D&L Industries, Inc.

I think we're complete.

We're good. Sorry. Okay, we're good.

Yes.

Hey, guys. Sorry. Can everyone hear me?

Yes, yes. We can hear you.

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. So 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 growth uh as well so that means our free cash flow it's still positive and then final point there's just to say that we're optimistic uh and that we see a lot of momentum for growth uh in the fourth quarter okay so this is a look at uh earnings for the full year as well as uh versus previous years 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 uh 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, so fourth quarter versus third quarter. Okay. And then next are export sales. So export's 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. 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. 30% export, 70% domestic. But if you look at the growth rate, in 2024 compared to 2023, revenues and gross profits grew by 37% for our exports. And then our domestic business grew by a slower pace, 16% for revenue. And then negative 4% for... 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, nagpapahinga siya. May pagka high base effect, but with high margin products, 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, particularly in food as well as in biodiesel. They both increased volume by a lot. So that's why you see the result is – 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 lang 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 yung pinakamalaki 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, yung value ng inventory mo tataas, yung value ng accounts receivables mo tataas rin. 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 even though tapos na yung construction ng plant, we're still installing a lot of new equipment, new lines, may 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 one end of 2018 so the ramp up young spending and capex uh we finished uh sorry we started commercial operations july 2023 construction operations So we've been operating for a year and a half, even though there's still a bit of construction going on. But the amount being spent on construction is getting lower and lower. 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 if it's 1.1 billion in 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 a 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, it has a big impact. It almost doubled. But our margins did not go down by 50%. They did go down, but just by 2%. So 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 just looking at what happened, 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 a reflection Siguro we can say there are two reasons why consumer products ODM dropped. 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 okay so this is just a reminder the biodiesel blend was increased last year so October 1 last year it went up from 2% to 3% and then October this year and October next year it will go up again by 1% so October this year 4% and then next year 5% um And then just to show that we have related party expenses, that's the left side of the chart, totaling about 2% of total costs and expenses. On the right side, related party income. Okay, next slide. So our balance sheet is still very healthy. So our loans, the amount of borrowings we have went up because we needed more cash to pay for our 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% is the average cost of debt. Okay. And then below, 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 day's inventory and day's sales namin. So day's inventory, 2023 was 111 days 2024 it was 107 days so they improved by four days days receivables improved from 55 days in 2023 to 53 days in 2024 and then uh total cash conversion also improved from 143 days in it improved uh by four days it's now 100 139 days pero 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, 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 a conference for investors. So we committed. We're joining them for March 20. So that's the end of our presentation, but we're now going to go into Q&A. Anyone have any questions they'd like to ask? You can raise your hand or you can just unmute.

Hi, Alvin. Good morning. Ian here. I'm curious. Let me just go back. The profit full year of Batangas was P247 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%.

For the year. 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?

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 should be higher than 244. So, 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. Wow, that's nice. Do we see it hitting 15% for full year 2025? Or that's very conservative? Possibly. It is possible. It's possible, yes. 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 the... It's possible. Considering what's happening globally. Tapos pangalawa, how much of the output of Batangas volume-wise or revenue-wise is going to exports?

Okay, so first question, do we expect more growth from exports? The answer is a definite yes. Even if 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 U.S. The demand is from all over. Third, we know that a lot of our customers, they learned 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. And we also expect, and we're seeing some customers who are ordering from us, sorry, who are ordering, let's say, from China, ordering from the U.S. And vice versa. If you're a Chinese operation ordering from the U.S., there's also a problem or higher costs. So the customers, instead of ordering from, the American customers, instead of ordering from China, would look for a 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, sorry.

The Batangas plan?

Yeah.

Sorry. The Batangas plan. 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%. Okay. If Can I continue asking unless there's someone else who wants to ask? Is it okay to continue asking?

Anybody's going to ask?

I'm going to the consolidated income statement you flashed earlier. I noticed something about I don't know. I thought there was bumagsak yung expenses mo. Yeah. Moving forward, I'm curious. I think there's an expectation of a that the peso could weaken some more this year. Is a weaker peso favorable for D&L?

Um, I think the safe answer there is weak peso is 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, even if the peso goes up, even if the peso weakens, we will raise the price. 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 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, no? 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 do you agree with the the uh view out there that uh uh it it will depreciate some more this year well um 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 uh i mean it's so easy to make money if you can forecast it but uh 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.

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. 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 increases liquidity in the market, but it doesn't affect the attractiveness of the peso in terms of interest rate differential with the dollar. So... 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 regarding the peso. So, if the neutral peso, the neutral effect of the peso also translates to the company's margins?

Not really. Actually, what we're trying to say is even if the peso weakens, whether the peso weakens or strengthens, there may not be much effect on our margins because we pass on the price changes.

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. 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, nagpatay ng planta, nag-expand, para ready na for the 5%. However, the 5% didn't 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 lang yung buong industry from 2009 till 2024. Of course, 2024... the blend now went up to B3 or 3% from the 2%, the previous blend. But a lot of companies, you know, 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. Some went bankrupt. So that's what happened. 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.

Okay, I don't see any more questions.

Sir, I'll ask again. Sorry, I'm dumbfounded. I was looking at the full year na 244. The better number pala is 248 for the 4Q and 530 plus bottom line consolidated. So that's almost 50% share. Yeah, that's 46%. Correct. So is that share quarterly will go moving forward? How would 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. It's still hard. We can see it. And that was something we continue to see in the fourth quarter. If that situation... changes, meaning if the consumer gets caught 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, in a way, yeah, definitely the 46% contribution coming from just Batangas, that's very high. But, Not sure if it can even go higher so soon, but in the... I think something I shared before, the land area where the Batangas plant is built is the same size as all our other older plants combined. Sorry, wait. It's double. Batangas is 26 hectares, 13 hectares is... 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 puno ng lines, that it will be bigger than the other facilities we have.

So, sir, Given this share, how do you feel about 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... No, but we knew that from when we were planning the plant. We were kind of full capacity. And we were not able to service our export customers as much as we wanted to. 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. Yeah, no doubt. No doubt. Last follow-up on this point. So you have 13 hectares in other locations. These are old facilities. And, you know, I guess even though old, they're still efficient. But I'm thinking that these are located in areas where the valuation of the property is already high. So I'm just like thinking, when will you evict the boat? When I say evict the boat, it's like you will relocate this area. 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 that it will disappear or it will be moved or it will close down. So it might take a while more.

Yes, but given that the family is forward-thinking, you have identified future sites already. Oh, yeah.

Batangas is one big one.

Yeah.

Okay. Thank you. I mean, one way to think about Batangas, our existing plants are full. 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. Okay. So there are... But it's a matter of time. It can happen.

If there are sites 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, so they will concede incentives, and they will give incentives, and I guess even tax breaks. But my secretary said, in exchange, they would want a higher rate domestic component. So that could be in labor. And I'm also thinking probably even the parts. 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 have a lot of growth prospects and also good for the environment, meaning there's a lot of reason to be optimistic and to think that they would fit and be aligned with the government's intentions. It's something we can look further into. But at this time, wala pa.

But have you started marketing it or since you made public about this compound? Oh, yeah. May kausap na ko yung customer. Ah, talaga?

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

Pero wala pa kayo. Is this interest local and foreign and then meron na kayong nakuha ang 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. Okay. Thank you, sir.

Congratulations on that one. Okay.

Thank you. Thank you. Okay. It may follow up regarding the biodiesel. So we've mentioned that we repurposed some lines. So how much is the increase in production?

In biodiesel?

Yes. Yes. Biodiesel.

I think 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 it.

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

Okay, I cannot say confidently because all you need is something political to happen overseas or even domestic. And, right? You're down already. 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 lang, for various reasons, but other years meron. 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.

sa amin na Ian. Hindi kami neutral, pero hindi kami like super bonggang confident naman. Something better than neutral.

Okay.

Kaya nabala. But you get what I mean, right? Okay.

Wala lang. Yan. Thank you daw. Sabi niya you're well.

Wala lang.

Yan. Ian.

Going back dun sa 248, uh, ng fourth quarter ng Batangas plant, is seasonality a big factor there? Or actually, that would be a possible base for quarterly bottom line for the Batangas plant? Sorry, pakiulit. Yung? The 248? Ayaya. Fourth quarter bottom line for the Batangas plant? Is that because of seasonality? Fourth quarter, diba? 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 podcast?

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. What was the... Did we show Batangas' revenues?

No, we don't. Export revenues.

Yeah. What was export revenues? 30%?

But 30% of the 40. So 12.

Oh.

For the full year.

So 30% pa lang ang exports namin eh. So there's room to grow pa. So it's not, we can't say na 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. Yeah.

If I go back to the previous quarter, that time, 149 is small, right? I mean, 149 in 2Q and then 248 in 4Q. So, yeah. Okay. Fighting base. Okay. I'm good with that. Thank you, sir.

Yeah.

Okay. No more questions from my end. That's where I see it. There, Capex said you're well.

So, Capex, you have the slide, Chris? Thanks. So, Capex peaked in 2022. It's going down. And we believe it's still lower. There are still some projects which were started at the main phase of construction a couple of years ago, ngayon lang natatapos. And then ngayon lang yung retention marirelease. Pero pakonti ng pakonti lang siya. 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.

Sir, I will ask before you conclude this. What's the risk that... What's the list 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 already. $300 per night. Even Hayat 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, But knock on wood, I mean, you know, if Russia and Ukraine stops their war, and if what's happening in Gaza, if a peaceful solution can also be found, that means that can 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, Tamabad, 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?

uh a rate cut would be positive so if more rate cuts are done uh it would change sentiment it would change the reality of you know paying lower interest but i think the advantage we have also in the philippines is the uh capability of the bsp to also further reduce the reserve rate uh 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? It's included.

It's included. 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 okay guys i just consulted chat gpt um 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 improving communications like now I had to look for a new something else that could describe how I feel so chat GPT because you just have to speak plain English into it and it can help so other things we're looking at so for example how we can communicate better write better 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 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 confectionery, and then kakainin, and we have to see how it reacts with other products. So, pagganyan, you cannot automate it. So, it's research that can be automated that where AI can help. In our case, the bulk of our research cannot be automated. Okay.

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

It can help even organize. It can also make mistakes. It's not infallible. What do they call it? Delusion? Or Yeah, they have a word for it, right? No nagkakamali. So, yeah.

Okay. Okay, mukhang wala ng tanong. So, if no more questions, that concludes our full year briefing. We'll see you again next time sa first quarter naman, sometime May.

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

Thank you. Bye-bye.

Thank you. Thank you. Bye.