Vitasoy International Holdings Limited (345) Earnings Call Transcript

Good afternoon, ladies and gentlemen. Thank you for joining us today for Vitasoy's annual results briefing for FY 2023 and 2024. Before we start, I would like to introduce you to the senior management of Vitasoy Group. Sitting in the middle of the head table, we have Mr. Winston Lo, Executive Chairman of Vitasoy Group. On the left-hand side of Mr. Lo, we have Ms. May Lo, Deputy Executive Chairman. On Mr. Lo's right-hand side, we have Mr. Roberto Guidetti, our Group Chief Executive Officer. Last but not least, we have Ms. Ian Ng, Group Chief Financial Officer. In the following presentations, we will first have Ian to provide us with a review on the company's financial performance, followed by Roberto's presentations on the business review in different markets and outlook. We'll then have the Q&A sessions. So now let's invite Ian to speak to us, please. Ian.

Thank you, Angela. Good afternoon, ladies and gentlemen. Welcome to our annual results announcement briefing. Before we start, I would like to draw your attention to this disclaimer regarding the forward-looking statements in this presentation. Let me start by providing you an update of our second half performance. The group's revenue grew 6% during the second half of the financial year, excluding currency impact, mainly driven by substantial growth in Mainland China and solid performance in Hong Kong operations. Gross profit margin increased 2.3 percentage points to 49.5%, mainly attributable to higher selling price and increased efficiency in trade promotional spending, partially offset by the depreciations of renminbi and the Australian dollar. EBITDA grew substantially by 78% to HKD 263 million. Loss to shareholders was substantially reduced during the second half of the year. Now let's talk about full year performance. As a result of the second half, our full year revenue grew 1% net of currency impact, after offsetting the 3% revenue drop in the first half of the financial year. Gross margin grew to 50%, an increase of 2.5 percentage points. Profit from operations grew significantly by 78%, as a result of the higher gross profit and more efficient operations after rightsizing our investments and expenses, partially offset by the cessation of COVID-related subsidies received last year. Excluding the COVID-19 subsidies and currency impact, profit from operations improved more than 4x. EBITDA grew 10% to HKD 685 million. Profit attributable to shareholders increased by 155% to HKD 116 million, primarily driven by our Mainland China business and Hong Kong operation, but partially offset by the setback in the Australia business. Earnings per share was HKD 0.109 increased by over 1.5x comparing to last year. The financial position of the group remains strong. As of 31st March 2024, our cash and bank deposits was $794 million. Bank borrowing was $256 million. Now let's talk about CapEx. Capital spending for the period was HKD 133 million. We have completed major production lines upgrade last year. Capital spending has now reduced and we have enough production capacity to support growth for the next few years. Gearing ratio for the group improved to 23%, mainly due to a decrease in bank borrowings. Excluding lease liabilities, gearing substantially improved to 13%. The group's return on capital employed, ROCE, was 21%. As a result of the group's improved financial performance and cash position, we recommend a final dividend of HKD 0.063 per ordinary share. Including interim dividend of HKD 0.014 per share, total dividend for the financial year was HKD 0.077 per share. This ends the first section of the presentation. Now I would like to invite our group CEO, Mr. Roberto Guidetti, to share with you the by-market review and talk about the outlook of the group's business. Thank you.

Thank you, Ian, and good afternoon. Let me now share with you the review of our business overall and by geography. First of all, I would like to emphasize that in the second half of the financial year, we continued our journey of structural improvement. Mainland China in the second half grew revenues at a strong plus 10% in renminbi versus the same period last year. At the same time, we made CNY 29 million operating profit, reversing the CNY 80 million operating loss incurred during the same period last year. This progress in both revenues and profitability is the result of our structural commercial interventions, sustained focus on cost control and disciplined synchronization with the scale of the business. As for the total financial year, net of currency impact and COVID-related subsidies, our group operating profit grew substantially by more than 4x. Particularly, our Mainland China business grew profitability by increasing operating profit margin to 6.6%, a substantial increase of 5.4 percentage points. Net of currency impact, group revenue grew by 1% after the 3% decline in the first half. For the total fiscal year '24/'25, our goal is to increase our revenue and profit growth in Mainland China and at the whole group level. Mainland China will continue to diligently drive execution of our core assets, selective innovation and increasing availability of our products. Hong Kong operation will aim to sustain single-digit growth of top line while enhancing profitability. In Australia, we are committed to restore full manufacturing attainment level to satisfy strong local demand whilst improving profitability. And as for our ASEAN markets, we will sustain top line growth and also improve bottom line in both Singapore and the Philippines. At the same time, we will continue to drive our company's purpose of growing sustainable plant-based taste and nutrition. We will continue to advance our targets on portfolio and energy within our sustainability framework. I will share more with you towards the end of our presentation. Now on the operating profit, we registered substantial operating profit growth for total group versus last year. This was driven by China, Mainland, in particular, but Hong Kong also grew strongly, excluding COVID-related subsidies received in the prior year. Australia and Singapore underperformed, and we are urgently addressing the related issues to return to growth. On revenue, net of currency impact, total group grew 1%, reversing the 3% decline in the first half. China total grew 2% comparing to previous year, also contributed by a solid plus 4% growth in Hong Kong operation. Mainland China remains the biggest market by revenue at 54% of the group. Hong Kong operation revenues increased to 36% of the group, while Australia, New Zealand slightly decreased to 8%. Let's now move to our review by market, starting with our biggest, China. China total revenue was HKD 5.6 billion, up 2% versus last year, net of currency impact. Excluding COVID-related government subsidies received last year and currency impact, operating profit grew substantially by 124% to HKD 445 million. Mainland China significantly improve its performance. From this slide, you can see the progress in both revenue and profit growth in the second half, leading to the total fiscal year results. In Mainland China, revenue grew plus 10% in the second half via improving in-store execution and price competitiveness. Growth was balanced across both brands, VITASOY and VITA and across geographical regions. Despite sustaining investment for advertising, we were able to grow operating profit by over 4x net of currency impact at COVID-related subsidies in the previous year. This was mainly due to more efficient spending in trade promotion and effective containment of input costs and operating expenses. On both VITASOY and VITA Tea, we leverage new marketing campaigns to raise brand visibility and awareness. VITA No Sugar Tea in particular, saw substantial growth from a small base, thus adding incremental revenue. Now going forward, Mainland China will remain our most important growth engine. We are confident in its long-term market potential for both plant milk and ready-to-drink tea. We will continue to drive revenue growth and profitability improvement via enhanced field sales execution. Our focus will be on core products and core geographies for higher growth potential and sales profitability. We will again renew our marketing campaigns on both brands VITASOY and VITA. We will drive core assets and selective innovation on core business. This means focusing on areas where we have established higher awareness, strong brand equity, lower cost to serve and a robust commercial infrastructure. Let me now show you the new advertising campaign for both brands. On VITASOY, I would like to first show you the advertising that we started last year because the new ones you will see after that are complementary, complementary to it. Then after the VITASOY ads, we will show the new advertising for VITA Lemon Tea. We can go ahead and show the advertising. [Presentation]

In addition to these new marketing campaigns, we are excited to also share with you that we have just launched new core range products for both brands. On VITASOY, we have extended our baseline range to fruit flavor VITASOY, which helps to enhance consumer relevance in extended consumption occasions. There are 2 variants: banana and strawberry, both made with real juice and low sugar. On VITA Tea, to cope with consumers' demand on less sugar intake, we have developed VLT Zero, which delivers the authentic and iconic taste of VLT without the sugar. I hope you enjoy the samples that we are providing today outside, and we have obtained encouraging feedback and endorsement from consumers and shoppers on them so far. Two new variants of no-sugar tea are also introduced to capture the strong demand of the category. We will launch the relevant marketing campaigns to drive trials and awareness. And here, I would like to show you the TVCs for all these new products that we are launching now. [Presentation]

Thank you. That was Mainland China. So now moving to Hong Kong operation. Hong Kong operation delivered steady revenue growth of 4% as a result of core business strength, improved consumption in convenience stores, continued improvement of penetration and normalized Vitaland school business. Excluding COVID-related government subsidies from the previous year, we grew profit from operations by 42% as we drove sales and savings in material and production costs. Now our Vitaland business has now normalized, which not only provides additional growth to our revenue, but also serve as a unique platform to continue educating our young consumers, fostering their awareness and regular consumption of our product portfolio. According to Nielsen, we remain the market leader for both categories, ready-to-drink soy milk, ready-to-drink tea, contributed by solid core product performance and additional growth from new products. We will continue to sustain the leadership position and revenue growth by leveraging our strong brand equities and also selecting core-focused innovation. Let's now move to our overseas business, starting from Australia and New Zealand. The Australia and New Zealand business registered revenue drop of 5% in local currency. The manufacturing issues, which we are now resolving, caused out of stocks and thus, revenue losses despite strong market demand on our VITASOY and plant-based products in general. In Hong Kong terms, revenue dropped 9% due to the depreciation of the Australian dollar. We incurred operating loss of HKD 81 million, mainly due to lower sales, higher logistic costs incurred by tighter supply and other operating costs incurred after the transition to full ownership. The manufacturing issues only affect our liquid plant milk portfolio. On plant-based yogurt, we continue to grow and establish this new category. We've just added a new tasty variant to our soy yogurt range, Hint of LEMON! and following the strong consumer acceptance of our soy yogurt, we've also added a new line based on oat, which delivers a signature smooth and creamy texture, along with a strong nutritional profile. In '24/'25, we will improve and resolve the local production situation, enhancing the stability of our supply chain to continue fulfilling strong market demand on plant-based products. We will start growing this exciting business and gradual recovery of profitability. Let me now close the segmental review via covering our Southeast Asian markets, starting from Singapore. Singapore revenue slightly dropped by 2% in local currency, while on par in Hong Kong dollar terms. Improvement in the tofu export business was offset by weaker beverage sales as we reduced the stocks before moving to a new beverage distributor. The business registered operating loss of SGD 2 million, mainly due to high raw material prices and intensified market competition. We will continue to optimize this business via stronger beverage sales and improved tofu financial to restore profitability. And now let's close by market review via a brief update on our joint venture business in the Philippines. Our joint venture in the Philippines with Universal Robina Corporation, URC, continued driving scale in both take home and on-the-go channels, sustaining market share growth and building the product category in the Philippines. We'll focus on enhancing product distribution, continuing our awareness and trial program to grow sales and market share, leveraging the current strong momentum in our complete portfolio. Now before we conclude the presentation, I would also like to give you an update of our progress on sustainability and ESG. First of all, our 10th annual sustainability report will be available on our website on July 12, together with the annual report. What you see here is our sustainability framework which contains our targets and KPIs on our important sustainability issues. These targets were set for 2025/'26, and we are making good progress in achieving them. You can find the details in our sustainability report, but I will highlight our progress on the '25/'26 targets in more detail in the next slide. Our portfolio is sustaining strong progress in driving a plant-based, nutritious, low-fat and low-sugar offering aligned with our purpose. We are on track on our goal of water reduction, while the energy reduction target has not been progressing as rapidly. We stay dedicated to improving our energy efficiency and implementing strategies that drive sustainable energy consumption. Additionally, we're also making progress towards our targets for zero manufacturing waste to landfill and to achieve zero injury in the workplace. This year's sustainability report also includes our stand-alone report aligned with the recommendations of the Task Force on Climate-related Financial Disclosures, TCFD. This represents an important step forward in our commitment to transparent climate-related disclosure and risk management. Let me highlight a few of the key elements included in our TCFD report. We'll continue to assess the climate-related risks and opportunities with direct Board and executive oversight. We have also updated our greenhouse gas emissions inventory to cover Scope 1, 2 and 3 emissions, providing a comprehensive baseline as well as climate change, the report also started incorporating information relevant to the Task Force on Nature-related Financial Disclosures framework, TNFD, reflecting our holistic approach to both climate and nature, which are closely related to topics material to Vitasoy. One important pillar of our sustainability framework is also community engagement. Here, we want to update you on our multiyear school nutrition education program in Mainland China. Since the inception of the program, it has already benefited 47 primary schools and helped about 6,500 underprivileged students in rural areas. We distributed more than 3 million packs of VITASOY products, delivered booklets that promote healthy habits and supported nutrition classes. We collaborated with the Chinese Center for Disease Control and Prevention, China CDC, to provide education on nutrition, sustainability and fitness to students. Externally, our ESG ratings results continue to sustain high performance, as shown in this table. In summary, for fiscal year 2023/'24, we have made significant improvement in our structural profitability. We are confident in increasing revenue and profit growth in Mainland China and also from a group perspective. Mainland China will continue to diligently drive execution of our core assets and strong innovation, increasing the availability of our products. Hong Kong operation will aim to sustain single-digit growth of top line while maintaining profitability. In Australia, we are committed to improve manufacturing attainment level to satisfy strong local demand whilst improving profitability. And we will sustain top line growth and also improve bottom line for our ASEAN markets via improvement in tofu business in Singapore and sustaining strong momentum in the Philippines. On sustainability and ESG, we will continue to drive our targets on portfolio and energy within our sustainability framework. That's all of our sharing, and we are now open for questions. Thank you very much.