D&L Industries, Inc.

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

Good morning, everyone. Thank you for joining us today for The results presentation for the third quarter of 2025. So our highlights are that we were able to increase net income by 8% for the first nine months of the year. And compared to the third quarter last year, net income was higher by 12% for this year's third quarter. So we saw volume growth coming in at a pretty good level, at 11% up, despite the much higher coconut oil prices we're experiencing this year compared to previous years. Our exports continue to do well with the growth in gross profits from exports. It's up by 22% year on year. Our capex continues to be very manageable, so continuing to trend lower and so giving us a lot of more cash in our cash flow. And the final point there is that this year definitely has been challenging, but we continue to be confident and we continue to perform despite the challenges. So the first slide here, we see how we did in terms of net income in previous years, as well as the first nine months of the year, comparing it this year's versus last year's first nine months. And so you can see there the nine-month net income coming in at 1.5%. nine five billion pesos so slightly below two billion pesos and then here you can see how batangas plant is continuing to perform so uh still profitable and so uh you can say that for four consecutive quarters the batangas plant has been profitable um and we have mentioned before that this is actually ahead of our expectations we were not expecting the batangas plan to be profitable for at least the first two years so this has come in earlier than we had expected in terms of the condensed income statement so the big Jump there, you can see in revenues. So for the first nine months of the year versus last year, revenues were higher by 40%. However, admittedly, the bulk of this is due to price increases with a lot of raw materials, especially coconut oil being significantly higher this year. versus last year. So you can see that cost of goods sold, the jump there has actually been quite high as well. So for us, so one big trend or change that you can see So interest rates have been going higher and we have had to borrow more because of the higher working capital requirements. So interest expense is up this year versus last year. Then another change that you'll see in terms of income tax, we are paying significantly less income tax this year, primarily because of the operations coming from the new plant which is in a PESA zone where we are experiencing an income tax holiday. But the end result, we do see our net income coming in at 1.95 billion, higher by 8% compared to last year. So if you were to compare that to last year's full year net income coming in at about 2.3 billion PESAs. So we need a little under 400 million PESAs in the last quarter of the year. to at least match the performance from last year. So fingers crossed. Okay, the next slide. So we've got more details on our export sales. So in terms of export revenues, it's higher by 20%. However, so what we're seeing is that we had our biggest growth driver this year which has made the biggest impact, is really biodiesel. So the biodiesel blend went up from 2% to 3% starting October 1 of last year. And that means in terms of our product mix commodity side increased significantly. much faster than the high margin side. And so that's why you see the exports as a percent of sales figure there in the yellow box coming in at 27%. So it's not that exports didn't grow. It's really more that the domestic side grew much faster, primarily because of biodiesel. So more details on the exports and how they're doing. So gross profits there, you can see on the right, exports higher by 22%. Versus 8% growth from our domestic side. So both sides growing. It's just that exports are growing faster. And then, of course, on the bottom there, you can see in terms of blended gross profit margins, we're seeing export gross profits coming in significantly higher than for the domestic side. Now the next slide looks at volume growth. So we have our four main segments here, and then we have split it up between high margin and commodities. And so we can see here that in terms of volume, we actually experienced higher growth in our high margin business. Whereas for commodities, it still experienced growth, but overall it was higher by a smaller amount. But if you look at the big numbers there, the biggest change came from the commodity side of ChemRest. So that's the second row for the oleochemical business with volume growing by 49%. um and then the next highest growth came from the high margin food side with volume higher by 22 so um overall high margin volume up by 14 commodities volume up by 10 and overall volume up by 11 so the next slide shows you on a quarterly basis how high margin sales have moved and so we wanted to present this because the bulk of our profits do come from our high margin side and so as you can see last quarter the high margin segment overall volume actually dropped slightly by 4%. However, this year, on a quarterly basis, volume is actually higher by 12%. And in the next slide, you can see here how more focused on our high margin segment. And the margins overall have come down. And we'll see that We'll see more details later when you go into the segments, but this is primarily due to the lower margins on our food ingredients business, which is primarily a result of higher costs, which is predominantly coconut oil. the next slide so a closer look at our commodity segment so um revenue significantly higher uh up by 75 percent uh for overall for commodities so so earlier we showed that volume was higher by 10 percent for commodities but with revenue higher by 75 percent so you can see that it's much easier to pass on price changes on the commodity side. And the margins are lower than where they were last year. But I would say that's pretty much the midpoint of where we would normally achieve the margins for our commodity business at between 7% and 8%. The next slide, so we can see the product mix between high margin. So that's the dark side at the bottom and the commodity side of our set of our businesses, which is the lighter side at the top. So this is something that we started seeing actually earlier in the year. So in our previous year. we had also shown that high margin segment as a percent of overall revenue has gone below 50%. But again, this is primarily due to the fast growth of biodiesel so with much higher growth in commodities significantly higher than for the high margin side um we we can expect um that product shift uh to uh to change this way and i would say it's temporary um so uh and later on we can discuss about biodiesel in more details So here's a look at our free cash flows. So change in working capital. So a big chunk of cash, which is very close to where it was. Actually, it is a slight improvement from where we were in the first and second quarters. But because of our continued profitability as well as much better management of working capital. Free cash flow, which was negative three plus billion pesos in the first quarter, it's still negative, but now below one billion pesos. So it's a big improvement. So quite a lot of things moving here we've got higher earnings we've got slightly better change in working capital and of course capex has been much more muted compared to previous periods and speaking of capex so here we can see so we started commercial operations in our new plant in batangas in july 2023 So CapEx actually peaked the year before in 2022 and has been trending lower. If you were to analyze this year's number, we're projected to come in below 800 million pesos for CapEx for the full year, which is significantly lower than before. And Not sure if that would be the level that would be on a more recurring basis. There might still be some room there for further improvements in the next couple of years, but it's getting close. So here we can see how our two most used raw materials, which are coconut oil and palm oil, how their prices have moved uh over the last 15 years uh the brown line being coconut oil so we experienced that peak at roughly pretty much at around three thousand dollars uh a ton that came in a couple of months ago currently we're at uh around two thousand five hundred dollars a ton uh that spread or a gap between coconut oil and palm oil, it is still quite significant. So it's not as wide as it was when we saw the peak in coconut oil prices, but it is still fairly large. Then we have the other factors that affect our costs, like the dollar price exchange rate. And above we have our margins. And so what we have mentioned in the past is that our margins don't necessarily reflect just the high costs But if you were to go back to the previous slides with our product mix, you'll notice that the margins follow our product mix more closely rather than just the movement in our costs. So here's a look at our group results. So our four major groups, food ingredients, oleochemicals, which are under ChemRes, specialty plastics, and then fourth, our consumer products business. So food ingredients is still the number one largest business in terms of revenues. ChemRes has become the biggest contributor of net income, followed by specialty plastics. So more details on food ingredients. So this business has seen very good top line growth, revenue up by 40%, volume, even volume is higher overall by 7%. And you can see In the details in the four boxes at the bottom, except for the commodity business, which is the second box, all the other segments, which are all higher margin, volume, as well as revenue, have seen significant improvements. And so this is, I would say this is a very good sign. It is a precursor to... us setting up a very good foundation for growth in the food ingredients segment going forward. So net income lower by 66%. Again, this is primarily due to the shift caused by much higher coconut oil prices. And we do believe that just like what has happened in the past, whenever prices hit a peak and prices accelerated upwards it was only a matter of time short period of time before prices would come back down we believe that is something that is likely going to happen as well and so when that happens things will normalize and so margins as well as profitability in this segment will improve For ChemRes, so overall, very good numbers, volume up 30%, revenue up 90%, net income up 88%. So volume higher across the board, doing quite well. Slightly lower margins. Part of it is because of higher costs. We do use coconut oil in our oleochemical segment, especially, of course, for biodiesel. And speaking of biodiesel, so in terms of the blend, so we started at 1% blend in 2007, which became 2% in 2009. So the blend was increased to 3% last year and the increase to 4%, which was supposed to happen this year, has been postponed. We do not know yet when that 4% blend will be implemented. We anticipate that it shouldn't take too long. but it is going to be a net positive for everyone in the industry when that happens. For specialty plastics, volume slightly lower, but this was a business that is coming off a high base because it had been growing significantly well in previous periods. But overall, we still see an improvement with net income higher by 2%. And then fourth, so our smallest segment doing very well, volume up by 6%, revenue up 32%, net income up by 50%. And what we see here is that the biggest improvement volume increase coming from personal care was the biggest increase in margins as well, reflecting that trend of people really being back to normal. So after COVID, it took the Philippines quite a while to stabilize. I would say things are very much back to normal now. The traffic's back to normal. The malls are full, a lot of restaurants with a lot of long lines. So understandably, compared to what we saw during COVID, the personal care business is back. So in terms of what we classify as related party expenses, so you can see in this chart on the left, we have rentals that the company pays for a lot of its fixed assets. So these include land, buildings, as well as barges. This comes in normally at between 1% and 2% of costs and expenses. So if you look at the balance sheet of D&L, you'll see that D&L doesn't own any land or buildings, and most of these are leased from affiliated companies. And on the right side, D&L charges a fee to manage a lot of what we call shared services. So everything from admin, finance, legal, and so on. And that's related party income. In terms of our cost structure, so no major surprises here. Raw materials still being our number one largest cost, followed by labor. and then depreciation and rental. So if you were to look at what's classified as fixed costs, It's pretty much just depreciation and rental, maybe a little bit of utilities, and then maybe half of others. So that's coming in at less than 10% of our costs classified as fixed. And on the right side there, you can see around 31% of our raw materials are imported, primarily in US dollars. So a quick look at our balance sheet. You can see that our debt is higher because we had to borrow more to support the higher working capital required. However, if you look at our ratios, specifically return on equity, return on return on investment capital, we saw the bottom in 2024. So understandably, as we were constructing our plant and putting in more investments, we saw our ratios drop. But as things are getting better, As the capex number has started to stabilize, then we see ROE and ROIC improving. In terms of the capital structure, so we're currently at three times interest cover. um and uh net debt is at 22 billion pesos average cost of debt uh is 6.1 percent this includes the effect of top stamps uh and the next slide you can see there uh just how so we've been tracking for the last 10 years um our net debt effective interest rate as well as interest cover So for our working capital, so what I referred to earlier, overall cash conversion is significant, has improved by a lot. Currently at 117 days compared to 139 days last year. So we see big improvements in inventory and in receivables with inventory now down to 82 days and receivables further improving to 46 days. In terms of our listed shares, D&L is currently ranked number 64 among the largest companies in the Philippines with a market cap of approximately 32 billion pesos. And we just wanted to highlight here how the family, since the IPO in 2012, so in the last 13 years, the family's bought back almost 600 million shares, which is roughly 8.3%. of total outstanding shares, which leaves the float currently at 26%. And this year, we've actually bought much more than last year. So last year, the family bought 20 million shares. This year, as of date, we have bought 69 million shares. uh so as the price continues to be attractive uh we're also buying shares in our company and foreign foreign ownership in dnl currently at 10 so in terms of um how the stock has done so uh so Since the IPO, the composite index has been up slightly by 2%. D&L is still higher by 112%. And based on the dividend this year, our dividend yield is at roughly 4.7% based on today's prices. So that doesn't include the potential increase in the dividend that should come. due to higher income this year which is so that dividend is for next year and at the bottom there you can see the various conferences uh that we are continuing to participate in so that's um that's the deck in a nutshell we're open for q a

Okay, thank you, Alvin, for the presentation. So we have Brad on the line raising his hand. So Brad, let me just allow you to talk and you may ask your questions. Okay, Brad, you may ask your questions now.