Jollibee Meals Company (JBFCF) This fall 2023 Earnings Name Transcript

Jollibee Meals Company (OTCPK:JBFCF) This fall 2023 Outcomes Convention Name March 15, 2024 4:00 AM ET

Firm Contributors

Carissa Mangubat – Regis Companions

Richard Shin – Chief Monetary Officer

Cossette Palomar – Investor Relations

Carissa Mangubat

Okay. Good afternoon, everybody. Welcome to the Fourth Quarter and Full 12 months 2023 Earnings Outcomes Name for Jollibee Meals Company. I am Carissa Mangubat of Regis Companions. I will be the moderator for this afternoon session.

So, we can have a brief presentation from the Firm after which we’ll proceed to Q&A after that.

So, to provide us an replace on the latest outcomes, we have now Jollibee’s CFO, Mr. Richard Shin; we even have the IR workforce headed by Ms. Cossette Palomar. So, we’ll begin off with a fast intro by Ms. Cossette earlier than we transfer on to the presentation correct.

So, Cossette, please go forward.

Cossette Palomar

Thanks, Carissa. Good afternoon, everybody. Thanks very a lot for becoming a member of JFC’s investor briefing.

Okay. Only a few reminders, this earnings name might embody forward-looking statements which might be based mostly on sure assumptions of administration, and are topic to dangers and alternatives or unexpected occasions. Precise outcomes might differ materially from these contemplated within the related forward-looking assertion, and the JFC Group provides no assurance that such forward-looking statements will show to be appropriate or that such attentions won’t change.

All subsequent, written and oral forward-looking statements attributable to the JFC Group or individuals appearing on behalf of the JFC Group are expressly certified of their entirety by the above cautionary statements.

Okay. I will flip it over now to Mr. Shin.

Richard Shin

Thanks, Cossette. To start with, an excellent afternoon and good morning to all of you becoming a member of us from exterior of Asia. Actually recognize as at all times your curiosity in our firm and really pleased to now share with you a few key observations first earlier than we get into the main points.

So the primary level, I feel you have all seen the financials, however then to reiterate that the efficiency influence for each quarter in addition to for the total yr had delivered a report excessive system-wide gross sales. So particularly, system-wide gross sales for the fourth quarter of PHP94.2 billion, meant that we had been at 9.6% forward of identical quarter final yr and likewise taking a look at quarter-on-quarter, that means versus our third quarter of fiscal 2023, we’re up a strong 8.4% as properly.

Full yr outcomes are PHP345.3 billion, units a brand new report, and it is a progress of 16.3%. And that, once more, might be referenced again to a little bit later in my replace. That then translated into our revenues of PHP66.7 billion in fourth quarter, up 8.4%, which occurs to be the identical improve of 8.4% quarter-on-quarter, and our full yr revenues base of PHP244 billion, once more, report excessive of 15.2% progress year-on-year.

Shifting to the center of the P&L, our gross income. We’re very pleased to report that we had one other report excessive of gross revenue of PHP13.1 billion, which is 16.6%, up versus prior yr and equally sturdy versus third quarter, up 16.4%, with a GP margin charge of 19.7%. Full yr GP margin charge was 18.6%, recognizing that there’s nonetheless inflationary pressures. The Firm, nonetheless, not solely maintained however grew its GP margin. By way of absolute pesos, it is PHP45.3 billion for the yr, which is a 22.6% improve versus final yr.

So at this level, I wish to reiterate that, in reality, quarter-on-quarter in addition to versus final yr, our enterprise has continued to develop and considerably grows. That interprets into an working revenue of PHP2.5 billion, which is up 33.2% versus final yr, with an OPM of three.8%. Nevertheless, we’re down 41% quarter-on-quarter. And I do have some particulars on that to indicate you that we took consciously some timing variations by way of how we acknowledge our OpEx. And once more, I will clarify and stroll you thru the world of A&P and the way we’re investing behind our manufacturers.

On a full yr foundation, PHP14.4 billion or 45% improve versus final yr, delivered an enterprise-wide OPM of 5.9%.

So now let’s dive into the AMT element of what we took into the fourth quarter. So in the event you can see right here, I’ve 5 years comparable, so we wish to be clear in exhibiting a number of years. You’ll be able to see within the fourth quarter, the crimson bar, probably the most present fiscal yr of 2023. The darkish grey bar on the far proper is the — earlier yr of 2018, you’ll be able to see historically, fourth quarter did have the next A&P spend charge for a number of causes.

There’s some catch up, in fact, that occurs when key media distributors bill us barely late. We do catch up for the yr on that. But additionally if we have now alternatives to spend correctly forward of the brand new fiscal yr, we take that call as properly. And positively in 2023, with our efficiency, we had alternative to spend correctly.

To the far proper aspect, you’ll be able to see the total yr proportion of A&P as a proportion of SWS. The rationale why we use system-wide gross sales versus income is to acknowledge that we have now each franchise and company-owned companies. So subsequently, it is simpler simply to make use of the uniform system-wide gross sales. And clearly, our 2.6% A&P charge for the yr is properly throughout the vary of the two.5% to three% that we sometimes spend. So as soon as once more, A&P, considerate, some catch-up, but in addition spending forward correctly.

The second key message I would wish to share with the viewers as we speak is that the Jollibee model, so not Jollibee Meals Company, however the Jollibee model itself, was acknowledged by Model Finance because the second quickest rising restaurant model on the planet and likewise the fifth strongest restaurant model globally. And this was a results of the truth that the valuation of this model surged 51% as much as PHP2.3 billion per model finance.

So graphically, simply to indicate you, Luckin Espresso was barely forward of us, and there was ourself after which the remainder of the manufacturers. So that is by way of progress. And this one right here is by way of the strongest restaurant manufacturers as outlined by Model Finance. You’ll be able to see, we’re, in reality, forward of the opposite high 5 restaurant chains.

Shifting on to the third key message. Our MSCI ESG ranking was upgraded from CCC to BB, and we’re very pleased with the work the workforce has accomplished behind this. And you’ll see graphically right here from August 2019 till now, how we have been evolving and we’re very pleased that we’re again to the BB ranking. All proper. So now let’s get into the efficiency abstract earlier than I get into the main points.

As soon as once more, system-wide gross sales. On the highest left — on the left-hand aspect of every field is the quarter and the right-hand aspect of every field is the total yr. These are numbers I’ve simply shared with you. Similar-store gross sales progress, equally, a really sturdy 5.4% on a bigger worth pool. And for the total yr, it is 10.6%, recognizing additionally that the sooner elements of the — particularly Q1, we had a really sturdy same-store gross sales progress, particularly, as a result of our Philippines enterprise in 2022 first quarter was below COVID lockdown.

So I consider quarters two, three and 4 are extra like-for-like. This identical system-wide gross sales progress was pushed by transaction rely or quantity in addition to the typical tax improve.

We opened a big variety of shops, 658, so forward of steerage at 6.3% community progress. And on the backside row now by way of revenues, I am exhibiting right here quarter-on-quarter as properly. Once more, simply as an instance that we’re not, in reality, slowing down, however fairly on the identical tempo. So 8.4% within the fourth quarter, identical for quarter-on-quarter. Gross revenue, we had been up 16.6% versus final yr and quarter-on-quarter, we’re up 16.4%.

Full yr internet working revenue — sorry, PHP14.4 billion or 45%, which we shared with you earlier.

Simply graphically, you’ll be able to see right here, system-wide gross sales by quarter and the way we have been trending since post-COVID. There’s a few symbols up right here, crimson and likewise black. The crimson trophies denote that it is all-time excessive and the black trophy denotes that it is the all-time excessive for that particular quarter. So it has been fairly steady for the final six or seven quarters.

Prime line metrics for fourth quarter in addition to the total yr. I simply wish to take time a little bit bit to share with the important thing factors. And now let’s simply change to a full yr. So you’ll be able to see for system-wide gross sales and for same-store gross sales, apart from Highlands Espresso, just about each single considered one of our areas, enterprise and world model clusters have delivered a really sturdy progress charge. So in whole, 17.6% for Philippines, system-wide gross sales.

And for world, it was 16.3%, with a really sturdy efficiency by worldwide, 14.4% as properly. And I will spend a bit extra time in a while diving by means of a few of these companies.

This can be a new chart in comparison with earlier earnings name, however I wished to speak a little bit bit extra intimately about our key market, which is the Philippines. So this area right here is system-wide gross sales and same-store gross sales progress, each quarter-on-quarter and likewise versus final yr. Simply to guarantee that we perceive that, in reality, Philippines stay sturdy, and let me break that down for you.

So throughout the Philippines, we have now clustered below champion manufacturers, and that additionally denotes sure stage of funding behind these manufacturers. In fact, Jollibee as anticipated, however throughout the Philippines market, Chowking and Mang Inasal are thought of champion manufacturers of their dominance of their particular sectors.

And so the way in which to learn that is in the event you take a look at the second column right here, fourth quarter, you’ll be able to see system-wide gross sales in billions. You’ll be able to see the expansion charges of each system-wide gross sales and same-store gross sales progress. It’s also possible to see the identical progress charges within the third quarter, so you’ll be able to evaluate quarter-on-quarter how these manufacturers are doing. So in the event you would take system-wide gross sales for Jollibee, fourth quarter progress was 10.4%, whereas we had a stronger progress charge within the third quarter. However nonetheless, you’ll be able to see nonetheless sturdy progress taking place for the Jollibee model.

The place we begin to see a number of the lag taking place is in our different manufacturers, particularly, round Purple Ribbon, the place it competes in a really tough bakery phase, and we’re adjusting that. Now we have fairly a bit of labor accomplished, and we’ll proceed to work on adjusting to enhance inside this tough phase.

And the international franchise manufacturers, in fact, are our strategic manufacturers that we symbolize within the Philippines, that are Burger King, Yoshinoya and Panda Specific. So there’s some learnings there as properly. Though system-wide gross sales progress continues, the same-store gross sales progress of those manufacturers, there are some challenges, which we’re working by means of. So not all is ideal within the Philippines, however I might say extra so than not, for us to proceed to ship on a full yr foundation — sorry, on a This fall foundation, right here, you’ll be able to see a progress of 11.6% quarter-on-quarter.

So let me repeat that once more. Fourth quarter was stronger than third quarter by 11.6% for whole Philippines, led by, in fact, Jollibee right here, 11.2%, whole champion model class of 10.8%. Though the chances are good right here, we nonetheless have some work to do, as I mentioned, in a few of our smaller manufacturers.

The opposite factor I wish to tackle is why is our working revenue right down to PHP2.5 billion from Q3 of PHP4.3 billion. And the explanation once more is the timing of our A&P. You’ll be able to see, as illustrated earlier, fourth quarter does have increased A&P spend historically. And likewise, we’re pulling ahead some for early spend. And there was additionally some changes that we have taken in our taxes and license.

So basically, what that is, is withholding tax changes on royalty of prior years, which weren’t addressed in prior years, however we took the chance right here to catch them up. And naturally, different company occasions and bills, which usually occurs within the fourth quarter or we booked them within the fourth quarter versus within the third quarter. So this, to me, is timing because it represents the total yr bills. So if you take a look at these expense actions, and you’ll see why our working revenue is down. However once more, as talked about earlier, high line and center the P&L continues to be sturdy and robust for the fourth quarter in comparison with the third quarter.

Monetary particulars, a few of these numbers you have seen, so I simply wish to spotlight once more the tiering that we’re seeing. The 16.3% system-wide gross sales progress, we’re capable of gear constructive gross revenue of twenty-two.6%. And naturally, working revenue at a quicker gear of 45%. Some footnotes on the aspect right here to share with you, basically saying that these had been just about all report highs once more.

Now on the EBITDA. We did have a rise of EBITDA of 13.9% for the fourth quarter. And on a full yr foundation, our EBITDA grew versus final yr at 8.3%. Internet revenue grew full yr at 22.4%. And what we report right here is an PHP8.8 billion NIAT forward of steerage, and it is 16% progress, with an EPS progress of 16.5% at [7.455].

Some key metrics. So let me present you fourth quarter first after which the total yr. The grey is 2022 and the crimson bars are 2023. So gross revenue margin, earlier, I confirmed this variety of 19.7%. Working revenue margin additionally grew as did NIAT.

Our free money circulate margin considerably grew. And right here is simply one other approach of taking a look at it. If we had been to check our free money circulate to our NIAT {dollars}, you’ll be able to see in 2023, it is nearly 4x of money circulate to our NIAT {dollars}, barely down from the yr earlier than, however later, I will present you CapEx in our investments as properly.

On a full yr foundation, nonetheless, you’ll be able to see related tendencies proper throughout, ending the yr at 18.6% on GPM, 5.9% on OPM, 3.6% on NIAT margin, free circulate money — free money circulate margin, sorry. And naturally, the ratio between free money circulate and NIAT can be increased than the yr earlier than.

Okay. Now that is a pleasant segue into our capital allocation, money and steadiness sheet. So once more, our CapEx spending for the yr was PHP11.3 billion. In 2022, we have now spent PHP9.7 billion. In order that is a rise.

And the place the numerous improve, as at all times, you’ll be able to see by way of absolute {dollars}, not the proportion right here, is for our retailer operations. In order that’s new shops, that is renovations, that is upgrading our kiosks and upgrading our level of sale. So all that is obligatory, however shopper phasing, that goes in right here.

That is proper throughout, as you’ll be able to see, 42% within the Philippines, and the steadiness from our different companies exterior of the Philippines. This commissary is to guarantee that we have now sufficient capability for demand. So there’s at all times upgrades there, however it’s not a good portion of our CapEx.

And this final element right here, properly, we’ll name it major workplace, however in reality, what’s actually in there may be our expertise. I feel a number of the Q&As are despatched, one of many query was our stage of funding in expertise. So not all of 13 is for expertise, however the majority, so I might say, round 10% of that’s for expertise, which once more, is a big ramp-up from below 5% the yr earlier than.

That is the plan for 2024. And as at all times, we take a conservative view. And when there are alternatives for us to purchase franchise techniques or construct firm shops, we do take that call as properly. So traditionally, though we present ranges comparable to this, it’s not to say that we’ll spend all of it, however that is in reality, the ceiling of what we’re taking a look at.

So very related proportion to the place we spend our CapEx, however what is going to drive the P&L, actually, is the shop spend. We are going to guarantee our shops have sufficient merchandise is our commissary. The rationale for the rise right here is there might be a brand new commissary launch in 2024. Once more, this has been deliberate in a number of years again, as a result of we’re rapidly reaching our capability in a few of our crops. So that is an enlargement right here. And naturally, our funding in expertise continues.

Shifting to steadiness sheet. You’ll be able to see from money all the way in which down, I feel what’s essential right here is our internet debt diminished to PHP9.7 billion from PHP16.2 billion. Our working capital metrics are bettering, so a day faster on collections, two days decrease on a bigger base for stock. And our ratios are all bettering as comparable to properly.

The fitting-hand aspect right here, it is simply data that exhibits you by way of our monetary obligations that’s structured for the time being. So you’ll be able to see financial institution loans and senior bonds. In whole, round 60% of our capital construction is debt accounted and round 40% by means of our seniors and preferreds are fairness accounted. So 60-40. By way of financial institution loans themselves, we’re about 2/3 floating, 1/3 fastened. And by way of curiosity on whole obligations, had been about 1/4 floating and three/4 fastened.

And it is essential to say this, let me begin with this as a result of in 2023, we proceed to get pleasure from a weighted common rate of interest of 4.5%. And that is as a result of we have now locked in and we proceed to get pleasure from these tenures. And you’d have seen that we not too long ago subscribed to additional improve of most well-liked shares as we had higher ceiling restrict. So, we have accomplished that and basically, we’re properly positioned into the longer term.

So I will recap on 2023 steerage. We have met our steerage of — sorry, we met our steerage of between 15% to twenty% in system-wide gross sales as we delivered 16%. And by way of rolling base, we beat our steerage with 11% precise, barely above our vary of seven% to 10%, retailer community of 6% was inside our steerage. And by way of our working revenue progress of 45%, it was forward of our steerage between 20% to 25%.

Sharing with you right here now the 2024 steerage, system-wide gross sales on a bigger pie, in fact, might be someplace between 10% to 14%; rolling base barely decrease by way of quantity, 5% to 7%, however once more, we’ll ship extra {dollars} in pesos by way of absolute; retailer community progress might be someplace between 7% to eight%, so even forward of the place we’re, which is to say, we’re persevering with to seek out alternatives for brand spanking new shops, each within the Philippines and outdoors; and working revenue progress steerage of 10% to fifteen% or PHP15.9 billion to PHP16.5 billion. Once more, as a reference level, we completed 2023 at PHP14.4 million.

Simply in a short time, our longer-term goal or five-year out view is to triple our NIAT. And once we kind this five-year strat plan, we had talked about PHP8 billion as being the milestone for 2023. As I’ve simply shared with you, we’re barely forward now, as a result of we delivered PHP8.8 billion, however we want to triple the worth from PHP8 billion to PHP24 billion of NIAT by 2028.

These themes are usually not new. I’ve at all times spoke of the significance of the Philippines and proceed to dominate on this market, the significance of China and the way they will play their constructing scale to our Chinese language manufacturers led by Yonghe King by means of franchising. We at all times talked concerning the espresso and tea class being a really massive addressable market and likewise very worthwhile by way of excessive margin. So we will proceed to have a number of manufacturers in Europe, however CBTL, being the forefront model. And naturally, Jollibee, Jollibee, Jollibee.

You’ll be able to see our model fairness — sorry, model worth has considerably elevated or proceed to drive efforts in the direction of that, led by the U.S. and different key markets in Asia.

I simply wish to finish with our CEO’s quote, the place I feel he summarizes very correctly and properly right here the place he talks about trying ahead to 2024. And that’s, searching to 2024 and past, we’ll proceed to concentrate on our priorities. We’ll scale the enterprise with our 4 large focus areas of increasing our Jollibee model internationally, rising our espresso and tea companies, exponentially rising in China in a number of lower-tier cities for franchising, maintain and — maintain our sturdy progress and market management within the Philippines.

We’ll ramp up franchising to help our world enlargement. We’ll additionally speed up our digital transformation and produce capabilities on par with world fast service restaurant leaders to extend operational effectivity and additional enhance buyer expertise and income administration.

We are going to work on driving JFC’s long-term progress. We’ll stay dedicated to governance, FX and sustainability and accountable enterprise practices. Our methods mixed with our portfolio of sturdy and worthwhile manufacturers and the help of our gifted world workforce provides me the arrogance that we’ll be capable to obtain our aim to triple our price by way of NIAT in 5 years. I consider the whole lot I shared with you speaks to this abstract.

And at this level, I shall take questions. Thanks.

Query-and-Reply Session

A – Carissa Mangubat

Okay. Thanks, Richard, for the presentation. We have already got a number of questions within the chat, so let me begin off with that. Within the curiosity of time, I will simply consolidate the same questions.

So there’s fairly a number of questions right here on CapEx and retailer enlargement. So the funds is PHP23 billion for this yr. Are you actually anticipating to spend that a lot since traditionally, the precise CapEx is — at all times appears to be a lot decrease. And of the 750 new shops, how a lot can be company-owned and franchised? And in the event you might present a breakdown of what number of shops you propose to open for market?

Richard Shin

Okay. So the reply is we at all times present you the ceiling. And the explanation for that’s once we get Board approval, we ask for retain earnings appropriation to be linked to that ceiling. We don’t plan to spend to the ceiling as up to now, we have demonstrated methods to take action. So I feel will probably be very related in 2024 as properly, Ken.

Having mentioned that, what drives the enterprise actually is progress and enlargement. So I wish to guarantee that we’re properly listed by way of what drives us. So our quickest payback enterprise is espresso and tea. Relying on the model, it is someplace between two to a few years. In order that might be about 40% of our retailer openings in 2024. And naturally, Philippines might be about 20%. After which the remainder of worldwide, mixed with the espresso enterprise, would be the steadiness of the 80%.

Particular to China, we’re trying very a lot at a really asset-light strategy and seeking to open only a few shops with our personal capital, however fairly by means of the franchising mannequin. In markets like Vietnam, we’ll proceed to open our company-owned shops as a result of they’re fairly worthwhile. And I feel the lesson there may be if the franchise community is not sturdy sufficient, we would fairly open our personal, and that is been working for us in markets like Vietnam.

Possibly I will simply tackle Kimberly’s query of Smash, as a result of I am certain many individuals are asking, is that this actual or is that this not actual? The reply is, that is actual. And I’ve at all times mentioned, there are some pillars that we’re going after. So we stopped constructing new shops, which slows down the losses of recent investments. And we proceed to work on quartile three and 4 to guarantee that they get to profitability.

So a variety of work behind it, however the quick reply to Smash is absolutely centered on store-by-store stage profitability.

Carissa Mangubat

There’s additionally a associated query. If the losses of Smashburger and I assume CBTL additionally, did they slender or widen within the fourth quarter? And when would we count on these companies to show worthwhile? And what are we doing to attain this?

Richard Shin

Sure, Smash — our loss is unquestionably diminished. So we have now a bit of labor to go, however not far more. And shortly, I will be very fortunately reporting Smashburger internet working revenue income as properly. However I do not wish to overpromise, however I imply by very quickly, as we’re beginning to see actually good momentum. And I ought to say at this level that we had the chance to now onboard a brand new CEO for Smashburger.

She comes — I feel you all know her popularity when you look her up, her identify is Denise Nelson, however she comes from Starbucks. And I’ve spent a while her with truly final week in Denver, and I’ve to say, she’s an unbelievable govt, and I feel we’re in good arms there.

For CBTL, it has been bumpy, I’ve to inform you. So fourth quarter was worse than third quarter. And the explanation for that, I feel, is as a result of our North America company-owned retailer shouldn’t be actually positioned, and we knew this once we purchased the model years again, however it’s taken a little bit of time. In order that’s our precedence for this yr is to verify our positioning of our company-owned retailer within the U.S., particularly, it is primarily California. 95% of our shops that is company-owned is in California.

So we have now some plans to deal with that.

Carissa Mangubat

Okay. Thanks, Richard. So, we’ll go to the queue now. Now we have Divya. So Divya, you might now ask your query.

Unidentified Analyst

I had two questions and only one follow-up on the CBTL, then Smashburger. My first query is simply on margins, particularly on worldwide phase margins. We noticed that, that slipped again into losses within the fourth quarter. Might you simply assist us perceive why the working revenue for worldwide slipped into losses? Is it that the A&P is disproportionately increased there?

And once we take into consideration 2024, how ought to we take into consideration this as a whole worldwide phase? What sort of margins are you focusing on for this yr? That is my first query.

Richard Shin

Okay. Thanks, Divya. If I bear in mind, in Q3, I feel we had reported one thing like 3.3% worldwide margin, and we’re fairly pleased as a result of that was the very best within the final 5 years. That is not it is a good quantity, however relative to the stage of our enterprise in worldwide, that had slipped you, proper? And the primary purpose, by way of the magnitude and contributors was CBTL and Highlands Espresso, very completely different.

Highlands Espresso is delivering about twice the revenue of CBTL on a retailer foundation, however — store-level foundation. Nevertheless, Highlands Espresso did endure fairly a bit from a variety of the macro headwinds that we’re seeing in that a part of the world, Vietnam, being very — I assume, depending on China in some ways, particularly, within the Tier 3 cities. So once we did a deep dive evaluation of what is driving Highlands Espresso down, it was actually that Tier 3 the place the frequency was developing. So persons are not going as incessantly as they had been, when they’re extra assured concerning the financial system. However Tier 1 and a couple of nonetheless stays comparatively sturdy. So we acknowledge that it is a little bit of timing.

And as issues flip, we do see enhancements in early months of this yr. CBTL is solely — the losses are coming from the U.S. company-owned shops. As a result of excluding that, it is just about a franchise enterprise, apart from Singapore and Malaysia with our company-owned shops, however they’re very worthwhile. So once more, there is a very clear plan on adjusting the Firm-owned shops within the U.S. So that is what’s dragging it.

By way of what can we anticipate for 2024, I anticipate that within the again half of 2024, the U.S. company-owned retailer difficulty might be resolved. And Highlands would have come to a greater place. So I do see worldwide pulling up. The remainder of our companies exterior of these in worldwide comparable to EMEA, North America, Asian manufacturers, et cetera, they’re all doing extraordinarily properly.

Unidentified Analyst

Simply by way of the quantification of that margin, such as you mentioned, 3.3% was good, however it’s not a superb quantity stand-alone. Like what do you assume Worldwide margins can go to by the tip of this yr?

Richard Shin

I feel by the tip of this yr, we needs to be within the low singles. And extra importantly, I feel searching to — we’ll see fairly a little bit of momentum coming by means of in ’25 and in 2026. What we’re taking a look at actually is getting this to excessive single digit as quickly as we will. As a result of on a unit financial foundation, Divya, if you take a look at our enterprise, for instance, our Jollibee U.S. versus our Jollibee Philippines, simply utilizing that for example, Jollibee U.S.

on a per unit foundation, we have now about $12,000 common every day gross sales per retailer, whereas within the Philippines, it is about 5,200. So it begins from that.

And likewise, our gross revenue margin on meals and packaging price is about 66% to 67% within the U.S. versus about 55% within the Philippines. So the extra Jollibees we have now within the U.S., our P&L begins to drag up the worldwide phase. And to try this, I’ve at all times talked about the necessity to change to franchising. As a result of in some unspecified time in the future, we have now to verify we will construct shops rapidly fairly than with our personal capital on a regular basis.

So you are going to begin to see that coming by means of in different years.

Unidentified Analyst

Received it. My second query is on Philippines. I simply wished to know that the same-store gross sales progress has been slowing, and also you confirmed that good bifurcation by model. Do you assume that the international manufacturers are underperforming due to down buying and selling? And what’s the danger that the general enterprise additionally goes right down to low single-digit same-store gross sales progress?

And likewise, it is a query I’ve — we have been asking up to now, however in the event you can refresh our view on it, that why are we no more aggressive in retailer openings in Philippines within the current years and never even in 2024, I feel.

Richard Shin

Sure. Okay. So Philippines, I feel it is the primary time I’ve proven this chart as a result of there’s fairly a little bit of curiosity. That is our disclosed materials, however we summarized to name these champion manufacturers, the Jollibee, Chowking and Mang Inasal. And you’ll see there, it is low double digit by way of progress charges.

So these manufacturers are doing extraordinarily properly. Now we have improbable leaders on these manufacturers that we proceed to take a position on the proper stage, and it is returning. So for instance, Jollibee Philippines, payback is now 3.3 years. So extraordinarily good payback and good margins.

The international franchise manufacturers, it is actually three. And what we have observed on a model like Panda Specific, it has extraordinarily excessive ADS. However we additionally famous that the frequency and trial charges are usually not as excessive as a lower cost level Jollibee. So customers are usually not coming again as incessantly as they’re.

So what are we doing? What we’re doing is we’re clearly going to guarantee that the variety of eating places we have constructed is restricted for manufacturers like that, and we’re additionally taking a look at decrease ADS or decrease meal bundle choices for customers with maybe barely smaller amount, however extra inexpensive value level. That is actually the model that appears to be dragging the whole lot down in that group. Burger King continues to develop. However once more, it is at a barely completely different value level to Jollibee.

So we’re seeing, within the Philippines, the fact of various value factors having completely different ranges of progress charges.

I bear in mind — the final a part of your query is then why no more? We’re constructing as a lot as it’s obligatory to construct within the Philippines, that means that we do not wish to be overdependent on one market. And if that market, for no matter purpose doesn’t carry out, then we have no different place to go to. In order that’s why we have been so aggressive on worldwide to guarantee that we have now legs and pillars set. And this takes time, as you recognize.

In order that’s the explanation for that.

And the second purpose is inside Philippines, we’re — inside Metro Manila, we’re fairly saturated. So subsequently, progress goes to return from market share nonetheless and same-store gross sales progress, predominantly. To not say we’re not constructing shops, however at a slower charge as within the provinces the place we have now extra upside. So we’re balancing that as properly.

However the primary purpose, once more, is field economics or unit economics and the chance or dimension of value for us is absolutely exterior of the Philippines, and we have to begin seeding that as a result of sooner or later, we can not return in previous to seed that. So we will maintain that proper steadiness.

Unidentified Analyst

Good. And simply final small query. Similar-store gross sales progress for Smashburger grew to become detrimental within the fourth quarter. So whereas we noticed profitability enchancment, evidently the same-store gross sales progress was detrimental. Might you simply touch upon what’s taking place there?

Richard Shin

Completely. So This fall of the prior yr being 2022, below the previous administration, there’s fairly a little bit of promos. So the BOGOs and — we’re testing various things on Web as properly by way of reductions for on-line orders, et cetera. We have considerably diminished these promos and we are actually positioning it to be a core — kind of core menu. So we’re seeing a few of that.

However that is on — that is purposely thought by means of. And the explanation for that’s we do not wish to construct a enterprise on promos.

So we’re seeing that coming down. However by way of profitability, we’re growing. As a result of a variety of these promos that gave us the RB for same-store gross sales progress in 2022 fourth quarter, we’re seeing that profitability sensible, they’re fairly impartial. So it is a combine between extra stable gross sales that is giving us higher margins.

Carissa Mangubat

Thanks. So we’ll go over to the chat once more. So there’s a number of questions right here about your long-term targets. So the long-term goal is to triple working revenue in 5 years, that means 25% annual progress. Nevertheless, you are simply focusing on 10% to fifteen% for this yr.

So how do you reconcile that? And the way does the — how do these targets translate by way of how a lot is coming from high line progress and margin enlargement between the Philippines and worldwide? And the place do you count on the break up of Philippines and worldwide to be by way of internet revenue?

Richard Shin

Okay. I am simply going to seek advice from some notes. You are completely proper, it’s round 25%, 26% backside line CAGR to get there. So let me simply provide the form of issues that we’re seeing. So revenues, we do see this 2x, and that is a couple of 15% CAGR, and that will get us to that tripling backside line.

By way of OPM, we’re seeing round 10%. We’re proper now 5.9%. So we see that developing, primarily as a result of Philippines will come up barely, however worldwide will pull up, as talked about earlier. By way of the break up between Philippines and the remainder of the world, at that time, worldwide would be the majority. So will probably be round 55% to 60%, with Philippines being about 40%.

And by way of franchising to company-owned shops, we expect we’ll be across the 80% franchise stage. At present, we’re at 57%.

In order that’s the larger form of it. And I assume the specifics of it, it may take greater than this name to undergo. Nevertheless it’s based mostly on the next precept. In massive markets, the place you might have the next worth pool, our skill to seize the worth pool means we have to get in there with some strategic alliances, whether or not it is round expertise, with our networking or actual property. So these are the seeds that we have been planting for the time being.

Second, we have to get into preparations with franchisees that is capable of take cluster areas. So we have now mapped out already the areas that we wish to broaden in. And the excellent news, in the event you take a job — our model like Jollibee within the U.S. is the place it is simply so tiny in comparison with the demand and the chance that we see there. So we have simply entered our 14th state, which is to say we have now many extra locations to go.

And we are literally within the technique of screening our franchisee companions for a number of of these states. So each present states, the place we’d open extra shops to the franchising, but in addition new states. So a market just like the U.S. can speed up and develop fairly rapidly. So these are type of the how.

And naturally, China, we’ll proceed to stay with our Chinese language delicacies path, as a result of we consider that in the event you’re a multibrand in a rustic like China, it could be fairly tough to handle. So very first thing, very centered. And naturally, our espresso manufacturers are exhibiting that they are often simply franchised. So we’ll proceed to broaden these manufacturers for franchising. We have got John and Brian coming by means of.

Unidentified Analyst

Brian right here. Can I simply comply with up on the remark that you simply made as a result of in the event you take a look at…

Richard Shin

Brian, you wish to unmute?

Unidentified Analyst

Sorry, are you able to hear me?

Richard Shin

Sure, all okay now.

Unidentified Analyst

Okay. Nice. I wished to only make clear on the assertion that you simply simply made, as a result of in the event you take a look at the momentum of retailer openings, we do not — it is not likely going to get you to these targets that you simply set. So simply to make clear, what we’re actually going to see from the franchise aspect is absolutely much more Jollibee shops within the U.S. by means of this plan, group franchise different states, is that appropriate?

Richard Shin

Sure. You are completely proper. Our momentum of retailer opening of 6%, 7%, 8% or 500, 600, 700 shops shouldn’t be going to get us there. So it is a fully completely different mannequin that we have to get to, and that is what we have been engaged on. So Jollibee U.S., for instance, we’ll get to 500 shops from our 72 shops as we speak.

And of that 500 shops, apart from 2024, the place we begin to leverage in the direction of the construct out, the steadiness of it, predominantly goes to return from franchising, for example of how we’re constructing this up.

Unidentified Analyst

And might you simply remind me once more, the time line of if you’ll be launching this new franchising mannequin?

Richard Shin

2025 is the primary full yr for franchising.

Unidentified Analyst

Received it. And simply to make clear additionally in your steerage for 2024. As a result of in the event you take a look at the system-wide gross sales progress targets versus your working revenue targets, they’re fairly related. So it appears to suggest not a lot working leverage for this yr. So I am simply questioning in the event you might elaborate on — is there any components that you would think about and the way you consider margins this yr?

Richard Shin

Sure. I feel for 2024, there’s a, I assume, a blended attraction of the present mannequin, which continues to be skewed to opening new shops. And that shift goes to occur, as I say, a little bit bit out. So I feel you are seeing a few of that. However what I am actually centered on, truly, Brian, is the highest line and the center of the P&L.

As a result of I feel on the expense of the remainder of these elements, these are variables that we will dial up or down. For instance, expertise, we will at all times dial up or down the place a variety of our investments are going. Nevertheless it’s actually centered on driving same-store gross sales progress and never essentially retailer enlargement.

So 2024, I feel, we’ll in all probability find yourself seeing related or a lot stronger key metrics, however it’s not a transformational stage. We do not get to twenty%, 30% OPM, for instance, as a result of merely, the maths does not work when you might have 57% franchise shops owned.

Unidentified Analyst

Proper. However can we count on some working leverage to be true this yr as properly?

Richard Shin

Completely. Sure. We’ll proceed — the Philippines as such, the highest line will proceed to develop quicker than our expense line. So — and Philippines continues to be our primary subject contributor. So, I feel our working leverage will come by means of there. Completely.

Carissa Mangubat

Okay. Our subsequent query within the queue is from John Te, John?

Unidentified Analyst

Really, Richard, simply three questions. Firstly, in the event you might simply make clear, EBITDA for many of the worldwide manufacturers had been truly constructive through the fourth quarter, however the working revenue minus — the query earlier alluded to, was detrimental. So is it only a detrimental leverage influence from decrease gross sales from CBTL within the U.S. and Highlands impacting, I assume, leases, is what’s in between, is like money…

Richard Shin

Sure. So the whole lot beneath EBITDA, as you’d think about, so primarily depreciation and amortization, but in addition the curiosity element. So all these are sadly dragging right down to a internet detrimental NOI. However the way in which I see it, there’s a few tweaks to a number of the companies that I discussed. That tweak, it is not that tough to make occur.

However for the time being, it is primarily due to the D&A and curiosity expense that is inflicting the detrimental versus a constructive EBITDA.

Unidentified Analyst

Second is on China. China was nice. Are you able to clarify what Jollibee has accomplished in another way in comparison with the opposite restaurant manufacturers in China?

Richard Shin

I’ve at all times mentioned China is difficult. So I do know there are nice numbers by way of actions, however I do not wish to take full credit score within the sense that fourth quarter of 2022, China was nonetheless locked down. So I do not know, type of there is a historical past lesson, however type of actually type of reopened August 30, 2023. In order that’s to say our fourth quarter 2023 was the primary quarter with no partial or full lockdown. In order that’s why quarter 4 2022 versus quarter 4 2023, you are seeing that vital motion.

Having mentioned that, the companies are doing properly by way of — therefore our items turning the nook. Yonghe King is our largest and most sturdy model. So sure, there may be some onerous work and good work there, however it’s additionally relative to a decrease quarter in fourth quarter 2022. However I’m bullish on China as a result of I do assume that we have now the expertise there, and we’re seeing some constructive momentum, however I am at all times cautious about China due to its unpredictability as properly.

Unidentified Analyst

Possibly a longer-term query on franchising, particularly. You already talked about that 2025 would be the begin of this large program to extend the share of franchise shops. Are you able to simply elaborate extra in the event you can on particular targets, notably, you say, within the U.S. or in Espresso Bean, the place these manufacturers will drive enlargement?

Richard Shin

Good. So Philippines, I feel, it is understood. And the combination shouldn’t be going to vary that dramatically. So it is already working on 2/3 franchise mannequin within the Philippines. Sure manufacturers are already 98% franchised like Mang Inasal, which is considered one of our champion manufacturers. So, I feel Philippines shouldn’t be going to be that transformational change by way of franchising.

However in the event you take a look at, once more, North America, what we’re seeing is in 2025 onwards, predominantly, perhaps greater than 80% of all new shops needs to be by means of the franchise mannequin. And that is what we’re planning out. And that is the work that the workforce is leaning in the direction of. Once you take a look at Smashburger, by not opening any new company-owned shops in 2024.

And so subsequently, all new retailer openings, together with these of worldwide, which is able to begin to occur late this yr, too, to early 2025, you may see 100% of Smash go in that path, until there’s one or two, for no matter purpose, we wish to maintain these as type of the hub-and-spoke mannequin, the place — you noticed that basically is a bit bigger footprint, et cetera. However in any other case, that model goes that path.

CBTL U.S., we’re taking a look at all new shops being franchised as properly. So, the one company-owned shops for CBTL might be in Singapore and Malaysia, and people in some unspecified time in the future — we have not checked out franchising for these two markets. However apart from that, U.S. and the remainder of the world, are a franchise mannequin. In order that’s — sure, that is type of a number of the key manufacturers and that is the fantastic thing about how we’re swinging that pendulum.

Unidentified Analyst

Superior. No, that is nice information, Richard. Only a fast clarification. In case I missed it, the 25% CAGR on EPS assumes that working margins blended will attain 10% by the tip of the interval, proper, 1-0?

Richard Shin

I haven’t got a direct reply, however sure, I am unable to bear in mind all of the — kind of the steps in between. However what’s extra essential for me fairly than the OPM margin as a result of, once more, that depends upon the way you dial up the franchise company-owned retailer combine, however it’s absolutely the {dollars} that we’re chasing by way of going after market with higher unit economics.

Carissa Mangubat

Thanks, John. So we’ll simply take yet another query. I assume we have now time for yet another. Only a follow-up on the five-year plan, you spotlight espresso and tea as a key pillar of progress. However but in lots of markets, we’re seeing rising competitors on this phase.

You see lots of the Chinese language rivals are actually increasing past China. In Indonesia, I even have aggressive gamers. Are you able to give extra coloration in your progress plans for espresso and tea?

Richard Shin

Okay. Thanks, [Ren], for the query. You are completely proper. To enter China with CBTL for the time being, which you’ll — we will have completely different views on whether or not CBTL’s in the identical class as Starbucks, however it’s a premium positioning with cafes. That doesn’t seem like the appropriate technique as we will see what’s taking place to Starbucks in China, and we will see what’s taking place to the Luckins of the world.

So for our espresso and tea technique, we’re not that bullish or aggressive in China. So I say that as a result of the competitors there may be fairly completely different in that they may take losses for a few years to scale. So earlier than we take that on, we expect there’s loads of alternatives exterior of China for espresso and tea companies.

So one after the other, so in the event you take the Highlands Espresso, we nonetheless have much more to go inside this house market at Vietnam. However we’re taking a look at another markets exterior of Vietnam for the time being to begin slowly seeding. After which in the event you take a look at Milksha, which is one other model within the class, we’re trying on the U.S. as the subsequent large worldwide market to enter. After which, in fact, CBTL, I feel we spoke of, however the U.S.

— the footprint of 200 shops there may be merely not acceptable. They are going to go bigger however by means of franchising. After which, in fact, opportunistic markets just like the Center East for the time being, the place it has a number of the quickest progress charges for us in our espresso and tea enterprise.

Carissa Mangubat

So I feel we will take yet another. Final query. Now we have a follow-up from Brian.

Unidentified Analyst

Richard, a fast follow-up on Smashburger. As a result of in the event you take a look at what you have commented, we’re not rising shops for this yr. And franchise shops, truly, we noticed a discount within the variety of shops in 2023. So with new administration coming in, I am simply questioning what is the technique change, if there any, there? And what are a number of the milestones that you simply’d like them to hit as we flip this enterprise round and such, so we will see progress on the income shops or margin?

Richard Shin

Sure. Nice query. So we did shut down shops, Brian, you are proper, as a result of the loss makers, we did shut down in 2023. So we’re now sub-240. I do not know what the most recent quantity is, however I feel it is round 236, that is the primary level.

The rationale for that’s we wish to make sure that we all know what we’re doing, 100%. After which from there, we will spring ahead, as we have at all times talked about, the important thing steps to turning this enterprise round.

So the magic quantity is round 3,300 ADS or EBITDA breakeven throughout the board. And by way of consistency as properly. You’ll be able to’t have some shops that is 2,000 and a few shops that is 3,300. You need to just about get all people up there, that is level one. In order that’s fairly achievable.

The goal that I consider we will set is extra according to what we’re seeing in different previous money flows. So there is not any purpose why we should not be trying on the 4,500 and 5,000 ranges going ahead. So I feel the brand new CEO — and we’ll let her settle in and drive these KPIs, however at 4,000 NOI constructive, working revenue constructive. So that you transcend EBITDA, I imply that is rear view mirror. Now you go for NOI constructive.

So I feel it may be north of 4,000 by way of being considerably constructive. So these are — that is the important thing goal for the time being, Brian. We’re completely centered on ADS, common every day sale. The reason being as a result of the enterprise has engineered itself to be working at a really stable 75% to 78% good margin enterprise. So once more, increased than our hen companies. So we all know that after we get the ADS, the field economics begins to work with this model.

Carissa Mangubat

Okay. So I feel that is it for as we speak — that is on a regular basis we have now for as we speak. I feel there’s nonetheless some questions and perhaps the IR workforce will simply get again to them after the decision.

So thanks everybody for dialing in. Thanks, Richard, for giving us a really useful dialogue on the outcomes, and we look ahead to seeing extra good issues from Jollibee Meals within the coming yr and years.

So once more, thanks, everybody. Thanks additionally Cossette and Mona, who’re on the decision with us as we speak.

Richard Shin

Thanks, Carissa. Thanks, everybody.

Carissa Mangubat

Have a superb afternoon, everybody.

Richard Shin

Thanks, Carissa. Thanks, Mona.