% of top line, grew by 3.1% year-on-year in Q2 and 5.9% in the first half. Noodles market share was stable in Q2. On macro level, our noodle business performed in line with the category as our gains in wet pouch was offset by the softness in dry pouch and cups. We continue to see the K-curve at play as we enjoy good share growth in wet pouch. The increasing share of premium players in the dry pouch and cup segment also supports this. Our value share remains steady even as we gained 50 bps in volume share. Volume share gains are due to our recovery in the wet pouch segment, while we have challenges in dry pouch due to the rise of imported premium players. We also lost some ground in cups with our Q2 shares slightly down. To participate in the growing premium segment, we launched Lucky Me! stir-fried Jjamppong in selective chains in Q1, which continues to perform well. The launch targets growing the demand of flavors beyond the usual, leveraging Jjamppong strong Korean equity and #1 cup flavor position while expanding in the dry pouch segment. We will continue our brand building by communicating recipes and pairing ideas to increase usages and rolling out digital campaigns and regional activities. Next slide. So for biscuit, market share remained stable at 28.7%. Our biscuit business underperformed the category driven by softness in the cracker segment. In particular, our M.Y. San Grahams product was challenged as high inflation environment shifted consumer priorities, which may have affected at-home dessert. While we returned to our #2 challenger position in Q2, our priority is to recover shares in crackers by intensifying distribution and in-store execution in underpenetrated areas supported by local communications. Our SkyFlakes in particular, we have improved the product, making it crunchier than ever. We will also continue scaling our sandwich segment through Bingo and Sumo and rebuilding M.Y. San Grahams by broadening dessert occasions through digital content, strategic partnership and seasonal programs. Next slide, please. For oyster sauce, our market share improved 360 bps and hit a record 64.8%. Mama Sita's continue to drive penetration and consumption for the category. The resurgence in-home cooking continued as Filipino consumers adopt more cautious spending habit. We will continue to emphasize the overall value advantage of oyster sauce over soy sauce to drive category and brand relevance. For beverages, yogurt drinks shares declined to 83.9%, while cultured milk shares improved to 27.9%. For yogurt drinks, despite high single-digit sales growth for DutchMill, our Q2 sales share -- value shares is down versus a year ago. There's a new competitor making inroads and gaining shares. We will prioritize share visibility while reinforcing consumer preference on our flavors. For cultured milk, growth was driven by improved product availability and geographic expansion. Lastly, for packaged cakes, we are growing #3 in the overall category, but dominate in the premium segment with over 65% market share. This was driven by our Monde Classic rounded cake format. Additional capacity and expanded distribution will support wider availability of both of our rounded and bar cakes. Next slide, please. So the other category now comprises 24% of our APAC BFB business for less than 20% -- from less than 20% around the time we did the IPO. Our beverage, culinary and packaged cakes that makes up the category we used to call others have grown mid to high single -- high teens CAGR during the period. As the category represent itself as a key pillar and drivers of our overall business, we are repositioning and calling it as strategic growth category to better reflect its growth potential in terms of sales, profit and ROIC. Next slide, please. Our Protein business, which comprises 70% of the group's top line for Q2, has a strong quarter with growing sales and positive profit at the EBIT level. We continue to build the Quorn snacking business with an 8 consecutive quarter of growth, which was powered by the U.K. launch of Protein Bites supported by targeted marketing campaign. This brings our snacking portfolio to around 15% of our Protein business in terms of value. The launch of Protein Bites, which offer healthy protein and fibers follow a new trend of the consumers who combine their snacks and meals to reduce the overall food consumption. This put Quorn snacks in a food-to-go featured at the front of the stores. We are seeing these new products building good potential playing into new convenient retail format for single consumption catering to much wider audience beyond U.K., even beyond U.K. and Europe. We also believe that this is a scalable new part of the portfolio where taste, convenience and health are rewarded with a higher price point. which will be accretive to our gross margin, our protein portfolio as a whole. With that, I'll hand it over to Jesse to talk in more details about our first half financial performance. Jesse, please?

Thank you, Henry. Next slide, please. I'm very glad to report the financial headline, which is very strong bottom line growth, where we have a record first half that continues our trend of booking record profits. Recall, we booked record profits in the first quarter as well. And this profit translated to cash profit as our cash flow is more than 100% of our core net income and grew by close to 80% versus same period a year ago. This was supported by balanced sales, modest but balanced sales across the 2 segments. Both APAC Branded Food and Beverage and Protein business contributed to sales growth. Consolidated sales was up 4.6%, bringing first half revenue growth to 6.8%. APAC had a modest 3.1%. We had categories performing really well with strategic growth leading the way. Biscuit had positive elasticity despite the pricing challenges by price increase, while noodles struggled with the elasticity during this pricing period. We'll talk about that later on. For our Protein business, we had a very strong top line growth on a peso basis, 12.3%. Much -- bulk of the 12.3% is FX-related. But on an organic basis, we grew a respectable 2.7% from 1.7% of volume growth. This brings first half growth to 12% on a peso basis. With the performance in the first half on top line, Protein business now accounts for 70%, while 80% is made up of APAC Branded Food and Beverage. Next slide, please. On gross profit, both APAC Branded Food and Beverage and Protein business contributed to gross margin accretion versus a year ago. Overall, our gross margin improved by 250 basis points for the quarter -- for the second quarter and by more than 190 basis points for the first half. Gross profit grew in line with that. Core net income increased stronger than gross profit because of the good positions that we have in our U.S. dollar stockpile. Recall, because we have a U.S. dollar short position in our operations, we deliberately keep our cash in U.S. dollars in order to act as a natural hedge. This worked really well for us when the peso depreciated and we realized the gains from the FX weakness. This brings first half profit up by 6.1% versus a year ago. Reported net income has an even higher growth of 26.4%. This is due to a more stable valuation of the guarantee asset as well as reduced restructuring spending in our Protein business. Again, we would like to guide everyone to judge our performance -- our bottom line performance on core net income attributable to shareholders. Next slide, please. As I mentioned earlier, our profit translated to cash. In fact, our operating cash flow is more than our core net income. And even if you subtract out the PHP 1.6 billion that we spent on CapEx, our net cash flow after CapEx is still higher than our core net income. This is why our cash and cash equivalent is just down PHP 1 billion. This is after paying out PHP 7.1 billion in dividends and PHP 1.6 billion in spending PHP 1.6 billion in CapEx. We have a robust cash balance, and we continue to see our superior ROIC in play as we translate profit to cash. For our retained earnings, our retained earnings of our ListCo, which is Monde Nissin Corporation is at -- as of end of June is at PHP 10.4 billion with our other main entity, Monde M.Y. San at PHP 1.5 billion. This brings total -- subtotal of our retained earnings for the 2 key entities to PHP 11.8 billion. Next slide, please. On the revenue side, while we had modest growth and buyers reaction to the pricing changes that we have made, we were not firing on all cylinders. Noodles was weak at negative 2.3% for the quarter, bringing first half growth to only 1.5%. Net pricing helped by 3.8%, but we suffered 6.1% decline in terms of volume. Biscuits performed well and enjoyed positive elasticity. Even with the 3.9% increase, we managed to increase volume by 0.9%. And as Henry mentioned, on strategic growth, it continues to be a key driver of our top line, growing volume by double digits both for the quarter and for the first half. Next slide, please. On key bottom line concerns, which is 14% now of our APAC BFB COGS, is fairly locked in for the entire year. We have 100% locked in for requirements in Q3 and circa 75% locked in, in Q4. These locked-in positions are very favorable versus the current market prices. Current market prices as of today are hovering around 90-plus percentile on a 1-year basis, and we are enjoying prices much lower than that. There are some upticks, especially in Q4 versus a year ago, but we will be well below what the market is selling right now. The same is true for palm oil, which is 7% of our APAC BFB COGS. We have good lock-in positions. Again, our requirements for Q3 are fully locked in. In Q4, we have both locked in contracts and swaps that protects us from escalating costs. Palm oil, again, if you look at the prices today, are trading at over 80% on a 1-year basis. We are getting much lower cost than the current trading prices. Next slide, please. On coconut oil, there has been some recent softness, and we have taken advantage of that softness by locking in most of our Q3 requirements. There are no practical ways to swap CNO. And so we are not able to extend this further. But we're trying to move quickly whenever there are dips in the prices of coconut oil. The rainy season should help with the supply, and we hope to getting better prices in the next few months as well to complete our requirements for Q4. Next slide, please. On gross profit, we are up by 212 basis points a year ago due to our pricing action and cost initiatives. Some of our proxy actions -- a lot of our pricing actions happened in May and then some of them in June. So this is not yet the full year effect of our pricing action. However, as Henry mentioned, our gross margin declined by 200 basis points sequentially. This is due to the normalization of our contra revenue spending. Normally, we develop our plans with the trade in Q1, and so the spending starts off slow and then they pick up steam in Q2. The normalization is part of the quarter-on-quarter decrease because of the contra revenue. That -- because it's contra revenue, it affects the sales price per unit, which then affects the GM. On energy-related upcharges, we felt the immediate impact of energy-related charges in our manufacturing expenses. We use coal, we use LPG and the prices of these energy-related costs immediately increased, putting pressure in our manufacturing expense. On A&P, we have a slight increase of 20 bps versus same period a year ago in the quarter and 50 bps for the first half. Recall that we said that our first quarter A&P was higher than a year ago as we had volume capacity issues then. So we were controlling spending in order for us not to spur demand, which we cannot supply last year. We have now more normal supply and thus, we are advertising more consistently this year. EBITDA -- core EBITDA went up by 2.7%, smaller than increase in gross profit because -- not only because of the higher A&P spend, but also because of logistics spend. Transportation, in particular, had an immediate impact as we have to adjust our rates to our truckers, especially when diesel prices went up higher than PHP 100 per liter. Core net income, as I mentioned, benefited from our U.S. dollar hedge position. We continue to watch the exchange rate. And whenever there are dips, we take advantage of them to build up our stockpile to ensure we are protected from our U.S. dollar short position. Next slide, please. For Protein business, the Transform to Win program is clearly working. It is not only supporting top line growth, which on peso terms is 12.3%. This translates to 2.7% on a constant currency basis and 1.7% in volume terms. Transparently, we're not firing still on all cylinders. Our most important business, which is U.K. retail is growing very strong, and that's very good news for us. However, there are opportunities in other channels, particularly foodservice. We will work to make sure that we have a more balanced growth across the channels in order to support further top-line growth for the Protein business. Gross margin, again, delivered as promised, nearly 500 basis points improvement due to the transportation benefits. Recall, we have been doing the transformation program, rightsizing the organization, lowering inventory and doing targeted selling prices in order to improve our gross margin. EBITDA is very positive as well. Our first half EBITDA exceeded our full year EBITDA last year by 15% on peso terms and by 9% on GBP terms. This strong EBITDA performance translated to a second consecutive positive EBIT. Both of our segments are now contributing to top and bottom line. Next slide. Lastly, on our CapEx guidance, we reiterate our CapEx guidance of PHP 6.5 billion, bulk of which will be spent in APAC Branded Food and Beverage, of which majority will go to our new plant for biscuits in the North. Protein business, we'll be spending less than PHP 1 billion in CapEx for the year. This ends our prepared remarks. We are now ready for your questions.

Thank you, Jesse. [Operator Instructions] The first question is for David. And David, can you comment on the launch of Protein Bites and Q2 snacking performance?

Thank you, Mike. Yes, sure. In Q2, we launched in U.K. retail, our Protein Bites in the meat-free picture, but also in the food-to-go picture where people shop their lunch and get lunch deals at the front of the store. By doing so, we are stretching the core business beyond meat-free and into new consumer occasions, new implementation, positioning the brand as a real positive protein brand proposition, which is very important for us as we know. It's early days, but the rate of sales is very good and very promising to a point that has been helping us to unlock even further distribution for the second half of the year. This is a key driver of the continuous double-digit growth in snacking that we've been enjoying in Q2, which was already mentioned several times by Henry and Jesse. This launch, combined with the Q2 snacking campaign overall, has helped us to reach the highest awareness for the brand, but also the highest purchase intent for the future, which gives us confidence that, that platform is a very solid and strong platform for future growth. So in summary, Protein Bites plays a key role for us to reach new consumers, to double our implementation in retail stores, meat-free and food-to-go, it is also an opportunity, as Henry mentioned, to expand distribution into convenience, into out-of-home in the U.K. but also in the future international markets with one new platform, which will help us again in terms of velocity and productivity in supply. And it is margin accretive and sales accretive. And both are very important because it's positioning us again as category leader to be able to shift from meat-free into positive protein with that healthy, tasty, convenient proposition.

Thank you, David. David, I have another question for you, and this is, can you update us on how the foodservice business is performing?

So this is a different situation. When we launched Transform to Win Together 1.5 years ago now, we said priority #1 was obviously retail U.K. as a core business to be fixed. We are doing significant progress on that front. The second big element to be delivered was the transformation of the supply chain and the improvement of gross margin being able to reinvest behind the brand, especially for U.K. retail. This is working. The third point was to get foodservice back into growth. And I have to say, we had some challenges here. Foodservice is only 18% of the business, but it is an important business for us. Minus 5% in Q2, which is disappointing. But our clear priority remains to stabilize the top line gradually over time. What we are seeing are more structural challenges than expected. Let me name the main ones. The first one, significant cost pressure from operators and distributors in this market. Second one, QSR. There's lower demand in the QSR we're working with in Europe. Third point, in schools, in education. In the U.K., there's new regulations coming in, which has also been challenging the menu cycles. And historically, we've been relying too much on education sector and a few limited numbers of QSRs. What we're doing now, we are driving further leadership changes, and I'm taking direct control of the business channel. We are implementing what I call back to basics, focusing on execution as we did previously in U.K. retail, I think quite successfully. So we're applying the same recipe here going forward. And as much as we are protecting the core business, we are also planting the seeds for future growth with the launch of blended meat with UltiMeat B2B solution for foodservice, not only for school [indiscernible] but also for business and industries as we want to shift the core foodservice business outside of education and health care into business and industry, as I just mentioned. And the second launch is Protein Bites, which we will launch in QSRs because we see a lot of versatility for our operations in that sector as well and also opportunities. So in summary, in the long term, I remain convinced and confident that we can drive positive contribution and growth for that channel. However, short term, there's still a lot to be fixed with clear focus and the plans are now in place, it's about execution. But it's probably going to get worse before it gets better before returning to growth. However, U.K. retail will drive the growth and continue to grow year to go.

Thank you, David. The next question is for Nick. And Nick, for IAS 36 impairment testing, are we on a glide path for no further impairment at Quorn? And related to this, do you expect sales momentum and gross margin expansion to continue in the second half?

Yes. Thanks, Mike. So I think you can see through the past couple of quarters of results, past few quarters of results that we're starting to see the traction from the Transform to Win Together program that we launched about 18 months ago. And I think looking forward, we expect that progress to continue, but it won't be a completely linear progression. I think we've spoken about that before. We see growing momentum in U.K. retail. David talked about that. And I expect the second half of the year in U.K. retail to be as strong as or even stronger than the first half. But at the same time, as David has mentioned, we have a lot of work to do in foodservice, and that will be a drag in the second half of the year and is likely to get worse before it gets better. That, combined with the help we had in Q2 from the slightly depressed comparator a year ago means that at the moment, I expect the second half performance, especially Q3 on the top line to be softer than we saw in Q2 in spite of that progress -- further progress in rebuilding the foundations of the business. On gross margin, I think Jesse mentioned it before, most of the Iran-related costs are in inventory at the end of Q2 and will be a stronger drag on the gross margin in Q3 and Q4, but I do expect that to be substantially offset by those further transformation savings that we anticipate through our supply chain. Put all of that together, as I say, progress continues. We're confident in the underlying performance of the business and the progress that we're making on the transformation. It won't be a completely linear path from where we are. But the glide path that we're looking at, at the moment does say that we're on track to meet the projection that we set out in the IAS 36 at the end of last year, and therefore, avoid further impairment.

Thank you, Nick. Jesse, the next question is for you. And this is for the noodles segment. Other than Jjamppong, are there plans for further premiumization efforts?

Yes. First of all, let me talk about the premium segment. Actually, it's quite sort of chunky right now. Our estimates based on Nielsen is that it is on a retail basis, PHP 4 billion to PHP 4.5 billion in value. In dry pouch, it is close to PHP 2 billion in value. So the volume is small, obviously, because the price per unit is high, but the contribution value is big. This is why I think we are stronger in our volume share than our value share. We do recognize the opportunity for us. We are starting to play with Jjamppong stir-fried. We like what we see. We have -- we are lining up more programs to participate. Our share, obviously, on this premium segment is small. So we view it as a bit of an upside for us, not only in terms of sales, but also on margins. And we cannot give specifics. I'm not at liberty to share with you specifics for competitive reasons. But rest assured, we are planning more entries so that we can have our fair share on this growing category, subcategory.

Thank you, Jesse. Another question for you is if you can elaborate a bit further on the share decline in yogurt drinks.

Yes. So the yogurt drinks category and milk category is actually growing quite fast, right? As Henry mentioned earlier, we actually enjoyed 9% growth on our yogurt -- DutchMill, the yogurt business. However, there's a new entrant from outside, I will not name it, that is growing much faster and shaping up the categories and improving category value. We like competitors that expand the category. When category expands through competition, we benefit as the majority share leaders. But we do have to watch out that this new entrant does not eat a big enough share for us to gain scale. So we are closely watching. We're happy with the progress of the category. We're happy that the new competitor is helping expand the category and we're benefiting from it, but we need to make sure that we retain our strong #1 position.

Thank you. Jesse, another question is, can you elaborate a bit on the domestic gross margin quarter-over-quarter compression given that most of our commodities are hedged?

Yes. So the reason I stated is the normalization of our contra revenue spending. So contra revenue is a reduction to sales. That's why it affects gross margin. As I mentioned earlier, normally, we are still finalizing plans in Q1 for our trade spend with our trade partners. So the spend is muted at the start of the year. Then it picks up steam in the second half. And this is a year-over -- this is a trend yearly. So we do expect some higher contra revenue in the second quarter and third quarter compared with the first quarter. So that is expected. Also, as part of contra revenue, the trade where we were paying distribution center fees when we deliver to their warehouse have increased their DC fees because of the -- because of fuel prices going up. We also have to support our distributors on their logistics costs because of the very high logistics cost in Q2. And that contributed to higher contra revenue, which means depressed sales that lowers the gross margin. In addition to that, energy-related input cost for manufacturing, we're talking about coal, LPG, right? These went up together with diesel prices. So that has a direct hit on manufacturing conversion costs. And that was the key upcharge that we saw for Q2. The good thing is we haven't really seen the full impact. Most of our price increase went up mid-May. So we have half a quarter effect for the full quarter, right? We also have a tranche of pricing in June. So only 1/3 impact for the quarter for that. In the subsequent quarters, obviously, we will have full year -- a full quarter impact of those pricing actions. That will cushion the blow for us for -- on lease up charges. Diesel prices, while we cannot say that they will permanently be lower, they are much lower than the Q2 than the over PHP 100 per liter prices. So that should help on a quarter-on-quarter comparison. Just like Nick said, we have high-priced packaging materials. We guided on that, that the packaging materials were going up because a lot of them are derivatives of oil. Most of that higher packaging prices that we bought in Q2 are still in inventory, and so they will be released to P&L in Q3. So that, hopefully, we can offset with our cost savings program and our full quarter pricing that I talked about earlier.

Jesse, any feedback on the decline on noodles volume after increasing prices in the second quarter?

Yes. So I guess people are trying to contrast the difference between the positive elasticity of biscuits where we grew unit price and volume at the same time and noodles where we grew unit price by 3.8% but declined 6.1%. I think partly because since noodles is a higher velocity product, probably people were -- when the trade was expecting price increases in May, they loaded up on the higher velocity product. So we do have the Q1 versus Q2 effect of noodles felt in Q2. So I think that plays a big part on the difference between our 2 categories on volume for the quarter.

Jesse, assuming there's no force majeure on any of our main commodities, what is the outlook for dividends in the second half?

Yes. So the likelihood of force majeure is now very small. I think we have seen the worst parts. Most of our suppliers for the key raw materials and packaging materials have said that we should not have disruption in supply. So that's the good news. And we have shown that we could be very -- we are very resilient at the Middle East challenges, booking record bottom line, not only in Q1 but also first half. So we are confident in our programs to continue to offset the many challenges that could come our way, energy-related, super El Nino and all the other things that will come our way. Our brands also have good pricing power. And so any level playing field change where everybody has to adjust will -- our brands are able to hold up reasonable price increases with our customers still supporting us. Sorry, remind what was the specific question, I think I went over. What was the specific question again?

No, I think you answered it. But I guess related to this, can you elaborate on what is driving the divergence in elasticities of noodles and biscuits?

I mentioned that. I think because of the higher velocity of noodles, because there was a very public request from the government to hold the price increases until a certain time. Most of the manufacturers did the price increase after that period, which is mid-May. Since they -- the trade was able to anticipate that, they stocked up more on the higher velocity product, which is noodles. I think that is a big [indiscernible]. That's one of the key reasons for the divergence on elasticity.

And can you share what subsegment mostly drove the volume drop in noodles?

It's dry pouch and cups. We have good recovery in our wet pouch as can be seen from our share.