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Edited Transcript of URC.PS earnings conference call or presentation 30-Apr-19 8:30am GMT

Q1 2019 Universal Robina Corp Earnings Call

Quezon City Jul 9, 2019 (Thomson StreetEvents) -- Edited Transcript of Universal Robina Corp earnings conference call or presentation Tuesday, April 30, 2019 at 8:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Irwin C. Lee

Universal Robina Corporation - CEO, President & Director

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Conference Call Participants

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* Divya Gangahar Kothiyal

Morgan Stanley, Research Division - Equity Analyst

* Jeanette G. Yutan

JP Morgan Chase & Co, Research Division - Head of Philippine Research

* Jody Santiago

UBS Investment Bank, Research Division - Head of Philippines Research, Executive Director and Philippines' Strategist

* Jomar Lacson

ATR Asset Management - Head of Equity Research

* June Zhu

Goldman Sachs Group Inc., Research Division - Executive Director

* Pankaj Chopra

* Utkarsh Mehrotra

JP Morgan Chase & Co, Research Division - Analyst

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Presentation

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Operator [1]

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Welcome to URC's quarterly investor briefing. Joining us today from URC are Mr. Irwin Lee, President and Chief Executive Officer; Mr. Francisco Del Mundo, Chief Financial Officer; and Mr. Michael Liwanag, Senior Vice President for Investor Relations.

URC will give you a presentation on the company's first quarter unaudited results in calendar year 2019. At the end of the presentation, there will be a question-and-answer session.

I now hand over to Mr. Irwin Lee. Thank you. Please go ahead.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [2]

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Good afternoon, everyone. Today, we'll be reporting our unaudited results for the first quarter of calendar year 2019. As usual, we'll do this in 3 parts. First, I'll go through the financial results for total URC business and the 3 major business divisions; second, we will go over our expectations for the year; and third, we'll provide some key updates on specific strategic areas. After my prepared remarks, then we'll be happy to take your questions.

So let's get right into it. Total URC top line sales for first quarter came in at PHP 33.3 billion. That's a growth of 7% versus last year, driven primarily by very strong growth in our businesses across the Philippines, and this led to a 10% growth in operating income amounting to PHP 4 billion with margins effectively improving by about 32 basis points versus last year.

If we get into the Philippines specifically for our Branded Consumer Foods division in the Philippines, we saw very strong performance across all categories. I'm very pleased to note that the momentum for this division has accelerated given the flatness that we've experienced in the past year or so. Our top line grew by 11%, amounting to PHP 15.6 billion and it's driven by good performance across all categories. The restaging of coffee, which I talked about in our last call, this went live middle of January, and that has given us initially some very encouraging results and it has allowed us to pivot this coffee business back to growth after several years of decline.

Operating income for the quarter in Branded Consumer Foods Philippines increased by 12% versus last year, amounting to PHP 2.2 billion. And that's driven by the higher volume that we're seeing across all categories and also by an increase in average selling prices, benefiting from the price increases that we have put into the market since 2018.

Looking at some of the categories. Our overall core snacking business grew by 6% for quarter 1; very strong growth in the salty snacks, chips and crisps, that was up 12%; and bakery is also up about 5%. Our confectionery business is the only one that had a decline primarily due to the transition of our production lines from once -- 1 plant that we closed in December, and that's being moved across to other sites over the first quarter. Noodles grew by 7% versus last year, continued to be driven by strong sales of our Payless brand.

Moving over to beverage. As I mentioned earlier, coffee is up strongly year-on-year. For the first quarter, coffee was up 24%, and that's driven by growth across all of our coffee franchises and forms. That's giving us some very favorable initial results. There is obviously some pipeline in the first quarter for the new products that we launched, and we will continue to communicate, invest in the brand to drive even greater trial and conversion for the brand as well as widen distribution and availability, riding on the route-to-market enhancement program that we're doing in the Philippines. Ready-to-drink tea was also good. We grew 6% versus last year, driven by the C2 brand and also strong growth in our smaller packaged water business. Our beverage joint venture with Danone grew 6% versus last year, bouncing back from the sugar tax challenges of 2018. And our joint venture with Vitasoy also grew 40% versus last year as we get into the second year of the launch of our soymilk.

Moving on to our International division, some challenges here. Our International sales declined by 3%, up minimally, 0.4%, in U.S. dollar terms versus last year, amounting to PHP 10.2 billion. And the first thing to say here is we're a bit differ on a -- on pesos terms by foreign exchange, particularly the devaluations in the Australian and New Zealand currency. Having said that, New Zealand is back to growth after a decline of 2018. Australia sales is flat to down 1%, affected by a capacity increase transition that we've been working on for the last 3 to 4 months. Vietnam continues to grow despite the higher base, and Thailand sales declined due to trade inventory corrections, although profit continues to improve strongly.

For International division, operating income in total increased by 5% and a couple of points even higher than that in U.S. dollar terms versus a year ago, amounting to PHP 1 billion, and this is driven by continued recovery in Vietnam and better overall cost and operating expense management in all other countries with margins improving by 72 basis points despite the weaker currencies.

Turning over to the Agro-Industrial & Commodities division. Our total Agro-Industrial & Commodities sales increased by another very strong quarter, 6 -- up 16%, amounting to PHP 7.2 billion where we continue to see growth across all of the industrial divisions. The first quarter earnings before income tax also increased by 17%, at pace with the sales growth, amounting to PHP 1.4 billion.

So in our Commodity Foods Group, which is the Flour and Sugar business, revenues grew by 13% to PHP 4 billion, while earnings increased by 22% to PHP 1.1 billion. This is driven by both higher volumes and higher selling prices, particularly in sugar.

Sugar and Renewables increased sales by 9% versus last year. And flour and pasta sales grew by strong 25% driven by higher volumes as we brought to market volumes from the capacity expansion in our 2 flour mills.

Agro-Industrial's top line grew by 21% versus last year, bringing it to PHP 3.1 billion, and this is driven by -- primarily by a very, very strong volumes and higher selling prices in our Feeds business.

Turning over to our cash position. Balance sheet remained strong. We ended up with over PHP 10 billion in cash and net debt position of around PHP 30 billion. And as usual, that just relates to the remaining debt associated with the Australia New Zealand acquisitions. Our gearing ratio continues to be very manageable at 0.52. And the cash was driven by strong EBITDA, reaching over PHP 5.6 billion in the quarter and spending about PHP 3 billion in CapEx.

So with those financial highlights, let me move quickly to our expectations. For the balance of the year, we continue to see top line growth momentum, enabling us to reinvest in brand building and distribution. Our international business top line growth will be phased a bit more to the second half, but profit improvement is expected to continue. And our Agro-Industrial & Commodities business is expected to maintain its strong profit -- sales and profit contribution for the year. So all in all, we see our total URC top line momentum building. And as mentioned in the previous call, we see our margins expecting to hold, if not slightly improve.

I now want to spend a few minutes just giving some key updates on some strategic areas. We've talked some of our where-to-play and how-to-win strategies in the past and I just wanted to highlight 3 areas today, one on product supply transformation; another on our product portfolio innovation process improvement; and lastly, on our people- and planet-friendly culture sustainability commitments.

So starting off with our product supply chain transformation. We've talked about the pilots we've been making in this area. So as we committed in the past briefings, we've been working on quantifying the benefits we'll be getting from this transformation area. And we are looking at the -- a program savings in the amount of about PHP 1 billion. This will be led out of the Philippines, and this is primarily going to occur in the Philippines and they will update if this number increases as we quantify more into the international areas. But the PHP 1 billion we see as being phased and building up over 3 years with a skit of roughly PHP 200 million in year 1 and PHP 400 million in year 2 and PHP 400 million in year 3, accumulating to a structural ongoing annual savings of about PHP 1 billion. This will come from several elements in the transformation program. Our lean approach will deliver significant material usage savings, significant efficiency in utilities as well as planned operating expenses and significant improvement in plant productivity and manning and crewing operations. And last, but not the least, we're also looking at our supply network savings. As we look at our network, we see significant logistics and transport savings over the next few years.

We are also now in -- at the phase of looking into -- deep into International opportunities. Many of the pilots learnings that we've had in the last 9 months -- last 6 months, sorry, in the Philippines, I think, are applicable with significantly more of efficiencies probably showing up in the Philippines, but some that might also benefit the International operations.

Secondly, we have a strategy of developing products and brands people love. We've been working on new, improved innovation process management in the last year. This new innovation process management is rolling off across business units and/or many things that this new process enables. I'd just highlight 3 examples for today. We're using this in process to get into better-for-you platforms, getting into better discovery and consumer research approach, getting into this new trend on health and wellness.

Over the last few months, we've used this process to launch nice and natural health bars initially into Indonesia -- a few accounts into Indonesia and the Philippines. This is, as I said, our process in building our nutrition and wellness portfolio, serving emerging consumers who are actively looking for better snacking options. This is also, I guess, a version, too, of our efforts to take some of the assets that we have from the Australia New Zealand acquisitions and develop them in the right way for the ASEAN markets. This is now a product that is on a more appropriate sizing, appropriate price points, with taste profile adjusted for the ASEAN markets.

A second example would be the in-depth consumer insighting efforts we did in the restage of Great Taste coffee business in the Philippines. It was a very agile and fast approach using this new innovation process to be able to bring to market the restage that we did in January, starting from the diagnosis that happened way around June-July time frame of last year. So the relaunch of Great Taste White with the additional product lines of Caramel and Crema are a result for this process from a much more consumer-centric lens.

A third example is just part of our discovery process was looking into new snacking trends. There's many of them. I've mentioned health and wellness, and it also includes convenience, premiumization, urbanization, but also where we saw this overlapping of snacking in biscuit occasions. In Australia New Zealand, we've launched snacking crackers under the Natural Cracker Co. brand in Australia and snacks crunches in New Zealand. These launches are aligned to this new global trends, and not only the combination overlapping of snacking in bakery segments, but also from the elements of authenticity and the use of natural ingredients.

Third, last but not least, we wanted to touch on our sustainability commitments. An integral part of our people- and planet-friendly culture strategy. URC announced our long-term sustainability commitments in relation to materiality areas we've announced publically last year. We see that we can have significant material impact in natural resources, people, products areas. Our commitments that we're announcing today are fully in line with the United Nations' Sustainability Development Goals (sic) [Sustainable Development Goals]. And we're joining many, many other companies across the globe in targeting 2030 goals that will ladder up to many of the elements in the UN Sustainability Development Goal (sic) Sustainable Development Goals framework.

So for natural resources, we are looking to optimize our use of energy, and we will be looking at reducing our energy use ratio by 30% along with also similar reduction on our carbon footprint greenhouse gas emissions.

On water, we're also moving into a lot of substantial water improvement areas in our facilities in order to improve our water use ratio also by a reduction of 30% by 2030. These commitments are aligned to Sustainable Development Goals along the lines of climate action, responsible consumption and production and also clean water and sanitation.

In the area of people and communities, we are promoting a safe working environment towards 0 lost time injuries in the workplace. We're empowering the organization to our people- and planet-friendly culture initiatives, ensuring holistic growth for our employees at all levels. We are also committing to improve people's capabilities, so leading to better livelihood, improved nutritional level and environmental stewardship in communities where we live and operate. These efforts in people and communities are aligned with sustainable development goal areas in terms of decent work and economic growth in communities, quality education, 0 hunger and responsible consumption and production as well.

Last but not least, on our products. We are firmly committed to delivering consistently products of high quality as we ensure that our processes will always be aligned to the best-in-class standards. We will improve the nutrition and wellness profile of our product portfolio aligned to our wellness criteria, and we will reduce our packaging footprint and make 60% of our packaging recyclable. These commitments contribute to 0 hunger and responsible consumption and production of Sustainable Development Goals. For any clarification about these commitments and strategies, you may get in touch with our investor relations team. We're now in the process of developing our second GRI, Global Reporting Institute (sic) [Global Reporting Initiative], report that will be released on the second half of this year, which will give everyone more color and more details about our baseline and our long-term commitments. Having gone through the baseline effort over the last 6 months, we are a lot more confident in achieving these goals, and we will be regularly tracking and reporting our progress in these areas.

And with that, that closes our prepared remarks, and we'll be happy to entertain questions from the call.

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have our first question from the line of Jomar Lacson from ATR Asset Management.

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Jomar Lacson, ATR Asset Management - Head of Equity Research [2]

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Congratulations on the good results. I just wanted to ask about the increase in sales for the domestic business. I think during the first full year, you mentioned that volumes had been weak and the very increase of warrant price increase. So just wondering whether we can say that for the first quarter, the volume per dollar increased alongside price increases. And -- yes.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [3]

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Yes. Volumes are good. The growth of 11% has strong volume growth underlying it. There is the phasing of price increases that were done in 2018, but volumes are very, very strong in several categories.

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Unidentified Analyst, [4]

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This is [June Taravago]. Just wanted to ask -- first of all, congratulations on the results. And could you talk about how significant distribution support was for -- the support from -- for and from the distributors in terms of the growth in the top line, especially in those areas that were challenged in the last year or 2?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [5]

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Yes. I think we're getting very, very strong distributor support. We mentioned in previous calls about one of our transformation programs. I did highlight that because we've talked about that before. One of our strategic pillars is being a preferred partner of choice, particularly to our customers. So yes, we have been working with our regional distributors in the Philippines. We've also been working on route-to-market reinvention for us in other countries. But it's fair to say that we're probably most advanced in Philippines. That went into gear on the back end of last year. We had very good engagement with our distributors, and they have been strong partners with us as we lined up our programs for 2019. It's very good to see them come along, support our growth. We are on a journey to increase our direct store coverage with these distribution partners. We haven't yet hit the target that we are aiming for, but we have a very strong start. I mean it's rolling out to several of the regions in the Philippines. So definitely, you're correct in assuming that they're -- we're already seeing some of the benefits of the support from the distributor partners. Having said that, I'm just going to close on this question also by saying that our key accounts, our modern retail partners have also been very, very instrumental and are strong partners with us. So it's really strong support across-the-board in the trade, both in general trade as well as in modern trade. And I think that speaks to -- not only to the sales programs that we have, the sales and distribution efforts that we have, but also it is a testament to the strength of the brands themselves because I think working in concert, and that's kind of what's giving us some of this momentum. And it's good to see that coming together and drive the growth that we saw in the first quarter.

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Unidentified Analyst, [6]

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Last question. There seem to have been quite a significant improvement in the coffee business. Is this -- but in terms of market share, the space was still dominating by the 2 brands. You were I think in the third. Could you talk about where market share is coming from? And where are you now? And are you seeing less competition there? Or are you seeing shifts in the competitive landscape there in coffee? Could you give us a better sense of that?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [7]

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Yes. So yes, coffee has a very strong start to the year. I think that's why we are being cautiously optimistic. We don't want to kind of celebrate too early. I think it's only 2.5 months in the quarter. And obviously, the strong volume growth and sales growth of coffee in the first quarter involves some pipelining of the new products. Remember, we added a couple of product lines to the lineup, and -- on top of the Great Taste White that was already there. And so I think we have to be a bit cautious. We are seeing some very favorable repurchases. The first read of market share -- it's very, very early, but I think the first read after the launch is only in last -- in this February. We have just confirmed the March numbers. But we are -- we began to see some market share turnarounds, small increase in the first reading post the relaunch, we saw a 20 basis point increase. Strong representation on the new product lines. We did clean up our portfolio. So we did take out some of the superfluids SKUs. So we did expect that the market share increase or the first reading will be a bit muted, but we did already did see a positive uptick. The only other flavor, I guess, to give is we are tracking several key accounts where we can see offtake repurchase. And so far, of those that we can see, the momentum seems to be holding. But it's very, very early stage in the relaunch of our quarter in. And therefore, we shouldn't be resting on that. We have a lot more plans to execute. And this is about staying the course, executing with excellence, so that we can get that growth momentum carry forward for the rest of the year.

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Unidentified Analyst, [8]

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Sorry, this is really my last question. I -- If I remember correctly, last year, you made some attempts to integrate vertically. I think you were planning to buy a sugar company. Is that an initiative that's been abandoned already? Or is -- are you in the process of doing more of the same? And what are the challenges there? Could you -- if you can talk about that, please give us an update there.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [9]

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On the specific acquisition that was in the public domain, I think there was -- we've publicly reported the acquisition of another sugar mill in Batangas. That particular acquisition is no longer at play. We have worked with the Philippine Competition Commission on addressing some of their concerns. We have been asked to make some commitments and measures, which -- and we have gone as far, I think, as we are willing to take it, and that has not yet satisfied the requirements of the Philippine Competition Commission. So we've basically put that already -- that's no longer on the table. So on that particular sugar mill acquisition, yes, we can consider that chapter closed.

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Operator [10]

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We have our next question from the line of Divya Gangahar from Morgan Stanley.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [11]

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I'll ask three questions. The first one is just the continuation of the coffee business. What has been the competition response to this new launch because we heard that Mayora has started taking some price hikes for their coffee business? Do you see any aggressiveness on the trade side? And if you could give us some color on that? And also, you mentioned that you have seen a 20 basis points increase in February, but when we look at the market share data that you provided, we actually see continuous declines in market share for the first 3 months. So if you can just reconcile that? That's my first question. Do you want me to ask the remaining or one by one?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [12]

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Sure. Yes. What's the third?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [13]

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Yes. So my second question is just on the international BCF margin. Despite the lower revenue growth, we've seen the margin improve. So if you can give us some more color on which countries are seeing this and how Vietnam is especially ramping up on margins? And lastly, just a housekeeping question on what the A&P spend was for this quarter, just to get a gauge on how much reinvestments actually went through in this quarter itself?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [14]

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Okay. On coffee, yes because the competition response has been strong, I don't think they are taking it lying down. So we have seen increased investments in store as well as on TV. We have seen some very confusing price moves. We have not really seen prices in a sense that there has been some promotional activities, which we had anticipated, which is fine. There has been some confusing price movements from competition, particularly from Kopiko, but I think that's related to uncertainty of whether a certain import tax will be taken out or not taken out. In the meantime, you may have read that they are -- they have announced the plan to build some kind of a coffee processing plant in the Philippines. But we have not seen dysfunctional, if I may call it that, price, dramatic price changes. But there has been some confusion in terms of whether their pricing are going up or down. Nevertheless, we kind of stay focused on our gains. So we are clear on the value proposition we're trying to bring to the consumer. So we will be staying put and committed to what we're bringing to the consumer.

In terms of market share, what I mentioned was the February first week post the launch. I think the materials we may have given is rolling 12 months. So I think what you're looking at -- I think in materials that we sent out, there may be moving average 12 months' figure, and therefore, that will not be able to show the market share increase yet because it would have a long period where we were indeed on a market share decline. So what I referenced was a market share increase, it's the first read. The Nielsen period here tends to be like -- I think like either mid-month to mid-month or third week to third week. So I think we're looking at something -- and that's the period that we're interested in because we did the restage on the 11th of January. And therefore, we were looking at market share reads post that. So on a rolling 12-month basis, you will not see the market share increases yet, and we obviously got our hopes also on a more consistent market share growth going forward.

On your A&P question, yes, indeed, we have had a significant investment, and that's kind of part of the discussion that we've always said on reinvesting in A&P. We have an increase of about 15% year-on-year. And just looking at the numbers, I'm not confused between -- we did some PFRS restatements where we've moved some promotional spend into the sales deduction line. So I think we -- given that we are committed to investing in the brand-building efforts, for the first quarter, we saw our A&Ps go up about 15%. So that's actually a little bit higher than the sales growth, but it's still a very, very manageable percent of sales A&P. And as we continue to grow more consistently, more strongly, then that will give us the ammunition to continue to reinvest in advertising.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [15]

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Sorry, so I had one pending question, which was the drivers of the international BCF margin.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [16]

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Yes. So it's across the board. I think both of our -- I think as I went around the international markets, we have a very strong cost improvement program. So virtually all of our international operations are increasing in margins, including Vietnam. Obviously, it's on a recovery path. I don't have the specific delta. We can get that for you separately, but my recollection is all of the markets are on a margin improvement path.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [17]

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Sure. Just one clarification on that coffee comment that you made on confusing pricing. So as of today, how are your products priced versus Kopiko and Nescafé? Is there still a price differential? Or are they more or less at parity?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [18]

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Generally, it's parity. Some differences in some accounts, but broad stroke, call it parity.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [19]

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So when they took those price hikes, I mean, in the coffee business, have -- has URC also taken a price hike this year?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [20]

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No, we have not because -- that's why I say confusing because we have seen price hikes, then we have also seen rescinding of those price hikes.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [21]

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No. This is for Great Taste, I'm talking about Great Taste. For Great Taste, the pricing has been the same?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [22]

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Yes. We have not changed our Great Taste. So I was just commenting on the confusion of the competition price moves because we have heard of a price increase, and then we've heard rescinding of that price increase.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [23]

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Okay. So net-net, it's product parity.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [24]

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Yes. So when you do something like that, it tends to mess up the market. So you have some people who go up, come down. Some went up, didn't come down. So that's why you' probably have heard of some kind of a price move. But as far as we're concerned, we're -- and as I look at the overall pricing, if you combine it with promotional activities, it's generally at parity.

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Operator [25]

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We have our next question from the line of June Zhu from Goldman Sachs.

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June Zhu, Goldman Sachs Group Inc., Research Division - Executive Director [26]

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Yes. I have a couple of questions. My first question is again just some follow-up on the coffee side. I understand that this 24% growth in first quarter has a lot to do with the pipelining, meaning you pushed the product to the trade to make it available. But if we are coming into -- I wonder what is the reordering or the underlying retail demand actually is after January and February, especially in the March when you start doing your advertisements, et cetera. The underlying retail demand, how -- what's kind of growth that you're looking at? So I guess, what I'm trying to get at is at a more normalized level of the full year, what kind of sales growth you are now looking at? This is my first question.

And my second question is on, I recall that you mentioned that there is -- the salty snacks is up 12% year-on-year in the first quarter, pretty strong growth. Could you -- does that mean that the down trading trend that we had been seeing in the salty snacks place has -- is sort of behind us?

And my third question is on the chocolate side. We continue to see there's a disruption from this plant closure, et cetera, and we continue -- the market share of chocolate is also kind of declining and there are new players coming in. So we wonder when will these disruptions end this year for the chocolate side.

So firstly, just these thee questions first, and I have two more on the savings -- on the supply chain savings later. Yes. So maybe we can talk about these 3 questions first?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [27]

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Yes. Okay. So first of all, on coffee, there is pipelining, but I don't see that as a -- the only thing that drove the 24%. So when we looked at the orders that came in obviously there was enthusiasm for the entire restage program. There was pipelining for the new products. The new products are moving quite well, as we forecasted. So they are living up to the expectations that we have set out. When we look at the individual months, March continued to be double digits in growth. So it did really tail off after the first couple of months. So that was quite encouraging. We -- I think the thing that still needs to play out, which we have to watch over the next few months is the rate of cannibalization. There has to be some natural rate of cannibalization as we put in new favorite profiles into the market. It will be wonderful, and the way we've designed it is to minimize that. And the taste profiles that we've designed are very different from what we had in the past through the 2 new additions. But the natural course of a market is, there will be some cannibalization because consumers will not, of course, perfectly know where we drew the lines on taste profiles. So there will be some trials and some experimentations with our consumers, and they'll pick and choose which one that they like. So that's what we will be watching fairly closely. So first month of -- I don't know if we can call it March normalization, probably not yet. There still continues to be strong growth. We're just finishing April, we're still seeing growth. So far, the expectations on the new lines are good. We're watching how much of the -- so it's not so much a concern of the repurchase rates of the new lines. We've seen that come through within our expectations. We're now seeing -- we're now watching where the original Great Taste White product will settle. So having said that, as we look at our order profiles going forward and as we look at our projections going forward, we are quite confident that we would have -- that we will -- we have pivoted the coffee business back to growth, and we believe that will be able to ensure that, that growth continues, perhaps not at a 24% rate but certainly in a mid- to high single-digit-type growth should be within the realm of reality. So that's kind on the coffee. And I think you'll need a few more months to confirm the trend -- the encouraging trend that we're seeing sustained.

On snacks, 12% growth. It's -- yes, it's very strong. But the down trading I -- that's -- it's hard to say that that's particularly -- that, that trend is over because if you really look at the details of the market share reports, you will continue to see this, low-value brands grow very strongly. They are continuing to grow very strongly. So having said that, I think we do participate in more the mid to high. We have made a strategic choice not to chase down into a negative spiral, all of this very low-tier products. We are doing some moves to have more affordable price points. But in general, I think we will continue to make sure that we don't participate in very value-destructive reactions to the market. So what the -- what this result tells us is there's growth in various segments of the market. There was pressure from the bottom side, but I think it shows that when we're focused on our business, on our segments that we can continue to grow that segment. If you look at our market share, we're kind of flattish. But it actually matched some strengths that we have. If you just look at potato chips segment or the healthy multigrain segment or the crackler segment, we're actually growing share. The only part where we are -- where we've lost some share is in the corn chips segment, and that is where the low-price value players are most active because that's the easiest and lowest barrier to entry segment. When you have really great formulations, great products, not-easy-to-copy product like our Piattos brand and our Jack 'n Jill potato chips, we continue actually to extend our market share lead versus the other players. So it's a very interesting but a much more complex market, I guess, is what I'm trying to say on snacks. It's not a 2-dimensional value-only versus premium. I think there are opportunities for growth in various segments, and I think that's kind of what's showing up. Obviously, we took some pricing last year and that might have contributed to a little bit of the pause in the growth. But now, with our distribution program in -- been gaining strong momentum, our snack business being a hero product for our portfolio, we're seeing the benefit of that growth.

And lastly on chocolates. Yes. I think it's taken longer than we had planned. I think we -- this is a very major site relocation that happened for the end of last year, and moving multiple lines to multiple other locations was quite a daunting task. So probably fair to say maybe we've underestimated a bit of the complexity of moving those lines. Then I think secondly, once you've moved those lines, I think there are some wrong assumptions that we will immediately get into the rated capacity that we were able to do in the past. And I think when you move lines, they take a bit more time to ramp up. So having said all of that, the crux of your question is when do we anticipate to get back into growth. I think it's very soon. I think we're talking months. I think we now have all of the lines running. We are ramping up day by day. I think within this month, we would have completed all of the final adjustments needed. So I am hoping that by the next quarter, if not, certainly by the third quarter, we'll begin to get back into this because there is a lot of pent-up demand for that. And you're right, we've lost some chocolate share because of the absence of supply, particularly for our Cloud 9 brand. Just to add in that also is we are going to be commissioning also a new capacity in the -- in our mix brand, and that will also help in the growth of chocolate.

And last piece on chocolate would be dealing with -- it's not necessarily, I guess, new players, but we -- the moves of the global players to offer more affordable price points certainly is a challenge that we are looking at because the global players are the ones that have been gaining share primarily by the offering of price points that are more accessible to the consumers. Now we have always been the more accessible price point, and therefore, we're looking at other opportunities to grow in the chocolate space.

So those were the 3 category questions. If you want to follow up with the savings one?

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June Zhu, Goldman Sachs Group Inc., Research Division - Executive Director [28]

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Yes. But just very quickly on the coffee side, if you continue with this kind of strong growth and achieving, let's say, high single digit for the year, what kind of margin profile would the coffee business be? If I'm not wrong, now it's still at high single digit or 8%, around there. So if you can deliver that kind of growth, what kind of margin could it achieve? That is just a quick follow-up on -- yes.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [29]

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Yes. We are -- we were willing to sort of reinvest a lot of our margin improvements for the brand building, and we've -- we're certainly prepared to do that. As it stands, I think we're actually holding or slightly improving our margins even in the coffee business. So that's kind of what the first quarter has done just because of the strength of a 24% top line increase. So we've actually had some modest improvement in coffee margins. But we're sitting on it because we obviously have strong plans for the balance of the year, and what's important to us is more of the long-term rejuvenation of this brand.

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June Zhu, Goldman Sachs Group Inc., Research Division - Executive Director [30]

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Got it. Yes. So on the supply chain transformation, the PHP 1 billion total saving in 3 years, if we roughly translate it into as a percentage of sales, would it translate into about 20 to 30 bps per annum kind of margin improvement just on the savings, on the GP margin side? And would you read that -- yes.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [31]

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Yes. If you take it on total URC, you're right. If you take it on the Philippine business only, it's even more than that, right? So it'll be coming up to, I don't know, 160, 170 basis points. So I think what we're trying to do -- I think the question of how much we reinvest, it's a bit of a fungible question. What do I mean by that? I mean we're obviously going after the savings. These savings will be used for a number of purposes. So obviously, part of it will fund reinvestments in A&P. Part of it, frankly, will have to offset input cost inflation. So it kind of depends. So it's not going to be very straightforward to see where this goes, but I think we are generating as much of the savings as possible because we do want some of it to drop into the bottom line and to help us improve our EBIT margins. But some of it would have to be used to offset some of the cost increases that inevitably will come as we see the swings of commodity costs, like oil was good for the first quarter, getting a bit more challenging this quarter. But having said that, there are also going to be scale of margin opportunities. If we can drive that for first top line, if the brand reinvestments work properly to drive the top line, then we can combine this pot of absolute savings with the scale of margin efficiencies that we will get.

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June Zhu, Goldman Sachs Group Inc., Research Division - Executive Director [32]

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Got it. And my last question would be on the International business. Can you elaborate a little bit on the Australia side on this capacity increase transition? How long would -- when will the Australia become normal again on this? Because if I remember, the Oceania, we -- on a normalized growth rate, it's usually about 4% to 5%. But it seems like both countries, Australia and New Zealand, is below this kind of growth trend, yes.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [33]

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Yes. 4% to 5% was the historical growth trend, that's correct. I think we were -- we had mentioned in several calls that, that historical growth trend has decelerated in 2018 because of trade conditions in Australia and New Zealand, particularly on moves that retailers have done in what they have chosen to support in terms of space and promotional activities. So we see the Australia/New Zealand market decelerating to low single digits. And as you see, I think New Zealand has come back around that now.

To your question on Australia, it has already come back. This is a very short-term thing. The comment on capacity increase transition is, since the acquisition of Snack Brands Australia, this is the first time that we are -- that we have invested in major equipment and plant upgrades. So this is a signal of our commitment to that business. We obviously bought into that business, believed in it. And there have been some aging and capacity constraints that need to be addressed with some investments. We've made those investments towards the end of last year, and there was just some scheduling and some timing of when those capacity upgrades and plant equipment upgrades happen. They just happen to straddle over the end of last year to the start of this year. We already saw some growth in March, and we're also seeing already growth now in April.

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Operator [34]

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We have our next question from the line of Jody Santiago from UBS.

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Jody Santiago, UBS Investment Bank, Research Division - Head of Philippines Research, Executive Director and Philippines' Strategist [35]

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Congratulations on the strong results in the first quarter. Yes. Two questions for me. Number one, you reported first quarter 2019 operating margins of 11.9%. Last year, for the full year, your operating margin was 10.5%. When you give your guidance for the overall margin, you say it's going to be flat or slightly better. But just comparing those two, 10.5% last year, first quarter is 11.9%, that's actually a very big jump in the margin if the 11.9% can be sustained.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [36]

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Yes. So I guess the answer to the question is not all quarters are made the same. So I think there are some puts and calls. There are certain accruals that fall on the -- on different quarters. There's difference in seasonalities of the quarters. So I think -- that's why I think that's best to look at a year-on-year comparison. So when we say we think we can hold or slightly improve margins, we're looking at -- so when we say that from a full year standpoint, we're looking at the full year margin last year of 10.6%. We think we should be able to beat that.

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Jody Santiago, UBS Investment Bank, Research Division - Head of Philippines Research, Executive Director and Philippines' Strategist [37]

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Okay. But Irwin, intuitively if you look at the macro, your inflation is falling. So intuitively, that 11.9%, if you were to do it on a quarterly basis, shouldn't be falling that much.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [38]

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When you say the inflation is falling, are you talking about general Philippine inflation or specific input inflation to us?

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Jody Santiago, UBS Investment Bank, Research Division - Head of Philippines Research, Executive Director and Philippines' Strategist [39]

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Just general. So you're saying -- yes, sorry, go ahead.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [40]

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Yes. Because -- so that's not a false assumption, right? I mean when there was 7% inflation in the Philippines last year, we did not experience 10% inflation because a lot of the 7% inflation is rice, vegetables and fish. So I think it's a little bit more granular than that. And even when we say inflation is a bit easing, there is some easing in input inflation even for the ones we see. But the truth of the matter is, we still saw input cost inflation in the first quarter. There is some easing in packaging materials, but sugar is up 6%, starch is up 7%. I mean there's a number of raw materials that continue to be up even in the first quarter. So that's what I mean by not all quarters are alike, and inflation, you can't just go by the headline Philippine inflation.

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Jody Santiago, UBS Investment Bank, Research Division - Head of Philippines Research, Executive Director and Philippines' Strategist [41]

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Okay. That's very clear. And then one just follow-up question on the coffee. The numbers that you released at the back of your presentations, basically, it shows your market share in the first quarter in 2018 at 25%, and then the latest one that you released, your market share was at 22%. So if your coffee revenues went up by 24% in the first quarter of 2019, does that mean that the entire industry, the sales of coffee went up by 24%? Because otherwise, if you show a 24% increase and your market share -- if you show a 24% increase and the coffee industry didn't grow by that much, your market share that you released at the back would have been showing an increase instead of a 3% decline.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [42]

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Yes. So as I kind of alluded to earlier, the data that I think you have is the rolling 12 months. It's not the first quarter.

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Jody Santiago, UBS Investment Bank, Research Division - Head of Philippines Research, Executive Director and Philippines' Strategist [43]

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I see.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [44]

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Right? So that's kind of the policy of that. So it's not that. And that's what I -- and also, we relaunched in January 11, and that's why I was saying that the market share uptick that I mentioned was really specific to the February read. So I think you can take a look at the more granular month-on-month market share positions. Now you're correct in the sense that if you take pipeline aside and if we continue to then grow going forward, then we expect that our internal performance, our volume and sales growth should translate to market share increases. Now having said that, I will say that by our restage and, of course, by the reaction of people to our restage, the coffee market has come up a bit more. So I think last year, we were talking about the market kind of being in the 3% growth range. It's now in the 5% to 6% growth range. Just -- so just by the presence of this innovation, the presence of our activity and then the comment on response from the competitors, it is lifting the market a bit. So yes. So I don't think we can take a look at the entire 24%. But certainly, as we go into the next few months, we will look at how the trends hopefully continue. Hopefully, the market continues to grow and that our share of that market will continue to increase.

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Operator [45]

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We have our next question from the line of Pankaj Chopra from Siddhartha Asset Management.

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Pankaj Chopra, [46]

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Congratulations for a very nice comeback performance. I have -- my question is again related to coffee. I believe there is this SSG safeguard duty, which was implemented last year. How structurally does that kind of create a barrier for competition and make it a level playing field as they call it? That's one. I can go on with the other questions if you wish?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [47]

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Yes. Go ahead.

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Pankaj Chopra, [48]

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Okay. My second question is more with regards to, I read in a report which says that the snacks business in Philippines is essentially very low priced and it's hugely penetrated. Could you -- what's not kind of -- [generally] we see a premiumization happening across countries, across economies who are doing better, and that doesn't seem to be the case in Philippines. Could you give us a sense as to what's driving this? And what's the bigger opportunity in the snacks business per se?

My third question is with regards to Thailand. That seems to be remaining a problem. I remember Cambodia and the others, they're using Thailand as a source for imports. Could you tell us what's happening there? When does that come back?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [49]

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Yes. Okay. So on the first one, safeguard duties, I don't really worry about that. I think -- is it a barrier to imports? Yes, it is, but it's kind of been there. There's more, I guess, aggressive enforcement of it. But as far as we're concerned, we are not really bothered by it one way or the other because we have a more of a spread out supply base. We've got facilities here, we've got facilities outside of the Philippines. So we can be flexible in adjusting with or without the safeguard duties. And I suppose because of this point, you have seen an announcement from our competitor to also put facilities in the Philippines. Yes. Certainly, it adds cost to when you sort of import, but you have to weigh that against the -- you have to weigh that vis-à-vis the base cost of the materials. If beans and sugar and some of those ingredients are cheaper outside and then you slap on this tax, it could very much even out, so without going into the specific numbers.

On the second, the Philippine stock market being very low priced, I think at any market, there is a segmentation of the market. There -- very recently, there is an increase in the market share of some of the low-price products. But by and large, I think the market has a low and middle and the high. Yes. The premium section of the market is not that big, but you do have a premium segment. I think it kind of mirrors the social pyramid of the Philippines where there's still a very large C, D and E socioeconomic class. There are people who do buy the more premium products, much smaller segment. I think we're in a bit of a sweet spot because we do have the ability to offer ourselves to -- across the board on the spectrum of the price ladder. It's just that I think the last couple of years, there has been the ascent of these kind of PHP 1 packs and sort of like dollar brands and things like that. But they sort of have their time. Some new players come in, in that space and then they kind of ease into some of the low-value players. And we have remained fairly steady in that 34% to 35% to 36% -- 34% to 35% market share position. So I think the opportunities continue to be there because the entire market is growing quite nicely. And it's on a good growth, I think, with the economy growing, with middle-class formation. And I think the market would continue to be an attractive one. As far as price value equation is concerned, we see an opportunity to play in all segments but probably not the very low ones. And that's why we have our partnership with Calbee for our premium side. And Calbee was a strong growth brand for us in 2018. So there is room for growth in any of these price segments.

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Pankaj Chopra, [50]

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I mean you didn't mention -- sorry. I'm sorry. Just the penetration piece is something which you -- which I missed from your end. Do you think the penetration rates are high already? Or will you label them as kind of an opportunity still existing?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [51]

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I don't have the specific numbers, but yes, I think their penetration is high. Snack is a high penetration market. And -- but having said that, I think there's still distribution opportunities and penetration opportunities for us. I don't think that, that vector of growth has been maximized, at least for URC.

Thailand. So Thailand is a bit more complex. So I think -- so just for context, so from -- in the Thailand numbers -- in the base of the Thailand numbers, we also export from Thailand into some of the Indochina markets. So last year, when we were talking about fixes into the neighboring Myanmar and Cambodia distribution issues, that would play an impact, right? So what does that mean? It means in some of our historical base, in our Thailand numbers, it would include sales to the border that are then taken into Cambodia and Myanmar. As we have fixed primarily -- the bigger one of that, of course, is Myanmar, it's a bigger country, bigger population. As we endeavor to fix that, and it was one of the first big fixes we did last year, you no longer have -- we now manufacture and sell within Myanmar. So sort of a removal of a base from the Thailand numbers. But having said that, I don't want to be distracted by that or kind of make that as the excuse. We do have challenges within domestic Thailand. I think the (inaudible) is we have just misread the trade inventory buildup leading up to the elections, and we're having to make trade inventory corrections within the first quarter. I think as we were looking at the coming elections that happened in Thailand as early as last November-December, we sort of made some predictions of how much we should pipeline into the distributing system, did again in the early parts of this year, and I think we just called it wrong. And therefore, we've had to do some heavy trade inventory corrections in March. But having said that, I think our domestic Thailand is kind of sluggish, and that's kind of one of the areas that we'd be focusing on. Make sure we do the right thing, but then we also sort of come back and sort this out. Get this trade inventory corrections out of the way, not let it linger on. And then we can work on the strategic -- important strategic questions around where should we be investing for growth? What additional legs of growth can we put into Thailand? We've got a very strong biscuits and wafers business, but where else should we be adding our next growth opportunities.

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Operator [52]

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We do have our next question from the line of Jomar Lacson from ABR Asset Management.

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Jomar Lacson, ATR Asset Management - Head of Equity Research [53]

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Just have some follow-up questions. Firstly, it is actually on the -- I just wanted to confirm information from retailers that the marketing support from some of the suppliers have been reduced at least coming from last year. So whether you have reduced the marketing support, the promotional support? And whether this has contributed to some form of cost savings that we're now seeing some of the margins -- the improvement in the margins?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [54]

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So certainly not -- sorry, certainly not from us. We have not cut back on investments to the retailers. On the contrary, we have leaned forward and invested more. Our margin improvements have not been -- have not come from cost savings from the A&P line. We are actually up double digits on our investments both in advertising and promotions. In retailer investments, we believe in being a partner of choice, and we cannot be a partner of choice if we are cutting back on our investment in retailers. So we believe that we will be able to invest both in the brand as well as in the -- in our retail partners.

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Jomar Lacson, ATR Asset Management - Head of Equity Research [55]

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Okay. And just on the price increase, can you give us some idea of what price increase -- as a percentage of price increase the first quarter relative to, let's say, 2018?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [56]

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Yes. Not much in the first quarter. I think we may have done bits and pieces. I think we did something like 4% in noodles. I think a little bit in biscuits, not that significant. A lot more of the ASP, average selling price, increase you see is really carrying over from those that were done. I don't remember all of those that we've done in 2018, but we did a couple of rounds of price increases, not massive ones, but I'd say at least 3 through to 2019. I think it can contribute to the average selling price increase.

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Jomar Lacson, ATR Asset Management - Head of Equity Research [57]

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Last question is on Vietnam, and I guess whether -- I understand that the target was something like 66%. That may not be the target but from 2018 I think the capacity (inaudible) around 66%. I was just wondering whether there are some significant improvement from that level. And whether or not you would comment on the sugar situation in the Philippines and what's the outlook there?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [58]

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So Vietnam just, I think, it's carrying on, on the recovery. I think the growth will be safe a little bit later. I think the Tet holiday this year was a little bit longer. I think it was -- the delivery date where we were affected. So the first quarter is a bit hard to read because it was not the same kind of Tet holiday that we saw from last year. But our expectation is that we will continue to be in a double-digit kind of growth in Vietnam to continue that recovery and march us back to -- I think, we said something like, we're hoping to get 3/4 of the way back this year coming from the 2/3 of the way back of last year. And sorry, what was the other question apart from Vietnam?

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Jomar Lacson, ATR Asset Management - Head of Equity Research [59]

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Just a comment on the sugar situation and what's the outlook for prices?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [60]

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Yes, yes. Sugar, I think remains to be a bit fluid. So I think we've had a very strong sugar quarter. I think we're okay with the past season. The sugar milling season doesn't follow our calendar year. It's kind of a September to April-ish kind of season. This season was okay, not great. I think the season is not officially over, but from what we've seen, I think the country has produced, let's call it, about the same amount of sugar as it did the last season, which is not great because we were hoping that we would be able -- the industry would be able to produce more. So having said that, that means that there is a supply-to-demand gap, which means that there will be a need for sugar importation. And I think we anticipate the sugar regulatory administration to work that with the government and get the proper protocols and steps in place, and that there will be some augmentation of sugar supply in the country with some importation. So with that kind of outlook for the next few months, you are seeing prices kind of move sideways. The prices the first quarter were higher, in the first quarter of 2018. Slightly higher, about 5% higher. So don't have a crystal ball in the next season, come the end of -- come September 2019 going forward. Don't know where that will be. We'd have to look at weather conditions, soil condition as we get into the balance of this year. The last few months of the milling season was particularly tough. I think a lot of us were experiencing -- around the world were experiencing funny weather conditions, but it was extremely dry. I mean rain conditions were not very good in the last few months. So I think we were lucky. We started milling a little bit earlier in September, which allowed us to deliver good results in 2018. As you know, sugar was a very good contributor for us in 2018. And again, a very good contributor in quarter 1. So for quarter 2, that would kind of now subside as we wrap up milling season. We are [on a] wait and see how much of volume for importation the government allows. We will be a participant in that importation process. So we expect to be fully covered, and then we prepare for the next season and that will round out our 2019.

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Operator [61]

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We have our next question from the line of Jeanette Yutan from J.P. Morgan.

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Jeanette G. Yutan, JP Morgan Chase & Co, Research Division - Head of Philippine Research [62]

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I just have one question on Vietnam. I noticed that the first Q sales growth decelerated from last year's strong double-digit growth trajectory. Apart from the currency impact -- the currency devaluation, could you confirm that there was [still an] organic slowdown in growth, what are the reasons behind this? And also for Vietnam, in terms of revenue run rate, could you let us know where you guys are versus your peak level?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [63]

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Sorry, was the first question for international, in general?

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Jeanette G. Yutan, JP Morgan Chase & Co, Research Division - Head of Philippine Research [64]

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No. This is for Vietnam. Yes for Vietnam.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [65]

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So Vietnam specifically, we didn't see much of an FX hit in Vietnam. Vietnam was fairly steady. I think the dong was always been around 23,000. I don't think there was major one. I think our international FX hit was mainly Australia and New Zealand, a little bit in the others, but bigger moves in [Australian region]. So for Vietnam, we continue to have organic local currency growth. We grew at around 8%, I believe. So that is slower than the double-digit growth that we had in 2018. So hence my comment earlier, that we think that the growth will pick up. I think it will save a little bit more towards the back half. And I mentioned a little bit also that we saw less contribution on the Tet holidays. There were more base holidays declared, and therefore, truck deliveries and all of those business activities were actually less this year for us than last year. So we expect the growth to be a bit more back-ended. There is more heightened competition in Vietnam. I think there's some new entries into the key market although we have also very recently launched our C2 milk tea, which is doing very well. We are running and preparing for more capacity for the reason we launched C2 milk tea. So that has grown quite well. I think our C2 brand is up double digits in the first quarter. So that recovery continues. And our expectation, I think, is for the run rates to get to about 75% of peak hopefully by the close of 2019.

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Operator [66]

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We have our next question from the line of [Linh Oh] from (inaudible) Capital.

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Unidentified Analyst, [67]

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Just one question to try and quickly go through. You mentioned just now quite a bit actually on Innovation process management. Can you help us understand better from an internal point-of-view, how has the process changed? But maybe just to elaborate a little bit on one of the matrices that you were looking previously and how that has changed? What kind of matrices you are looking now?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [68]

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Yes. A number of elements have changed. I think in the past, URC's innovation process has been much more sequential. And by sequential, I mean, it starts very much from a technical technology base and then kind of then gets passed forward into the commercial areas. So one of the changes we've done is to try to rebalance, let's call it, the technology production-centric innovation process, with something that's much more customer consumer centric. So we're bringing the consumer earlier into the innovation process. So that's kind of one change. The second change is just the robustness of our testing methodologies. And I don't think this will sacrifice speed. I think in the past, testing methodologies, testing protocols, test basis were smaller almost, sort of, kitchen type testing, a very, very limited exposure. You'll get some indications, but I think you don't get as representative and as robust of test and learning. So that's the second thing we changed to get into a more scientific methodical, more robust consumer testing protocol, both on concept tests and product tests. And we apply that on, for example, the coffee relaunch we just did. And that's an example that it does not need to slow things down. We were able to do fast prototyping and isolated testing within weeks and a few months. So this doesn't have to turn into a 2, 3 year development process. Okay. Then last, but not the least, we are broadening our innovation discovery landscape. So we are -- so for example, on beverage, we've often in the past may have thought of us as just a coffee company or a tea company. And I think, given that the non-alcoholic beverage market is extremely large and it's still, at least in countries like the Philippines, are still more than 50% -- 50%, 60% dominated by carbonated soft drinks. I think we're widening the way we think about innovation discovery and not limit ourselves to the capital reviews that exist today. So I think, if you think about beverage, we think now about broader share of growth. What are the beverage categories that are growing that can be interesting and that we've got technical rights to win and we have capabilities to explore. So I think, those are kind of the different dimensions of innovation cost management that are important because I think we have been very successful in the past with some very big blockbusters, some very big home runs. And they are very instinctive. They were kind of instinctive successes borne out of a brilliant founder that has brought some of these innovations to market. And as we move forward and have a more sustainable innovation process, we believe something like this -- you can never replicate the brilliance of the founder, but you could increase our chances for getting into the next $100 million, 1 billion [potential] type (inaudible).

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Unidentified Analyst, [69]

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Okay, got it. And the follow-up question because (inaudible) manufacturing and there's a lot of cost savings to be achieved. Does it now make sense for you to go into the low-priced snacks categories were one of your very big competitors is strong at?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [70]

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Not necessarily. I think the savings -- I think we should look at where we can create value. The lower end of the market will always be tough and your spreads are always going to be a little bit tighter. I think we are very clear on what our strengths are. We will close gaps if we have issues on costs. But I think, increasingly, we'll be looking at what our strong point of differentiation. The problem I have with the -- with low price competition is, price is not proprietary. I mean going down on a price dependent on the strategy is very, very easy to copy. I mean price is the easiest strategy to copy. So that doesn't really tickle our fancy. I think we like things that are more sustainable, more proprietary where we can bring a strong point of difference into the market.

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Operator [71]

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We have our next question from the line of Utkarsh Mehrotra from J.P. Morgan.

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Utkarsh Mehrotra, JP Morgan Chase & Co, Research Division - Analyst [72]

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I have 2 quick questions. So primarily, the one is on coffee and it's a bit elongated in terms of like multiple questions probably in one. So excuse me for that. But largely wanted to just get a sense of the coffee growth as we were discussing earlier as well. So if I take a 20 bps improvement on a 5%, 5.5% market growth, so somewhere around 6% to 7% growth for you guys and broadly in the line with what you're guiding for the year as well, excluding any inventory upside and downside. So does that make -- does that look okay to you? And just on that, just wondering on the 20 bps improvement, is it against a local regional player? Or is it largely against the multinational? And just following in -- on from that. I mean do you see them reacting in the market because they have been very aggressive in the past? And what you'll follow if in case there is a price for -- if any? So that's my first question.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [73]

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Yes. The growth construct is roughly okay. I would hope to get more than 20 bps going forward. I frankly wouldn't be satisfied and kind of just rest on a 20 bps. I think that's the first thing and there's a lot of movement in that 20 bps. There's the new clients are already contributing way more than that and we have cleaned up some of our SKUs and that has come off the brand. But by and large, I think that construct is okay. I'm hoping that it could be better than that. And then on the where the 20 bps have come from? The first reading came from one, not just the other. I think if I looked at some of the other indicators, I think it's pointing to probably one player ceding at this point and not yet from the other big player. So we would have to see over the next few weeks whether that changes in dynamic. The reactions have been strong from both players, and they include both in-store investments as in the more point-of-sale materials attempt to [lock off] shelves and things like that. We've seen increase in advertising. We've seen increase in trade promotions and trying to lock off retailers working capital. So those were kind of reactions that we're seeing that are fairly strong, but we've anticipated all of those.

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Utkarsh Mehrotra, JP Morgan Chase & Co, Research Division - Analyst [74]

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Got it. That's very clear. Just a continuation of that. Do you -- as a strategy, you mentioned that you would probably appreciate movement more than 20 bps. So as a strategy, would you be willing to -- I mean, does it come at all costs in terms of A&P, pricing, in terms of helping the market grow better? Or is it, like, you would be more than happy to stabilize the market share and then -- and not use a lot of margins?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [75]

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Yes. I don't think it has to be an either or. I think we can play this smartly. So I think the one thing that we -- the one thing I wouldn't want to do is to drag this into a competition on price. So that's kind of what I wouldn't want to do. I'm very happy to compete on product. I'm very happy to compete on product innovation, marketing. I think that's -- that plays to our strength. So we'll have to see what the other players do. It certainly is a very measured place from our standpoint. I wouldn't say that it's an all cost kind of thing. We believe that we're prepared well enough and that we can do this with all of the scale and efficiency work that we're doing that we have the ammunition to reinvest in the brand that we want to compete on this from a product innovation and marketing standpoint, and we wouldn't be the one to fire the salvo on setting pricing moves.

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Utkarsh Mehrotra, JP Morgan Chase & Co, Research Division - Analyst [76]

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Got it, that's very clear. And just lastly, so great launch on coffee. Anything that you are planning this year or early next year on the lines of coffee launch in terms of the magnitude and what the impact can be? Anything new or a relaunch of any existing product?

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [77]

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Several new works, but I think, as you would expect, that's something that we would have to -- you would have to wait and see as we roll out into the market. So we don't give anybody an advance notice for that.

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Operator [78]

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Thank you. We do not have any questions at the moment. (Operator Instructions) We do not have any questions at the moment. I would like to hand the conference back to our speakers today. Sir, please go ahead.

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Irwin C. Lee, Universal Robina Corporation - CEO, President & Director [79]

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Okay, thank you very much. I think we've had a strong encouraging start of the year, and we continue to focus on execution to the balance of the year, and look forward to hopefully continue to report continued momentum. So thank you very much for your attendance, and we will see you in the next quarter.

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Operator [80]

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Thank you. This concludes the conference for today. Thank you for your participation. You may all disconnect your lines now.