The Keepers Holdings, Inc. (OBAI) Earnings Call Transcript

Welcome back, everyone. I trust that you had the chance to recharge and your focus during the break. Next in line to present, we have The Keepers Holdings, Inc. Representing for Keepers is Mr. John Hao, Head of Investor Relations and Sustainability Officer. Joining him for the Q&A is the President of Keepers, Mr. Jose Paulino Santamarina. Moderating the Q&A will be Ms. [ Denise Salcedo ] of Sun Life. So sir, John, over to you.

Thank you, Cami. Good morning, ladies and gentlemen, and thank you for joining the Keepers 9 Months 2025 Results briefing through the partnership with Philippine Stock Exchange Star Investor Day. I'm joined today with our President, Mr. JP Santamarina.

Good morning. Can you hear me, John?

Yes, I can hear you, so.

Okay. Okay. So The Keepers Holding, Inc. is part of Cosco Capital Group. We are the market leader in the imported spirits distribution segment in the Philippines. From our follow-on offering base wherein we have 3 major players in the industry, namely Montosco, Meritus Prime Distributions, and Premier Wine and Spirits. We have acquired a 50% stake in Bodegas Williams & Humbert in Spain during the latter part of 2022. We have also formed a new company named Fertuna Distributions Inc. that would specifically market our products in Cebu and Visayas and Mindanao region and started commercial operation in the third quarter or second quarter of 2023. A new company called Upfront Distributions Corporation is set up to handle additional brands and principles going forward for the company. Moreover, The Keepers intends to acquire up to 100% of Booze Online, Inc. to improve and complete our portfolio by adding the premium imported beer brands into Keepers, making us a total beverage alcohol company once the acquisition gets finalized. Booze Online is an importer and distributor of wine spirits and premium beer and is the largest important beer distributor in the Philippines. Some of the brands that they exclusively distribute includes Stella Artois, Corona, Budweiser, Co Garden, [indiscernible]. So we have also -- Keepers has also recently acquired a 50% stake in Cervia Global Trading Inc., marking a strategic entry point into the premium local spirits market and at the same time, supporting Philippine homegrown products. This also positions the company for growth in the international market. Cervia is behind the Sula brand, which produces flavored liqueur in coconut, dark chocolate and coffee flavors, using ingredients grown in the Philippines. It is now available in S&R warehouse clubs. So I invite everyone to try and taste Sula liquor in S&R. So for our 5 key investment highlights, Number one, we are the largest distributor of imported spirits in the Philippines with about 75% based on volume and 67% based on retail sales value according to IWSR report, a U.K.-based beverage alcohol research company. Number two, there's a high potential for rapid growth in the imported spirits segment on the back of our expansive and well-curated portfolio. Number three, we are well positioned to capture the premiumization trend in the Philippines. Number four, we have extensive and long-standing relationships with brand owners who are global market leaders. And number five, we have synergistic relationship with Cosco Capital Group through their strategic and sustainable expansion plans to widen our market reach care of Puregold and S&R. So this slide will show you that our market leadership in all the leading categories in the imported spirits market, we have an unmatched collection of global brands covering the total spectrum of the spirits category. We practically hold the exclusive distributorship for either the #1 and #2 in each of the category, except for Jinro simply because the Koreans want to deal with their own in terms of local distribution. This slide shows you that we are in a good position to capture the premiumization of the market as Filipino consumers trends now tend to favor higher quality and premium offerings. We have a growing base of well-informed, well-traveled young consumers that are trading up and drinking better. Our balanced portfolio gives us a wide addressable market and a long path for sustainable growth. This slide shows you our extensive and long-standing relationship with brand owners and principals, some having more than 20 years of relationships with us. The synergy with Cosco Capital Group care of Puregold and S&R's retail network distribution, which has over 700 stores nationwide and growing every year. So for our key financial highlights, The Keepers consolidated net sales for the 9 months of 2025 amounting to PHP 13.4 billion grew by 14.4% from PHP 11.7 billion versus the previous year. The growth was driven by a 16% increase in total cases sold and for the branded category only posted a strong growth of 22% growth in volume. In terms of sales mix in the other spirits category is also a factor as we sold more lower-priced SKU during the period. Overall, we see the premium global brands having a slowdown or softening in volume for 2025 due to uncertainties and trade tensions around the world. Our GP grew by 11.2% to PHP 3.66 billion in the first 9 months of 2025 versus [ PHP 80.3 billion ] in the first 9 months of last year. GP margin saw a slight decline from 28.2% last year to 27.4% this year due to the sales mix and the effect of higher ForEx. Our EBITDA also increased by 9.4% during the period to PHP 2.68 billion from PHP 2.45 billion the previous year. And lastly, our net income grew by 12% to -- from PHP 1.62 billion last year to PHP 2.4 billion -- sorry, from PHP 2.4 billion this year from PHP 2.17 billion the previous year due to our strong sales, as well as a higher share in the net income coming from Bodegas Williams and Humbert. So as of the 9 months of 2025, our share of net income from Bodegas was at PHP 254 million or up 32%. And for the Pernod Ricard, which we own 30% stake, improved to PHP 27 million this year. So over the next 3 years, Keepers will focus on the following: number one, sustaining the growth of its total portfolio of imported spirits and hopefully with a beer volume coming in; number two, integrating Booze Online and Cervia Global to create a portfolio and operational synergies; number three, expanding our retail presence through our new experiential and stand-alone store formats that we plan to open starting next year; and number four, strengthening our ESG practices and digital capabilities to enhance long-term competitiveness. The goal is to evolve our company, The Keepers into a total beverage alcohol leader with both global and local brand relevance. So this slide will show you our cash dividend history. While keepers' company dividend policy is to distribute at least 20% of prior year's net profit. We have been consistently giving out more to our shareholders. In 2022, cash dividend payout ratio was at 30%. And starting 2023, we increased this to 50% of prior year's profits. This year, the Board has approved another round of 50% cash dividend payout amounting to PHP 0.12 per share as of record date of May 6, 2025. This reflects a dividend yield of around 4.8% at the time of announcement. So moving forward, we expect the global trading environment to still be challenging given the supply disruptions, high inflation environment, ForEx volatility and other macroeconomic and global uncertainties. Notwithstanding these factors, we are confident in our strong fundamentals of the company, the resilience of the industry and the ability of our operating business units to navigate these challenges and continue to deliver higher profits in 2025. So we now open the floor to Q&A. I'll pass it on to Denise and sir JP.

Thanks, Sir John, for the comprehensive overview of Keepers performance and outlook. I'm [ Denise Salcedo ] from Sun Life Investment Management and Trust Corporation, and I'll be moderating the Q&A portion of today's session. So joining John is Keepers' President, JP Santamarina. [Operator Instructions] So while we wait for those to come in, maybe I can start with one to get the discussion going. So maybe if you could give us an update on the acquisitions of Cervia Global and Booze Online, where is the company in terms of the integration process?

All right. Do we answer that first or there's already questions on the chat.

I think we can answer that first sir, since it also answers a bit of questions.

It's -- yes. Cervia, the acquisition has been complete. So what we're doing now is Cervia is locally produced, and it's a new brand. So what it means is that it has to -- its organization needs to be ready for scaling up and also the production side needs to be efficient to save on cost. But those are all progressing as planned. On Booze, we are just complying with a few regulatory requirements. And after that, Booze will be integrated into Keepers. So those 2, I mean, Sula will be a good contributor for the local revenues, but its biggest potential is really the export market. Well, Booze on the other hand, will complete the foundational portfolio of Keepers, where it will add beer category in its existing portfolio of spirits and wines.

Thanks, JP. I think it's good to hear the integration time lines are on track. Maybe we could start answering the questions from the audience. We have several from [ Sean ] [indiscernible] for your questions.

I thought it will be a quiet day.

I guess we do have a lot of interest from our investors and analysts in the call. So first question is on 3Q results. Can you help us understand what caused a dramatic slowdown in volume growth for Q3 2025, considering you were significantly outpacing the industry at 20% in Q1 and Q2 to somewhere closer to the industry at 4% in Q3?

All right. For the 9 months, the company grew by 14% still top line, value-wise, Sean. Bottom line was at 12%, I believe. Third quarter is really a very difficult quarter, where the calamities -- lot of calamities struck us, earthquakes to typhoons that really dampened or made -- created a slowdown in our sales. And then the third quarter is also when the scandal on the infrastructure, government infrastructure took effect. So those high flying, high spending contractors or personalities lid low. So there was a slight decline on that one. So another thing that's been felt was that inflation, the inflation pressure really took a toll on the consumption. So some consumers instead of buying alcohol, they just bought the necessities that they need. So those are the factors. But when -- what we saw was that a couple of weeks ago, when the Michelin gave out its awards and then followed by Halloween, Halloween was more than double of what the Halloween was last year. So that's what we need. So I think the parties -- the Halloween kick started the party season already. So that's -- I hope that answers your question, Sean.

Yes. I think he also has a follow-through question on first half results, if it's really just front-loading? Or is the company seeing a down trading or any categories that have weakened?

No, we don't -- very difficult to front load. I mean, the second and third quarter is always a slow period in the alcohol seasonality cycle. The biggest month is really the last quarter of the year. So I don't see any front-loading there. It's just that the third quarter is really a very difficult quarter, one, a slow quarter at that. And then second, it was hit by a lot of calamities and a lot of local market issues like the DPWH scandals and things like that.

Maybe zooming back to specifically 3Q results, he also has a question on -- specifically on the performance of Alfonso and the rest of the portfolio. So what happened then in Q3? And how are you seeing it progress in Q4?

Okay. Can you share what Q3 growth looked like between Alfonso. Alfonso grew. Actually, it's the main driver of our growth, and it continues to grow after this period. So what experienced a slowdown are the ultra-premium categories, okay? So let me give you a little bit of context. The second half of last year, POGO was banned. And POGO was one of the biggest -- the POGO operators are one of the biggest consumers of high-end single malts and high-end cognacs. And then this year, the scandal on the infrastructure projects came about. So the biggest -- one of the biggest consumers of high-end tequilas, high-end single malt, fine wines are the contractors, the nepo babies -- nepo babies and other personalities related to that project. So that slowed down because all of them laid down -- laid low. So not to mention the uncertainties and the trade tensions around the world, that really took a toll on the consumption. It slowed it down a bit. But when we had the Halloween week, I think it brought back the drinking occasion again.

And then for 4Q, sir, how are you seeing trends coming in? Will this be the same as last year in terms of a holiday surge?

Q4, that's the beauty about alcohol beverage. I mean, in the last quarter, especially November and December, even nondrinkers, they buy alcohol for gifting. There's party magnets during December. So December -- Christmas never fails us. So -- and we're already feeling the momentum. So we'll be fine in the next couple of months, this month and next month. Christmas is also -- always big for the alcohol beverage.

That's great to hear. We do have a question on GPM since it jumped quite significantly, almost about 200 to 300 basis points. So from where it was in the first half, can you share where this improvement came from?

Gross profit margin has been hovering in the mid-20s. So we don't see any dramatic jump on our gross profit. Gross profit will only be affected if there's -- for example, if it's Alfonso, if there's a change in the pricing of alcohol raw materials or a sudden change or dramatic change in foreign exchange. Euro started creeping up on the second quarter. So -- but that didn't affect much of our margins. But our margins are more or less like flat. So I -- we didn't see it as a significant jump.

Moving a bit to -- I think we've already answered this one. Do you have any operational updates and timing on Booze Online acquisition? Yes, we've answered that already.

Yes.

Maybe on the -- I think John mentioned this earlier on the retail -- stand-alone retail format, right? I think he's asking for more color on that one.

Okay. So we've been planning for this for a long time, and we've traveled the world to really check what's the best business model for this. So this is a pilot project, where we'd like to showcase our best portfolio. So I think November and December, we don't like to dilute our focus on selling because that's our biggest period. So I think, hopefully, the first half of the year is where our first pilot store will come out. So that's the update on the retail side.

And maybe just a follow-through from my end. I'm curious, do we have already a target for 2026 rather, in terms of the number of retail stores you're looking at?

It really -- I'd like to give you a number, but it will depend on the first 2 or 3 outlets because we have to adjust. We do have a business model in mind. But of course, we have to fit it into the local market. So -- but we'd like to -- the goal is really to have a national retail chain of alcohol beverage outlets. That's the plan.

We have a question come in on potential international expansion. I'll just read through this one. In the international market, it's a very competitive market and dominated by multibillion-dollar companies. How does Keepers plan to attack this international segment? Will the focus be on specific geographies or a broader multiregional approach?

You know what, right now, we're basically operating in the Philippines, okay? That's our market right now. We do have investments in Spain. We're a joint venture partner, 50% in Williams and Humbert. So Williams and Humbert are the producers of Alfonso. So we have an excellent relationship with them. In terms of -- before we get into the international market, I mean, we have to strengthen first our Philippine market. One thing if we are going into that, our first entry will be this newly acquired company or 50% company, Cervia. Sula is the name of the brand, and it's a brand that is -- or does have 3 SKUs in its portfolio. They are all liqueurs, meaning they are sweet alcoholic drinks, a little bit low in alcohol. So it's coconut, Philippine coconut, Philippine Cocoa or chocolate and Philippine coffee. So that we believe once the production here in the Philippines has been sorted out or made efficient, that's a very good entry into the local -- into the international markets. But we still have to -- there's a lot of things to do first locally before we expand internationally.

Internationally.

But that will be our bet. Our -- Sula will be our first bet into the international market. Not -- I mean, Alfonso is already present in some markets, where there's a lot of concentration, Filipino concentration. So Alfonso is already there. So we'll add Sula into that portfolio.