D&L Industries, Inc.

Good morning. Welcome to the second quarter briefing of D&L Industries. To discuss the results today, we have Mr. Alvin Lau, President and CEO of D&L Industries. After the presentation, a Q&A will follow. So I'll now hand over the presentation to Mr. Alvin Lau.

Hi, everyone. Good morning. Thanks for joining us. So today we will be discussing the second quarter and first half results of TNL. So First, we go to the highlights. We can see that first half net income came in at positive 6% year on year to 1.4 billion pesos. So a lot of it is attributed to the good performance of the Batangas plant. So first half net income up by 6%. In the second quarter, net income was up by 2% to 714 million pesos. And so what happened in the second quarter is that coconut oil prices went up, continued to go up, but we believe it has already peaked. But that increase in coconut oil prices increased. resulted in very high costs for us and that had a very big effect or impact on us. Bullet point number two, we're very pleased to see that margins started to pick up with high margin specialty product margins up by almost 4% quarter-on-quarter and blended GPM up by 2.5% quarter-on-quarter. In terms of Exports, it continues to grow with gross profits up by 30% year on year so far in the first half. And we are also seeing our exports contributing quite a lot in terms of gross profits. So currently, gross profit contribution is at 38% for the period, just coming from exports. Our return ratios continue to improve with return on equity at 12.9%, return on invested capital at 10.1%. So both significantly better compared to end of last year. And then finally, we are seeing a better second half, and we are optimistic on achieving what we have set out before, which is a double-digit net income growth for the year. So this is a look at how our net income has been over the last couple of years. Last year, we hit 2.3 billion pesos in net income. For this year, first half, we're at a little under 1.4 billion net income. So if you just look at the numbers, you can kind of do a quick calculation and you can see that for the second half of last year, we did just a little above 1.3. billion pesos in net income. We expect to do much better than that for the second half of this year. And that's what's giving us the reason why we believe we can achieve double digit net income growth for this year. This slide looks at the income coming from Batangas plant. So we are continuing to see good profit growth. We were not expecting profits from the plant for the first two years of operations, but as you can see, we are well ahead of that target. So commercial operations of the Batangas plant started July of 2023. and uh so as you can see we first started to report profits in the second quarter of last year and since the end of last year we have been seeing uh consistent profits for our batangas flat in terms of our income statement so um very large increase in revenues year on year, but this is really being driven by higher coconut oil prices. So for much of what we sell, we do pass on those price increases. So you can see that in terms of cost of goods sold, the increase is, the magnitude increase is very similar. um but uh there is uh and later on i'll go into more detail but there is a little bit of uh lag in price pass-through especially for our high margin products and that lag is still affecting us as the rise in coconut oil price in the second quarter was very rapid but We have seen that in the third quarter, prices have started to come down. And so we do expect that lag to already correct and for margins to start to improve as well. Another thing for this slide is that So if you look at the net income line, the one in the green rectangle, you will see that year-on-year first half, net income growth was 6%. Second quarter year-on-year, net income increase was 2%. But if you look at the quarter-on-quarter net income increase, it came in at 5%. So By any means, quarter-on-quarter growth of 5% is fantastic, and that is also part of the reason why we are optimistic about being able to achieve our target of double-digit net income growth for the year. For our export sales, so... What we are seeing is that export revenue was up by 18%. But this isn't the whole story. So if you look at the next slide, you will see that our exports continue to do well. So the first chart on the upper left, in terms of revenues, exports did not grow as fast as the domestic business for the first half with 18% growth versus 51%. the domestic however if you look at the growth in gross profits you can see that clearly exports continue to do much better with our gross profits from exports growing at 30 percent compared to 15 for the domestic business and in terms of the blended gross profit margins Exports are coming in at 19.1%, which is way above the gross profit margins for the domestic business at 11.8%. In the next slide, we see the volume change for each of the segments and then split between high margin and commodities. You will see that overall volume growth for the company was 10%. We were able to achieve positive volume growth for all of our segments except for plastics. So for plastics, We attribute the drop to a high base effect because the plastics business grew by a lot last year. So you can think of this year as just as a bit of a correction. Looking into more detail, you will see that food prices, The volume was up by 30%, which is a very large number. So that bodes well for our food business because the margins of the high margin segment of our food business is significantly better. uh and then finally you do see the 51 growth in volume for cameras for commodities and that is really attributable to uh the increase in the biodiesel blend the next slide we look at just high margin segment so um We had been seeing many quarters of significant positive volume growth for our high margin segment in the last two years. So it's understandable that for this quarter, we're taking a bit of a breather. Volume growth down by just 4%. But if you compare to second quarter of 2024, volume growth was up by 33%. So we had quite good volume growth for high margins recently, but it's only just the last second quarter where we're starting to just take a little bit of a breather. looking at the high margin segment uh revenue and margins in more detail so revenue higher by 27 margins are lower um in the first half so compared to last year um with last year gross margins were at 21.8 percent in the first half it went down to 18.1 however if you look at the box there you can see that the weakness in margins We really felt mostly just in the first quarter when margins were at 16.2%. In the second quarter, margins have actually recovered by quite a lot. Currently, second quarter gross margins for our high margin segment are at a little above 20%. And as I mentioned earlier, in the third quarter, we already started to see coconut oil prices start to correct. So we do expect that margin number to continue to improve in the next couple of quarters. For the commodity segment, so we don't experience any lags in price pass-through for commodities. Commodities, by definition, it is a price-driven segment. And so in a period where there's a lot of volatility, usually you would see the strongest players benefiting the most and grabbing the biggest market share. And that's pretty much it. what has been happening in our commodity segment the last two years, ever since coconut oil prices started to accelerate. So we're near our record highs for the commodity segment. We do expect these margins for commodities to start to normalize later on, closer to probably the 6% or 7% level as coconut prices stabilize and correct. So in terms of the revenue mix, we did see at the start of the year that commodities had grown faster than high-margin specialty products. So in the first half, overall, that is still the case with the commodity segment making up 53%. revenues versus 47% for high margins. And a big chunk of this change is really attributable to the growth in the biodiesel segment. However, as we are expecting prices to stabilize and further reduction in sales of the food commodities, we do expect this ratio to tip back towards high margins in the next couple of quarters. In terms of the cash flow, so EBITDA doing quite well at almost 2.9 billion for the first half of the year. However, there is that very large change in the working capital. So for just for the first half of the year, we vastly exceeded the change in working capital working capital for the whole of last year. So just the first half of the year, that's 5.5 billion pesos additional that we had to invest in receivables and inventory, resulting in net operating cash flow of negative 2.8 billion and free cash flow of negative 2.9 billion. However, as coconut oil prices are already starting to correct, we do expect that change in capital number to go lower in the next couple of quarters. So I believe it is still possible that we may still end the year with a much better free cash flow number, if not maybe even positive. In terms of CAPEX, so we started the construction of the Batangas plant at the end of 2018. And so as you can see, CAPEX started to ramp up in 2019. It peaked in 2022. And then after that, when we started commercial operations in 2023, CAPEX started to come down. And it has continued to come down. In the first half of the year, we have 310 million pesos in capex. So we will be coming in at probably around 600 to 700 million pesos in capex for the whole year this year, which is significantly less than what we had from the figure last year. In terms of our margins, so you can see here that it's really coconut oil that's been the biggest cost driver for us. pretty much for the last two years. And what's significant here isn't just the price level in terms of coconut oil. It also has what's been affecting us I would say at a much deeper level is the rate of increase in the price of coconut oil but as you can see what looked like a non-stop increase has taken a pause and we believe that we've hit the peak already and we are starting to see prices correct so With this price correction, we should start to see margins improve, our product mix improving, and our profitability will definitely improve as well. So looking at more details in terms of the different segments. So in terms of revenues, pretty much consistent with previous performance, with food being number one. followed by Chemres. Third is Specialty Plastics. Fourth, Consumer Products, ODM. However, in terms of net income contribution, food has dropped down to number three. The number one net income contributor for the first half of the year is Chemres, followed by Specialty Plastics. so looking at uh the numbers and more details per segment so with food ingredients overall margins sorry uh margins were down by 3.6 but volume and revenue were actually up volume up by six percent revenue up by 32 percent sorry 38 and then if you look at the boxes at the bottom you can see that uh for so for the commodity segment which is the second box volumes were down by six percent but if you look At all the other boxes, you will see that volume increased by quite a good number. So specialty fats and oils, volume was up by 19%. Specialty ingredients volume was up by 58%. And food safety products volume was up by 200%. So... We do credit a lot of this increase to our ongoing efforts in terms of exports for our food ingredients business. With this very good volume performance, when that time comes when cooking oil prices stabilize and our margins stabilize, you can expect the profitability of the food segment to follow as well. In terms of ChemRes, so pretty much positive for across volumes, volumes up by 28%, revenue up by almost double, up by 94%. Margins are down a little bit. And again, that is a bit from coconut oil increase because we do use coconut oil for other chemicals, which currently make up 82% of volume and 85% of revenue. So... Similar to what we will see with food ingredients, when coconut oil prices stabilize, we should see margins go back up for this segment. So we need to touch a little bit on the biodiesel blend. So currently we are at B3 or 3% biodiesel blend that started in October of 2024. The increase to B4 and B5, which were scheduled for October this year and next year, has been pushed back. We don't have a new date yet, but the government wanted to see coconut oil prices at a lower level before they rolled out the higher blint. In terms of specialty plastics, volume overall is down by 14%. However, revenue was still up by 6%. Net income is actually flat. In terms of the business overall, it is... I mentioned earlier, affected by the high base that we saw from last year. But going forward, we still have a lot of reason to see optimism in this segment. Consumer products ODM. So this segment went through quite a lot of volatility during COVID, after COVID. We're starting to see good recovery from this business. As you can see, positive numbers across almost all numbers here on this chart. But very encouraging to see, aside from good growth in volume and net income, good recovery in margins as well. In terms of related party transactions, no major surprises with related party expenses making up roughly 2% of overall costs and expenses, which is still pretty much similar to where it was from before. And on the right side of the chart, you can see here the related party income that D&L earns from its affiliates. In terms of the cost structure of the company, no major surprises with raw materials still being the largest cost driver in the company at 83% of costs. Second coming in at 5% is labor. And then third would be depreciation and rental, combined 4%. Overall, variable costs make up around 90% of our total costs and expenses. So this is what really makes us unique as a manufacturing company. Only about 10% of our costs are fixed costs. And then on the right side, we can see there the distribution of the different raw materials that we use as a company. so together palm oil coconut oil make up over 60 of our raw materials the raw materials that we use And overall, approximately 36% of the raw materials we use are imported, mostly denominated in U.S. dollars. And then on the bottom left of the slide, you can see what we continue to spend on technology continues to increase higher by 23% versus last year. In terms of the balance sheet, No major surprises. So I had pointed out the higher working capital requirement due to higher mainly due to higher coconut oil prices. So you can see that borrowings were up by approximately. 4.5 billion pesos. However, if you look on the right there, you can see return on equity and return on invested capital improving from last year. And then interest cover at the bottom right there, maintaining at four times interest cover. And then just a little bit more on the capital structure. So in terms of debt, total debt's actually not much change. In fact, it's a little better. Total debt is at 21.66 billion in the first half versus 21.79 billion end of last year. So a little less. However, net debt currently at 21.9 billion. and average cost of debt is currently at 6.2%. In the papers today, I saw that some analysts are expecting a rate cut by the BSP maybe in August of this year, and then a total of two rate cuts by the end of the year. Next slide is just a look at how our net debt, effective interest rate, and interest cover has changed in the last 10 years. In terms of working capital, so we have roughly 5 billion pesos more in working capital, 5.5 roughly. And that's the numbers you can see in white inside the green column. However, in terms of days... Cash conversion. We actually saw an improvement from 139 days last year. Currently, it's at 128 days. We saw improvements in both inventory and receivables days. Days inventory at 90 days versus 107 last year. Days receivables at 50 days versus 53 days last year. In terms of the stock, so D&L currently ranked number 63 among the Philippines' largest listed companies, market caps at 35 billion pesos. So the family's continuing to buy shares every time the share price has been weakened. So since the IPO, we've bought a lot. And even this year, we have been buying – we've actually bought – Just in the first half of the year, we've more than doubled the number of shares that we've bought in the whole of last year. And so currently we are in a blackout period, but you can expect once that blackout period is lifted at yesterday's closing price, I believe we're trading at a little over 12 times PE. You can bet this is the time to buy the stock and we will be doing so. In terms of comparing to the Philippine Composite Index, you can see here we are still continuing to do well, and we are continuing to participate in various investor conferences. So we've got a couple lined up in the next couple of months. And just something interesting to point out that at current stock level, just based on the dividend this year, it's a 4.4% yield. But of course, with net income higher this year, that yield will go up next year. That's it for my slides. We just went through 30 slides. We're open to Q&A.

Okay, thank you, Alvin. So to our participants, if you would like to ask a question, you may either raise your hand via the Zoom app or type your questions in the chat box below. So first question comes from Brian Oil. So he got two questions. First question, I understand the company will adjust pricing due to higher coconut oil with the labs. but can you please comment if the sharp rise in coconut oil is causing demand destruction or are customers asking to reformulate? Second question, any updates on tariffs and how customers are responding? Will you have any issues passing on tariffs?

Hi, Brian. Good morning. So, in terms of... Anytime you have raw materials... prices going up as much as coconut oil has gone up. So the price has gone up, I think, almost three times from the low two and a half years ago. Definitely, there's a lot of hesitation from some customers to buy. I mean, essentially, vegetable oils, in most cases, they are substitutable. And with palm oil prices being much lower uh definitely uh there's a lot of interest to switch to a cheaper raw material that's something i believe we have we have seen uh in terms of um so a lot of customers have asked us to reformulate um there are still a couple of customers because coconut oil makes up such a small part of their overall cost, the overall impact of the increase is not so big. And for those customers, they may not mind the price difference as much, so they may still stick to coconut oil. But by and large, there's definitely a switch to palm oil because it's a lot cheaper. So the flip side of that is that when coconut oil prices start to normalize and that difference with palm oil starts to go down, then you may see a switch back to coconut oil primarily because coconut oil is It's abundant domestically. It's much easier to get. And also in terms of quality and flavor, consistency, it's much easier to deal with. So we do – and it's something we've seen happen before. I mean, if you look at the price chart earlier – Chris, could you please show that historical price chart? There you go. um we have seen volatile oil prices before but the prices have always come back down uh very rapidly and uh when that price differential with palm oil uh gets to a small differential uh we do see a lot of customers uh switching back thanks for the question and your second question about tariffs So unfortunately, we don't have anything in writing yet. What we have are just announcements. We have the broadcasts from the US and from Trump. But in terms of documents where we can actually look at actual figures and compare them, especially for different products. So it's not just one tariff for the whole country. There will be some products which are exempt. There are some products which will be tariffed at the lower rate because of certain conditions, and there will be some that will be subject to the regular tariff. We don't even have that. So it's very hard to comment, but what... I'm seeing for now is that there likely is going to be some impact. However, on the flip side, what we also know is that the U.S. makes up less than or roughly 3% of our overall revenue. So we're also aware that Coconut oil and the oleochemicals we make are very... There's a very high demand for these types of raw materials. And so for some of our customers where they have that ability to absorb higher cost, they probably will continue to buy from us. This is something I may be able to talk about more in the next quarter when we see... some clear indications of what these tariffs actually are going to be.

Okay, thank you. Next question from Marky Karunungan. Given Batangas plants faster than expected profitability, what is your current capacity utilization? And how much incremental EBITDA do you expect that full utilization based on current products make?

Hi, Marky. So this has been kind of – it's been asked a lot, what our current capacity utilization is. So short answer, utilization currently, we're probably at around maybe 50%, 60%. But I'd say this may not be a good indication of how – and how productive and efficient the plant is. And let me explain that a little. So we've been manufacturing for over 60 years. And in our experience, every time we build a new plant, we realize that building it bigger just gives up just gives us a little more efficiency and uh more cost savings in terms of wrapping up capacity so we've really done that in a big way with this new plant so what we report as current capacity utilization takes into account the currently installed equipment. But what we've done is we've left a lot of room so we can actually install a lot more equipment going forward. And that is not taken into account in the definition of capacity utilization. So in fact, we have actually started to procure some equipment. And I've talked about this in in previous briefings. So we started planning for this plant, I think it was about seven, eight years ago. And of course, things have changed since then. And as we discovered that some production needs to come in ahead of schedule, it also means that we've had to buy some equipment ahead of what we were originally planning. So we have been in the process of buying some more equipment. That's why you see that CAPEX number that we showed earlier. So what you see on the screen now, oh, sorry, that's not the CAPEX number. Krista, could you please show the CAPEX number, please? for um for the company so so you'll see that um that number has been trending downwards but uh even if we finish construction uh two years ago um the capex number hasn't immediately come down so so part of it is because we still have some suppliers that we haven't That turnover hasn't been done, so we haven't done the full payment yet. But part of it is because we are buying a few more machines here and there on top of what we were planning to urgently install. It's not a big amount, but it does add capacity. But we are expecting to add more capacity. Maybe the other thing I should point out with regards to utilization is that as a company, we're not really that affected by operating leverage. And let me explain that a little bit. So Krista, could you please turn to the cost structure slide? So here you can see our cost structures as a company. And if you just focus on depreciation, so if we were a CapEx intensive business, you would expect depreciation to be a fairly large number, at least probably 5% to 10%. But depreciation and rental together makes up 4% for overall costs. And we have that other slide where we showed our related party expenses. Rental comes in at roughly 2% of overall cost and expenses. That means depreciation on its own comes in at about 2% of overall cost and expenses. So just by that point, by that low number of depreciation, you can deduce that we are not a CapEx-intensive business. And therefore, capacity utilization is not as big a factor for us. Now, in terms of incremental EBITDA at full utilization, the second part of your question, that, again, we're not... We haven't installed what we can install. There's still a lot of space for us to buy more machines to install. The reason why we don't put everything now is number one, we are still building up the marketing for the products and uh it's it's really just something that will take a little time but in essence with the plant we have now we've got a solid foundation where we can add more capacity and we can expand and build on it and so there's a lot of what we spent to invest in the plant, you can think of it as us spending a lot of money to reap the benefits for a long period of time going forward. So I hope that answered your question.

Okay, thank you. Next question comes from Carissa Magbayo. Can you expound on the reason for the 4% year-on-year decline in HMSP volume in the second quarter of 2025?

Okay, so it's really the lag in price pass-through. um so okay so first uh maybe you can show what uh carissa is referring to um so that's slide 10 with the high margin segment margins um and so you can see there the drop uh from end uh so I would say this is really just a high base effect. We did super well. Pretty much in the first half of last year, we were doing quite well. um that's part of it i mean we grew volume by 33 in the second quarter of last year and that by any nature you know 33 growth um it's a very high bar to tackle however okay Let's look at the segments. So the previous slide, which is the segment volume growth. And so this gives us a clearer picture of where the drop in high margin volume is coming from. So it's not coming from food. It's not coming from consumer products. It's really coming from a little bit from chem res, but a bigger chunk is from specialty plastics. But With ChemRest, with the blend of revenues between oleochemicals and specialty plastics, it's probably around even, I would say. So there's a drop in volume in oleochemicals for ChemRest. There's also a drop in specialty plastics. For specialty plastics, that is really the very good performance we saw from specialty plastics last year. I can't recall. I think volume was up over 20-plus percent, I think. I can't remember, Krista. Do you remember?

Yeah, volume was up around, I think, 12 percent, but income was up 51 percent for specialty plastics. Okay. Oh, there you go. Okay.

All right. And actually, specialty plastics income is flat. So as a business is actually doing not too badly. um for the high margin specialties um two percent down i don't have the exact details uh but um we we are seeing some pushback from higher prices in the us so it's not a factor of the margins but it's more a factor of just higher prices so our exports are affected by a little bit So that's probably the reason. But it's only down by 2%. It's not a huge number.

Okay. Next question comes from Denise Joaquin. Could you give more color and a stronger sequential performance for cameras despite the pause in blend hike, in biodiesel blend hike? What can you comment about purchasing behavior from clients and what do you see in terms of traction for the third quarter?

Okay, so for Chemres, in the first half, we were very much a beneficiary of the higher biodiesel blend because first half of 2024, we were still at B2, whereas first half of this year, we were at B3. So just from that perspective, And that explains that 51% increase in volume for the commodity side of ChemRest. And that's seen in the volume change slide per segment. Oh yeah, so here. So if you look at oleochemical segment, the second row, and if you look at the second column for commodities, um that 51 increase in the volume is smack where the what you'd expect from uh two percent blend being increased to a three percent blend that's exactly fifty percent so it's it's right there um it's and that's pretty much uh uh one major reason why cameras did very well uh in the uh this year so far it's not just in the second quarter but even in the first quarter of the year um so the pause is impacting what we expected in the in the increase from b to b3 which is which was originally scheduled for october of this year so It's not going to happen October of this year. We don't know yet when that increase to B4 will happen. However, it is likely that when the increase to B4 as well as to B5 happens, then you should see a consequential improvement in the business of ChemRes as well. So it does have a big impact on ChemRes. In terms of purchasing behavior from clients, you know, For biodiesel, it's a mandate. What I mean by that is customers are required to comply with the 3% blend. They have no choice. The biodiesel blend has been around for 18 years. It started in 2007. And so 2007, it was 1%, and then 2009, it went up to 2%. But when it went up to 2% in 2009, everyone was expecting the blend to continue to go up to 5%, because that 5% was the number that the DOE was talking about, and it was the number that the car manufacturers expected. had also said that up to 5%, the warranties on engines would still be valid. So a lot of capacity was built, but that B2 never went up. So capacity went up to pretty much comply with the 5% blend, but the demand never went up. So what it means is that capacity at B5 but demand at B2 so that is 150% industry over capacity so the biodiesel business was not doing very well margins were terrible and you saw this in our numbers in the last couple of years it wasn't until the increase to B3 that where you saw the big improvement. But unfortunately, what had happened in the last couple of years is a lot of the buy diesel players had failed. Some of them just closed down. Some of them went bankrupt, were bought out. So there's still some, admittedly, there is still some other players, other competitors who have not recovered. So that's part of what had happened in an industry that was expecting a lot of growth, but didn't see it for many, many years. And so they were affected.

Okay, thank you. I don't see any more outstanding questions from my end, but maybe we can... Okay, there you go. Okay, from Christina Ulang. With the high U.S. tariffs hurting Philippines U.S.-bound exports in general, how has this changed your export strategy globally? New markets, new contracts, initiatives to stay competitive. Can U.S. now be a market that's going to be hard to grow? Your exports and your export outlook in the U.S.? Thank you.

Okay. So it's not like the U.S. is a large market for us. Currently, it's 3% of revenue. So what we export to the U.S. is 3% of our total revenue. So it's still fairly small. Second, the U.S. was never really a large established market to begin with. In other words, I feel that in many ways we are still at the beginnings of tapping into the potential of the U.S. market. So definitely the tariffs are, it's a very big monkey wrench in our plans. I mentioned earlier that we still don't have concrete figures on what the actual tariffs are even going to be for the different products. So there's still a lot of confusion. We're still not clear on what the actual impact is going to be. But having said that, because the US, it's still a relatively small market for us, but also it's a young market for us, meaning there's still a lot of room for us to grow there. Higher cost, yes, it's always a factor, but many of our customers don't just look at cost. They also look at quality. They look at product performance. um if what we sell uh even if it costs more but if it's something that can meet the customers needs better than what other products are the other products available out there then uh it's possible we may still see some business there so i guess what i'm saying is we're not giving up on the us we do believe that there is still some potential the tariffs It's a game changer in terms of the cost and the effect it has on our customers, but it may not be solely the reason why we would stop doing business in the U.S., Sorry. And then the other part of the question was outside of the U.S. So definitely we are... So it's not just the U.S. that we have been looking at. So... So the U.S., so I think our exports right now, roughly 20 to 30 percent of revenue. So the U.S. is three out of that. So that's another 25 to 27 percent that's non-U.S. exports. So we have eight to 10 times more exports to other countries compared to the U.S. So, yes, we are. doing a lot of efforts for exports, not just to the U.S., but in other parts of the world as well. And this is, you know, the easiest to reach, of course, is within the Asia Pacific, from China all the way down to Australia, New Zealand. But we also have exports going out to Europe as well, as I believe, even to Latin America and Africa as well. So, yes, we are going to a lot of different places.

Okay, thank you. The next question comes from Brad, but you touched on it already. So any export markets where you're doing particularly well outside of the US and have a real market share?

So I can't really comment. So I don't really want to help our competitors, you know, get some info here. But safe to say that aside from the US, we have export markets in other continents. And it's across pretty much all continents, both Asia. emerging markets as well as established markets and we're trying to be where we know our clients are and where we know our clients needs can be fulfilled by our products so we're spending a lot of effort on that okay okay

Dan Bryan is raising his hand. So Dan, I've allowed you to talk. So you may now ask your question.

Okay. Thank you and good morning, D&L team. So I just have two questions here. My first one is, do you have any internal guidance on the prices of palm and coconut oil next year?

um wow if i did i'd be rich i mean you know um speculating speculating on commodities uh it can you can make money from it but unfortunately you can also lose a lot of money on it but i think it's fairly safe to say and i may have said this in the first quarter that we've already seen coconut oil prices peak i mean just look at that chart uh so this is since 2010 so that's a 15-year price chart uh in the middle part there so the brown line is coconut oil the blue line is palm oil And we've never seen such a big price differential between coconut oil and palm oil. And as I mentioned earlier, these two, there's so much substitution that you can do. It just doesn't make sense from a business perspective why... coconut oil prices should be that high and why the market should tolerate such a high price. So I'm fairly confident that that price is going to come down. So if the question is what the prices will be next year, well, I can't predict that but what i can predict is that price will be down by a bit and if you look at the peaks we've seen in the past specifically um at the end of 2010 beginning of 2011 as well as during in 2021 We experienced rapid acceleration in the price of coconut oil as well, but the drop was equally, if not more, rapid. So I wouldn't be surprised if we saw something similar happen this time around.

Okay, thank you, Sir Alvin. So I have another question. I was just curious, can you remind us what are some products that you produce related to food safety? Because I understand that segment did very well in the first half. Yes, that's right.

So food safety volume was up by 200%. And this is still... So when you talk about our food ingredients business, most people would be familiar with this because it's products that we make that go into food. Food safety are products that do not go into food, but it's related because it goes to the same customers, meaning the food manufacturing companies, the food retailers, and so forth. So pool safety products have to deal with cleanliness, have to deal with sanitation. So these are things like cleaning chemicals and other similar, you know, pest control and things like that. So this is a segment that our food business, Oleofats, works together with Chemres. So Chemres makes, essentially they're chemicals, but they're made using oleochemicals, so chemicals made from vegetable oil, primarily coconut oil. And the idea is to make cleaning and sanitation chemicals, which are non-toxic, which are safe for people food plants, because there's pretty much negligible risk or much less risk compared to using toxic chemicals. um so uh that segment uh we believe has a lot of potential uh we're also dealing with other equipment so that segment has a lot of i'd say very old practices and established but uh opportunities So a lot of new products and new services that we can introduce to the market, which are not adopted yet in the Philippines. And it's a bright, it's a very bright industry.

Okay. Thank you so much. I think that's all for my end. Okay. Welcome.

All right. Next question comes from Prashant Premkumar. Is the price and working capital transmission to clients the same in terms of lag on the way up and way down? For instance, can we expect a protracted period of high margins and cash flow if coconut oil prices have indeed peaked and come down over the next two to three years?

So, Krista, could you go back to the previous slide that has the – there, thank you. I wish I could say yes, but we didn't see that happen in 2010 and 2011. So when prices peaked, we didn't see – Actually, we didn't see much effect on our margins when prices peaked. So I guess what I'm trying to say is that our margins may not be as affected by price changes in as much as other factors. Maybe I need to show another chart to explain this. So Krista, could you please show the product mix chart? So I would say this chart has a much bigger impact on our margins more than where the quantity prices are. So Prashant, I can see where you're coming from, but if you look at this chart and then if you compare it to our margin chart, you can clearly see that there's a very strong correlation between our product mix and our margins. So I guess what I'm trying to say is that Yes, there should be elevated and better margins when coconut oil prices come down, especially if they come down by quite a lot. But looking at what's happened in the past, I can't conclude that price changes had such impact on our margins. what i can see clear is the impact on margins by the change in product mix that seems to be uh have a more direct impact on our margins okay um thank you next question comes from christina so president pbm talks about his renewed support to the local coconut industry in the recent sona

What do you see as critical areas for development where government needs to intervene? Also, please specify areas likely to directly impact similar companies like yours.

Wow. You know, there's a lot of things that it's not just the coconut oil. It's not just the coconut industry that's really having a hard time. So the whole agriculture industry has been impacted by things like, of course, grand reform law. You've got inefficient infrastructure for transportation, cold storage. You've got, you know, lack of support for farmers. I mean, there are so many things. And I don't... I don't envy the government. I mean, you know, where would you start with so many problems? But and, you know, I can't blame, you know, as much as we would want to help the government, we'd want to help the farmers. There are a lot of there's a lot of low lying fruit. So, for example, one of the things we've seen and one of the things we've actually participated in is uh simple things like providing more efficient dryers for copra um uh so so our so the families foundation foundation actually partnered with um uh an area uh for for coconut uh for coconut production and one of the things we donated was uh was a copper dryer I mean, it's a very low-cost, simple way to contribute, but it made such a huge impact. So there's a lot that can be done. There are a lot of areas where help is needed, but definitely there's some... Low-hanging fruit, coconut dryers, for example, is one example of things that can be done. And it's something that we've actually donated to.

Okay. Next question comes from Christina again. Appreciate if you can refresh our memory again on the full year earnings guidance for 2025. Okay. and if 2026 is a year to be bullish based on the current path of product prices and demand.

Okay. So, Krista, could you please turn to slide, I think slide number three? Sorry, four. Wait, wait, wait. Sorry, I'm wrong. Back to three. Okay. So, last year, we did 2.34 billion pesos in net income. In the first half of this year, We've already done almost 1.4. We only need to hit 950, more or less, 950 million in the second half to meet or to equal. the net income from last year. I'd say that's another way to look at it. If you just analyze what we did in the first half, we will be, what's that, 14% or more higher compared to last year. So what we talked about at the beginning of the year when we announced our first quarter results is that we are looking at at least 10 percent or double digit growth in net income i believe we are still on target for that and it really is a factor of the second half of last year um not doing so well I don't see any interest rates are coming down, coconut oil prices coming down, inflation is definitely much better. Of course, you have the factor of Trump can do more tariffs, but at the end of the day, Is he really going to pull the trigger and execute on those tariffs? I mean, you know, no one knows. Right. But based on what we know now, the outlook for 2025, at least we will be able to hit that double digit growth for 2026. Wow. Hard to say. Hard to say, but if the momentum continues and interest rates continue to go down, coconut oil prices continue to come down as well, then 2026 should be better than 2025.

Okay. I don't see any more outstanding questions from my end, but maybe we can give the audience 30 more seconds in case they have further questions. Okay, I see one question here. What is the risk you see this year and next year?

Thanks for that question, Christina. I think in terms of what could have affected us this year, well, there's a lot of noise politically. you know, with what's going on with the vice president here in the Philippines. That is always, I guess, something that could blow up. I mean, that's always a risk. I don't think there's much else. Yeah, so political risk, I would say, is...

the big one uh that could happen uh but other than that i don't see anything else okay um i don't see any more questions from my end i think okay okay someone messaged me so what is the guidance for 2025. So far, we are in line with estimates. So I guess Alvin answered this already. So we're guiding for at least double-digit growth for the year. So no question. No outstanding question. So I guess that concludes our briefing. So again, thank you very much for joining our second quarter briefing. If you have any more questions, you can always reach out to our IR team. So thank you and see you next quarter.

Thanks, everyone. Have a good morning. Thank you.