D&L Industries, Inc.

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Okay. All right. So thanks for joining our call today. So we're going to go through the full year results of D&L for 2024. Okay. Next slide, please, Krista. Okay, so the highlights, we did 2% higher in net income for the year. So this is better than the 1% that we did in the first nine months of the year. So that means our fourth quarter did relatively well. Compared to the fourth quarter of 2023, net income was up by 5%. And then comparing to the third quarter, net income was up by 7%. So you can see that there's actually better growth in the fourth quarter. It was a relatively good quarter for us. The Batangas plant, it was profitable in the fourth quarter as well as the full year. And then exports continuing to do very well. We'll go into more details later on. And then we're seeing lower CapEx as well. So that means our free cash flow, it's still positive. And then final point there is just to say that we're optimistic and that we see a lot of momentum for growth in the fourth quarter. okay so this is a look at uh earnings for the full year as well as uh versus previous years so there you can see 2024 we did uh two percent better than the previous year okay and then uh here you can see the income per uh quarter and So before 2024, so before 2024, you can see negative, puro malalaking negative ang income. And then you can see that in 2024, negative pa rin but at a much lower number. Second quarter, positive income na. Third quarter, negative ulit. But in the fourth quarter, positive na ulit. So we ended the full year positive. And it looks like the Batangas plant is, even though there will still be some volatility in the earnings, the trend is really for positive net income growth going forward. So just some pictures. Most of you were able to visit the plant. For some of you, those who have not been to the plant, we would be happy to to bring you there to show you so we can arrange that. Here's a look at the. financials of the company comparing full year 2024 to 2023 also comparing the fourth quarter of 2024 versus fourth quarter of the previous year as well as fourth quarter of uh so fourth quarter versus third quarter okay and then uh next are export sales so exports doing very well If you look at that middle part, export is a percent of sales. In 2023, it's 27%. In 2024, it's 30%. So we're doing a lot better in terms of our exports compared to our domestic business. um in the next slide you can see that our exports again exports are in terms of the value it's still smaller than our domestic business about 30 exports 70 domestic but if you look at the growth rate in 2024 compared to 2023 revenues and gross profits grew by 37 percent for our exports and then our domestic business grew by a slower pace, 16% for revenue, and then negative 4% for gross profits. And then for gross profit margins, you can see much higher profit margins for exports at 18%, compared to the domestic at 14%. And then in terms of high margin, our high margin products in the last couple of quarters grew very well. You can see that volume growth starting in the third quarter of 2023, high margin products volume growth was 6%. Following quarter is up 40%. So sunod-sunod, puro high growth. So in a way, it's slowing down. There's a high base effect, but with high margin volume down by 13%. But we think this is just temporary. And going forward, we're still quite optimistic that there will be growth again. Okay, here's the revenue mix. So High margin products accounted for 53% of revenue and then commodity accounted for 47%. And what you can see here is actually a result of two things. One is the high margin products segment. If you saw earlier, volume actually went down. At the same time, the commodity volume actually increased significantly. uh particularly in food as well as in biodiesel they both increased volume by a lot so that's why you see the result is a change in the product mix the one that you see here okay next So this is the condensed cash flow statement. So what this means is the amount of cash from our earnings, and then you deduct all the uses of cash. And the biggest uses of cash you see here, first is the change in working capital. All that means is that So when prices of raw materials go up, you need more cash for inventory because we always need to carry inventory as a manufacturing company. And then we also need to set aside more cash for accounts receivables. So when a company buys from us, we give them terms. That's what we call receivables. The higher the value of raw materials, the value of your inventory will increase, the value of your receivables will also increase. So that's why more cash dedicated for accounts, receivables, and inventory. So that's the 2.8 billion pesos. And then for CapEx, we spent a little over a billion pesos because um even though the construction of plant we're still installing a lot of new equipment new lines so my content gases but it's a lot lower than previous year so you'll actually get a better picture of the capex spend here so you can see so we started construction of the new plant in the now on end of 2018 so the graph up young spending and capex We started commercial operations July 2023. Pero kung tutuusin, hindi pa tapos yung construction. May ginagawa pa rin. Pero habang may ginagawa pa, nag-start na yung operations. So we've been operating for a year and a half, even though may konteng construction pa rin ginagawa. But pababa ng pababa na rin yung amount being spent on construction. So that's why you see there the amount's going down. And sorry, our expectation is that going forward, CAPEX spend will be lower again. So kung 1.1 billion siya 2024, 2025 will be lower and so on. So this just shows that the middle part there, coconut oil and palm oil, together they make up 60% of the raw materials we use. And then below that is the dollar-peso exchange rate, which is important for us because we import maybe 40% of the raw materials we use. So quite a lot of dependence on the dollar-peso exchange rate. Now, if you look at our margins, coconut oil, ang laki ng akit niya, halos nag-double na. but our margins did not go down by 50%. They went, they did go down, but just by 2%. So the margin, the change in margins is actually a reflection of the change in our product mix more than a reflection of higher raw material prices. And then, um, just looking at what happened, uh, So out of four segments, three did very well. The three largest segments, food, oleochemicals, and specialty plastics, all of them saw increases in revenue and increase in net income. It was only the smallest segment, consumer products ODM, that saw a drop in revenue, unfortunately. This is our... Siguro we can say there are two reasons why consumer products ODM nagdrop. First, sobrang lakas niya in the previous year. And then second, high inflation for the last couple of years meant medyo hirap pa rin yung consumer to afford things. So this hurt that segment. And that segment, may export siya but sobrang konti. So it's more dependent on the domestic economy. so this is just a reminder the biodiesel blend uh it was increased last year uh so october one last year it went up from two percent to three percent and then october this year and october next year it will go up again by one percent so october this year four percent and then next year five percent um and then just to show uh that we have related party expenses that's the left side of the chart uh totaling about two percent of total costs and expenses on the right side uh related party income okay uh next slide so our balance sheet is um still very healthy so our loans the amount of borrowings we have went up because we needed more cash to pay for our uh higher amount of raw materials and particularly inventory receivables. But if you look at the ratio, the debt to equity ratio on the right, we're still below one times, which is a relatively, I would say, relatively moderate borrowing, our gearing level. And then on the next slide, you can see interest cover is at four times. net debt is 18.2 billion and then 6.3 percent in average cost of that time okay uh and then below uh so here next slide it's how our net debt has changed over time together with effective interest rates our effective interest rate and interest cover Okay, and then here, so this is what I was talking about, even though nag improve yung days inventory and days sales namin. So days inventory in 2023 was 111 days, 2024, it was 107 days, so nag improve by four days. Days receivables improved from 55 days in 2023 to 53 days in 2024. And then total cash conversion also improved from 143 days. It improved by four days. It's now 139 days. But in terms of days, it improved. But in terms of amount, so that's the number in white inside the bar, we have more cash tied up in inventory, more cash tied up in receivables. And it's precisely because raw material prices are higher. Okay, next slide. So just some numbers about our stock. So we're ranked number 53 among the largest companies in the Philippines by market cap. And the daily trading average is $175,000. The public float is 27%. And then in terms of the Lao family's ownership in D&L, it's at 12%. okay and in the next slide we can see here um the uh so there's not much conferences happening first two months of the year but in march we're joining the so the pse for the first time is having uh a conference uh for investors so we're joining them for march 20. so that's the end of our of our presentation but we're now going to go into q a okay anyone have any questions they'd like to ask you can raise your hand or you can just unmute unmute yeah hi alvin uh good morning ian here yeah yeah i'm i'm i'm curious the uh

Let me just go back. The profit full year of Batangas was 247 million pesos. Is that correct?

Full year, 244 million pesos.

Oh, 244. Yeah. Sorry, I'll just go back. Then your net income was 2.34. So, almost 10%. Yeah, almost 10%. And then you're saying that from here on, it's going to be positive. Do we see the 244 increasing and do we see that 10% share increasing in share in the bottom line from here on?

In general, the trend should be upwards. Although in some quarters, the 244 might go down even below 200 or 100%. that could still happen. But in the succeeding quarters, it will be higher than 244. So, higher lows and higher highs.

Higher lows and higher highs. That would mean it will be definitely higher for the full year and the share, its contribution to the bottom line will also be higher. Yes. Yes. Wow. That's nice. Do we see it hitting 15% for full year 2025? Or that's very conservative? It is possible. It's possible, yes. Possible. And then second, follow-up, you mentioned that exports is growing very fast. Is this sustainable? And then that's impressive, 38%. Is this sustainable considering what's happening globally? Second, how much of the output of Batangas volume-wise or revenue-wise is going to exports?

First question, do we expect more growth from exports? The answer is a definite yes. Even if you know, there's Trump tariffs and so forth. US is a very small part of our export business. And so that's one. Second, there's a lot of demand for our products, not just from the US. The demand is from all over the world. Third, we know that a lot of our customers, they learn from what happened the first time Trump was president. So A lot of our customers have been moving their operations around to be less sensitive sa kaling may nangyari. And we also expect, and we're seeing some customers who are ordering from us, sorry, who are ordering, let's say, China, ordering from the U.S. And vice versa. If you're a Chinese operation ordering from the U.S., may problema rin or higher costs. So, The American customers, instead of ordering from China, would look for a supplier in another country. We're benefiting from that. So definitely, it's not negative for many reasons. Your other question was about...

How much of that goes to exports?

So we're in a PESA zone. So the rule of PESA, you need to export at least 50%. So we're more than 50% export. I can't tell you exactly, but it's much better than 50%.

It's much better than 50%. Can I continue asking unless there's someone else who wants to ask? Is it okay to continue asking? I'm going to the consolidated income statement you flashed earlier. I noticed something about uh yeah uh moving forward uh i'm i'm curious uh the i think there's an expectation of uh that the peso could weaken some more uh this year uh Is a weaker peso favorable for D&L?

I think the safe answer there is a weak peso. It will hurt us in terms of importation because we import roughly 40% of our raw materials. But if our costs go up, we try to pass on the cost to our customers. So, kahit na tumakas yung peso, kahit na nag-weaken yung peso, magtataas kami ng presyo. So, sa profits namin, dapat walang masyadong effect. But if the peso weakens, we also see a benefit, meaning our exports become more competitive because in dollar terms, it will be worth less or the price will be lower. So I think those two will balance and offset each other. So net-net at best. I don't think we'll be worse off. At worst, siguro neutral lang kami if the peso continues to weaken. So, baka net positive? Well, the more we export, the more net positive it becomes.

Sorry, I should have asked before that. What's your outlook for peso this year? Do you agree with the view out there that it will depreciate some more this year?

No one has a perfect crystal ball as far as forecasting these things. I think if anyone could forecast successfully, they would probably retire and just... I mean, it's so easy to make money if you can forecast it, but... At the end of the day, our own internal forecasts, I don't think we're going too far from where the current level is. If you look at the forecasts from different banks, they're also all over the place. One is 62, the other is 65, but the other is 57, my 56. We're more on the neutral camp. We don't think there will be massive devaluation. The peso is weak enough as it is already.

Thank you. I'll let the others ask and I'll just go back.

Maybe the other way to look at the peso is if you look at the signaling from the Banco Central, They've been just following what the Fed does. So the last time the Fed did not increase rates, the Banco Central did not increase rates either. However, the Banco Central, because our reserve ratio requirement is still high, is able to reduce reserve ratio requirements, which should... which increases liquidity in the market, but it doesn't affect the attractiveness of the peso in terms of interest rate differential with the dollar. Meaning there's no reason why the peso should weaken if an investor earns, their outlook is they're not going to earn less. But with the lower reserve ratio requirement, more cash released means more money, more liquidity for the economy to grow. So shouldn't that be good for the peso? That's one way to look at it. Okay. Thank you, sir.

Sure. There's a follow-up here regarding the peso. So if the neutral effect of the peso also translates to the company's margin,

um not really uh actually what we're trying to say is even if the peso weekends whether the best of weekends or strengthens um there may not be much effect on our margins because we pass on the price changes okay

Okay, next question from Chris of P&E. What is the growth in volume and revenues of your biodiesel business? What's your outlook for this side of the business this year since the government will implement the B4 in October?

Hi, Chris. So we don't break down biodiesel as a segment. But definitely, the volume is better this year because of the higher blend. When we Maybe a little bit of history here. The biodiesel 1% blend started 2007, went up to 2% in 2009, and everyone was expecting the blend to continue to go up to 5% in the next couple of years. So because the blend was expected to go up, lahat ng gumagawa ng biodiesel, including us, nagpatayon ng planta, nag-expand, para ready na for the 5%. However, the 5% did not happen. So in the meantime, the whole industry was in an overcapacity situation because we were ready to make up to 5%, but we were only making for 2%. So you can think of it as 40% utilization only, the whole industry, from 2009 till 2024. Okay. Of course, 2024, the blend now went up to B3 or 3% from the 2%, the previous blend. But a lot of companies 15 years ago did increase their capacity to cater to the B5 blend. However, some companies, they could not wait forever. They closed down their plant. may iba pa nag-bankrupt. So may ganyan na nangyari. But of course, you have other new suppliers or new manufacturers coming in. We've heard there are new manufacturers, new companies coming in to enter the market. In our case, we're also increasing production by utilizing some of our other unused lines. So The outlook, definitely there's growth. Because anytime, when you have a mandate, you can expect that there's going to be growth, especially in an industry where the capacity had always been there, but the implementation just took a long time.

I don't see any more questions.

Sorry, I was looking at the full year of 244. The better number is 248 for the 4Q and 530 plus bottom line consolidated. So that's almost 50% share.

That's 46%, correct.

So is that share quarterly going up? will go moving forward? How will that go?

You know, Ian, it's hard to say. I mentioned earlier, our domestic business, we can still see difficulties because of high costs and the average consumer affordability. We can see it. So, And that was something we continued to see in the fourth quarter. If that situation changes, meaning if the consumer is chased and they can afford to buy again, then our domestic business should actually do better. But, you know, When that will happen, we don't know. So hard to say. But anyway, yeah, definitely 46% contribution coming from just Batangas. That's very high. Not sure if it can even go higher so soon. But in the... I think something I shared before, yung land area where the Batangas plant is built is the same size as all our other older plants combined. Sorry, wait. Double pala. 26 hectares yung Batangas. 13 hectares yung all the existing facilities before Batangas. So times two. More than times two yung Batangas. So in the future it's possible once batangas is fully built up fully constructed and lines that it will be bigger than our the other facilities we have so sir uh given this share how do you feel about the making the batangas plant investment i mean

The results would have been terrible without the Batangas plant, I presume.

Oh, good thing we invested. Because if we had not invested in the Batangas plant, we would not be able to grow our export business. So, yes, definitely... uh no but we knew that the one from when we were planning the plant uh and um we were not uh able to service our export customers as much as we wanted to so so batangas plant made a lot of sense for us so now we can conclude that batangas plant is really the next leg of growth i mean the problem yeah yeah yeah yeah no doubt

No doubt. Last follow-up on this point. So you have 13 hectares in other locations. These are old facilities. I guess even though old, they're still efficient. But I'm taking that these are located in... in areas where the valuation of the property is already high. So I'm just like thinking, when will you rock the boat? When I say rock the boat, it's like you will relocate these facilities in this 13 hectares so that the group or the family can maximize the value of the property where these facilities sit right now.

Hard to say when that will happen. if you look at where our sites are, they're all still... Definitely, there's more growth, especially from residential, but they are not fully residential yet. What I mean by that is there's still a lot of signs that they can still be industrial for some time to come. So there's no immediate... reason to believe na mawawala na siya or lilipat na siya or magkaklose down siya um so it might it might take a while pa but yes but yeah given that the family is forward thinking uh you have identified future sites already oh yeah you won't wait one big one yeah yeah Okay, thank you. I mean, you know, one way to, so one way to think about Patangas, puno na yung existing plants namin. And then our existing plants are also located in, not all, but some of them are located in more expensive areas in Metro Manila. So the expansion made sense. It had to be outside Metro Manila na. Okay. So, there are... But it's a matter of time. It can happen.

For eventual relocation. Okay. Sir, I read about three weeks ago that they want to revitalize, the government wants to revitalize the car program. And I think they want uh so they will concede uh uh incentives and they will give incentives and i guess even tax breaks but in exchange they would want a higher uh domestic component so that could be in labor and i'm also thinking probably even the parts uh do you see the uh do you see an opportunity for the abaca compound plastic in this policy?

Sorry, I haven't read that. So I'm not sure how we would be able to participate, but definitely we'll take a look at it because we're doing a lot of things that are that have a lot of growth prospects and also, you know, good for the environment, meaning there's a lot of room to be, there's a lot of reason to be optimistic and to think that they would fit and be aligned with the government's intentions. So it's something we can look further into. But at this time, wala pa.

Wala pa. But have you started marketing it or since you made public about this compound? Oh, yeah. Yeah, yeah. May kausap ako yung customer. Ah, talaga? So, there's a lot of interest on the product.

Oh, yeah. Kasi you can just imagine all these manufacturers of plastic products, right? ang laki ng pressure to be more environmentally friendly, to use less fossil fuels. 100% fossil fuel ang plastics. Now, if they can reduce it by even 10, 20, 30%, that's huge. Yes, there's a lot of interest. Interest.

Pero wala pa kayo. Is this interest local and foreign and then meron na kayong nakuha ng customer or wala pa?

Interest is both local and foreign. We're not able to disclose any more details for now.

Wala pang contract?

I cannot disclose any details yet.

again okay thank you sir congratulations on that one okay thank you thank you okay um it may follow up regarding the biodiesel so we've mentioned that we repurposed some lines so how much is the increase in production um in biodiesel yes yes biodiesel

we don't break that down. Well, from 2% to go up to 3% is a 50% increase. We're not far from that, I guess. That's one way to look at it. But anyway, we don't break it down. We don't disclose that.

Okay. Next question comes from Ruel. So, sir, to summarize your future expectation is... DNR confidently optimistic or costly optimistic?

I cannot say confidently because all you need is something political to happen overseas or even domestic. Also, I'm not cautious because It's an election year. And actually, we studied that. We looked at performance of our company as well as, not just our company, but others as well. There's really growth during the election year, even a non-presidential election. Except for 2019. That year only, for various reasons. But there are other years. So, hindi siya cautious, hindi siya confident. Can you give me another word? We are not cautious, not confident. Ano ba yung in between? More positive than neutral, but not confident naman. So, we are Should I consult chat GPT? Yeah. So yeah, you guys are the experts in the written word. We're not.

Realistically optimistic.

We're not neutral, but we're not super confident. Something... Better than Neutron. Okay. But you get what I mean, right?

Okay. Thank you, though. He said you're well.

Going back to 248, the fourth quarter of Batangas Platte, Is seasonality a big factor there or actually that would be a possible base for quarterly bottom line for the Batangas plant? The 248? Fourth quarter bottom line for the Batangas plant? Is that part because of seasonality? Fourth quarter, right? Or that would actually be a good base moving forward? to set expectations, if I'm an investor, to set expectations for the quarterly performance of the practice?

Okay. Walang seasonality, pero I can't say with utmost confidence na this is going to be recurring na going forward. Okay. I mean, if you look at... If you look at Batangas revenues, it's still relatively small compared to the whole company. Fourth quarter revenues for the whole company was 11.2 billion. Did we show Batangas revenues?

Export revenues.

What was export revenues?

30% But 30% of the 40, so 12 for the full year.

So 30% is our exports. So there's room to grow. So it's not, we can't say that it's going to be that high, but we do think there's room to grow. So it's possible that 248 is a fighting base quarterly. Fighting base. I like that word. Pwede. Pwede. Pwede fighting base.

If I go back to the previous quarter, that time, maliit yung 149. I mean, 149 in 2Q and then 248 in...

in uh in four cube so yeah okay fighting base okay i'm good with that thank you sir yeah okay from my end and capex now having your wealth

so capex um you have the slide krista thanks um so capex peaked in 2022 um and we believe uh lower but then there's still some there's still some projects which were started at the main phase of construction a couple of years ago and then retention uh my release so it but At the same time, we're still making minor expansions. So not something as big as what we've done in the past couple of years, but on a much smaller scale. So there will still be some CapEx, but the expectation is it will be lower than what we did last year. So roughly around the 1 billion mark or maybe even less.

Mukang wala na naman magtatanong. Sir, magtatanong ako bago nyo i- conclude to. What's the risk for 2025 that keeps you awake at night?

Okay, to be honest, nothing's really keeping me awake at the moment. Because honestly, 2025 is really looking better. So actually, I can sleep better. So reasons to be optimistic for 2025 is not just the elections, but tourism's getting better. I heard, right? Shambi GC is fully booked. It's $300 per night. Wow. Patihayat is almost fully booked at a high rate. Even Aruga in Rockwell, fully booked. Hard to get a room there. So there are a lot of signs that tourism is starting to come back. Maybe that's one benefit of a weak peso. Like what we saw in Japan. When the yen went to 150, 160, everyone went to Japan because it's cheap. So if the peso stays weak, then that makes us attractive in a way for tourism. But reasons to lose sleep, you know, if Trump really creates havoc and creates a lot of trade obstacles, and what will be worse is if other countries retaliate, that would cause a slowdown globally. And we will be affected by that. other than that uh knock on wood i mean you know if if russia and ukraine stops their war and if what's happening in gaza we could if a peaceful solution can also be found that means that could only get better. I mean, I guess what I'm trying to say, there seems to be more reason to be optimistic than pessimistic. Okay.

Sir, last follow-up. So you see a positive 2025. I'm just wondering, I think, in terms of rate cuts on our side, the expectation is that there will be two more this year. If the two rate cuts don't materialize, is that positive outlook for 2025 going to change?

A rate cut would be positive. So if more rate cuts are done, it would change sentiment. It would change the reality of paying lower interest. But I think the advantage we have also in the Philippines is the capability of the BSP to also further reduce the reserve ratio requirement, RRR. And from what I heard, the intention is to really drop it even more. So they're not done yet. And that will be good for liquidity in general and good for the economy.

So the outlook you gave earlier when I asked you about the risk, that includes expectations of a rate cut and in the reserve requirement during the year.

or it excludes that we're expecting there will be rate cuts as currently projected so maybe two rate cuts yeah um yeah okay and the reserve requirement which they intend to bring down that's yeah Okay, guys, I just consulted ChatGPT, suggesting a few options, but the one I like is enthusiastically optimistic. I don't know if that's too long, but yeah, it's not as high level as confidently optimistic. Enthusiastically optimistic sounds reasonable.

Since you're using chat GPT, do you see the emergence of AI helping the company? Does it have a role in your company and will it cut costs for your company? What are the opportunities for D&L with the emergence of AI?

We're definitely exploring. There's a lot of low-hanging fruit. Things like um improving communications uh like neon i had to look for a new something else that could describe how i feel uh so chat gpt because you just have to speak plain english into it and it can help uh so um other things we're looking at so for examples uh uh how we can communicate better write better um do our documentation better. Definitely quite a lot of things that can help. And doing research? Yung sa research, okay, we've been looking at this. Ang nabasa ko, the companies that take, let's say, sa pharma, years to research can cut it down to months or even weeks. But we're not doing that type of research. Our our research is more developmental what i mean by that is okay let's say you develop a new type of sweetener or sugar we have to actually put it into products of our customers you know like pastries or confectionary and then kakainin and we have to see how it reacts with other products so If that's the case, you cannot automate it. So it's research that can be automated where AI can help. In our case, the bulk of our research cannot be automated. Oh, okay.

But AI, I'm sure, can help with the way the information is retrieved, the information is stored.

It can help. uh you can organize mistakes it's not infallible um what they call uh dilution or uh yeah they have a word for it so okay okay

If no more questions, that concludes our full year briefing. We'll see you again next time in the first quarter sometime in May.

All right. Thanks, guys. Thank you, sir.

Thank you. Bye-bye.

Thank you. Thank you. Bye.