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Hazel Tanedo: Okay. Good afternoon, everyone. Thank you for joining Jollibee Foods' second quarter results call. I'm Hazel Tanedo. I'm from AB Capital, and I'll be the moderator for the session today. So to give us updates on Jollibee as well as the company's strategies and plans moving forward, we have Mr. Richard Shin, Jollibee Foods CFO; and Ms. Cossette Palomar from Investor Relations. So thank you, Richard. Thank you, Cossette, again for being with us today. So before we start, as Mr. Shin goes through the presentation, you may type your questions so we can read them out after the presentation. But before we start, Cossette will come out with some disclosures before the presentation proper. Cossette, the floor is yours.
Corazon Palomar: Thank you, Hazel. Good afternoon, everyone, and welcome to the Jollibee Group's earnings call for the second quarter of 2025. So let me just quickly read a reminder on forward-looking statements. This earnings call may include forward-looking statements that are based on certain assumptions of management and are subject to risks and opportunities or unforeseen events. Actual results could differ materially from those contemplated in the relevant forward-looking statement, and Jollibee Foods Corporation gives no assurance that such forward-looking statements will prove to be correct or that such intentions will not change. All subsequent written and oral forward-looking statements attributable to Jollibee Foods Corporation or persons acting on behalf of Jollibee Foods Corporation are expressly qualified in their entirety by the above cautionary statements. And now I'll turn the call over to Mr. Shin.
Richard Shin: Thank you very much, Cossette, and thank you, Hazel and AB Capital for hosting us. And a very good afternoon to everyone. And I understand we have some join callers from the U.S. as well as Europe. So thank you for joining, and thank you so much, given the time difference as well. So a very good morning to you all. So let me start, as usual, with the top-of-mind questions that we all have about the business. And here we go in terms of the Jollibee brand. So the first question, I'm sure all of you are thinking about is, how is Jollibee brand expanding and performing on the international stage. So sorry, I'm just going to click this off. Okay. So starting with Philippines, first and foremost, you can see that we have very strong continuous double-digit topline growth, led by system-wide sales of 13.3%. We also had a very strong same-store sales growth with good quality contributions from volume. And Philippines market, just as a reminder, had a 4.6% or just under 5% network growth, both through company-owned stores and also through our franchising model that we have in the Philippines. Within the international markets, overall, we grew the business by 15.4% system-wide sales and same-store sales growth of 9.2%. And you can see the contributions coming right across the board. So we got Hong Kong and Macau, North America, that's both U.S. and Canada. And of course, EMEA had all very high to low double-digit same-store sales growth. And please keep in context to that, which I'm about to show you on the next slide, where our peers are. So total of 1,807 stores for the Jollibee brand globally and 6.5% store expansion for the quarter. So as I mentioned, how does that compare against some of the competitors in the QSR space? So you can see down here the multi-brand peers. So those businesses that have more than one brand, so Yum! and RBI. And of course, we do look at within our region, Asia Pac, Yum China as well. System- wide sales figures are shown here and same-store sales growth are shown here as compared to what I've just shown you, which is again summarized on top here. So we have superior results from that sense. Single-brand peers like the McDonald's, Chipotle and the Domino's of the world, you can also see same-store sales growth. We're nearly triple that of the average share if you take Chipotle's decline out. So continuing with the Jollibee brand, we wanted to see some of our strategic market and also key markets such as Vietnam, what's happening there. So let me start with North America. I'm sure some of you have seen this, but we won for the second year in a row or back-to-back, the best fast fried -- sorry, the best fried chicken by USA Today. What's also interesting here in North America is we have a 54-month streak or nearly 4.5 years of sustained same- store sales growth. And that, of course, only has meaning if we understand how our ADS is performing. I've said on the past call that our ADS in the U.S., for example, was 13,400. I'm happy to report that for Q2, we're now at 14,000 per store on an average day in the U.S. And Canada is higher. We're running our business at USD 16,400, and these are all 100% owned company-owned stores. We've also advanced in terms of our loyalty program. So we've launched our Jollibee app, which has an early stage, has 600,000 subscribers and is growing. And this is a very important part of our strategy in terms of going beyond trial, repeat, frequency and really getting into loyalty. So this was a very important initiative, and we're very proud to say that it's now up and running. In terms of the franchising foundations that we've been talking about for a while, where are we? Our first store will open in the second half of this year. We're also on track to closing many deals in the pipeline, and that is to say 15 franchisees are in the pipeline at the moment with 7 multiunit development or more in key major cities like New York, Atlanta, New Jersey, Vegas, et cetera. Moving on to Vietnam. Vietnam, I can say now that we are a clear #1 in the marketplace in terms of market share, revenue, net income, despite our store count is still lacking that of Lotteria and KFC, and you can see the numbers here. We're #3, but closely -- sorry, quickly closing in on KFC. And so with that, I think it's also important to see that our same-store sales growth in Vietnam is at high double digit of 21.5%. Our OPM is single-digit positive. And so 100% company-owned stores. So I think that's a very strong indication that Jollibee can and does work outside of Philippines within Southeast Asia. Second question, our update on the Chinese cuisine segment. So the question really here is, is China's recovery progressing meaningfully? And is the trend proving to be sustainable? First and foremost, I've talked about this in the past, but to reiterate again, we have a -- we have strategically pivoted towards value positioning for both dayparts, morning or breakfast and lunch. And given the nature of Yonghe King as it started as a breakfast brand, it's also very strong in the lunch daypart as well. And it's delivering a clear measurable success. Why do I say that? Same-store sales growth for all brands in China, so that's Hong Zhuang Yuan and Yonghe, we delivered a 4% same-store sales growth. And if you remember earlier, I showed Yum China as a reference point. And this is underpinned really by what we're very excited about, and that's traffic gain. So that's 15% up. And for the Yonghe King brand, which is our flagship brand in China, it's 3.4% same-store sales with traffic nearly 7% up, reversing previous quarters, multi-quarters of decline. And what does that mean in terms of how is it looking post Q2? So July is better than June and June was the strongest quarter in Q2 and August is looking even stronger than July. Business level NOI turned positive in June as well, reflecting improvements reflecting improving fundamentals, excuse me, due to the REITs and what we call the Super Value store model. So we revamped also our store model prototype so that we can scale even quicker. What that means is in order to be able to go forward with a franchising model in China, we need a payback of around 2 years or less, and that's where we're now hovering. So the first half of the year, we did continue to open stores. In the back half of the year, our plan continues to be to open stores even at a more accelerated rate, given that we now have a box economics prototype that is sellable to our franchisees. In addition to all that, business-as-usual items such as looking for cost efficiencies right across the board. And so we continue to do that as well. So we're very positive on China, and we believe that the second half of China will be significantly different versus the first quarter that we saw with some challenges. Continuing on with the Chinese cuisine segment, we have our other brand, and this is more of a global positioning for us. So that's Tim Ho Wan. Please, again, as a reminder, we started to manage Tim Ho Wan only from January of this year when we had the opportunity to take it out of the Titan fund and make it a subsidiary of JFC. So under the key categories or areas of where we've been focusing. So let me start with organization. We've now assembled a leadership team that is also fully integrated into JFC's shared service model. And that is to say our Tim Ho Wan team is quite lean, given that we have a lot of support coming from JFC service model. Second, regarding the brand in just 6 months -- sorry, in just around 6 months' time, JFC has really brought the center of gravity or where the brand really originated from back to Hong Kong. And so we're very proud to say that it's now -- it's got its roots back in Hong Kong. Hong Kong is completely transformed. We've opened new stores in Hong Kong as well, and we're starting to build our prototype store. And really, the brand heritage is reignited, and we're now looking at expanding this into other markets within the region of Asia, but also focus on our core market, which is the U.S. for future growth potential. Thirdly, regarding consumer experience, we've completely revamped the menu. Again, it's been many years that Tim Ho Wan was managed differently in the fund. But of course, JFC using our prototype of brand product and retail or BRP as we call it, we have a playbook. So we revamped the menu. We've enhanced the products. We've also adjusted price to the more affordable level for higher consumption. We've also ensured very importantly that the store service as well as the product quality was consistent and superior. And of course, all the standard operating procedures that we use in our other brands like Jollibee, we're rolling that out to Tim Ho Wan as well. And what we're seeing is that the appeal to the local consumer base is heightened, and we are seeing the return of the everyday consumer back, which means that the traffic is up and also the frequency of dining with us is up as well. And that, of course, translates into higher average daily sales that we've been seeing. And lastly, here for Tim Ho Wan in terms of an update since it's been 6 months. Franchise expansion under that, we have, as I mentioned, a very successful store proof of concept. And here, we put an example, our Shatin store, which is a new store that we opened within the last 6 months is absolutely ahead of internal targets and our expectations. And we've understood why this is happening, and we're now using that formula to really go up to other markets, like I said, starting with the U.S. We'll have our first store under the new management, us in October in the U.S. and we're also buying Canada because it's a significantly important, but also very interesting demographically where this brand, I believe, will do very well. So we have also transferred one of our executives to North America so that he and the team that he is building will take this business forward. So we're very excited about the potential of this business, and we think it's quite unique in terms of Chinese cuisine to be really potentially to be the first truly global Chinese cuisine brand. Moving on to Smashburger. So what are the key enablers supporting Smashburger's clear path to financial viability? I'll start off with leadership again. So Jim Sullivan, he was our Chief Development Officer and President. So he's been with us, I would say, just under a year now, but his role as CEO effective August 1, has really reignited the passion in the atmosphere back in home base in Denver and throughout the U.S. Jim comes, of course, with over 25 years of relevant experience in the QSR space, doing very similar type of work that we've asked him to do, which is to really grow the business at a difficult starting point. And I have to say I've seen nothing but positive feedback coming from the franchisees and also the industry community regarding Jim and what he brings to the table. So more tangibly, what we're seeing is traffic is starting to pick up. And again, the numbers I'm presenting today are Q2, but I want to talk a little bit about the latest, which is our single largest campaign that we've launched in a long time, and it's called the Summer of Smash. We launched that in July -- on July 22. So we do have data points from there, and there's been a significant change in terms of transaction count swing. And I'll just qualify that by saying it's a double-digit positive swing. So it's been fantastic. The feedback from our Customers have been great as well. And there's new menu items that's quite unique and interesting. I don't think there's anyone out there who's doing a $4.99. This is USD currency with a Certified Angus Beef everyday price. So it's not a promo, it's an everyday price. We still have very strong margins on this product, and this is proving to drive traffic back in, along with the launch of the all-beef hot dog, which we call the Big Dog, which is doing incredibly well. And of course, we brought back the fan favorite from the past, create your own offering. There's a few other items, but what's interesting here is we're getting the excitement around the brand back. And with Jim being announced as CEO, we're really seeing quite a bit of exciting opportunities for the balance of the year. So I can confidently say the second half of the year for Smashburger will be vastly different from the first half of the year. Q2 was much stronger than Q1, but I think the momentum will continue into the second half of the year. From a franchising update perspective, Smashburger, just to set context here, has 204 total stores, of which 82 stores are franchised, of which a big proportion of that or 41 stores are what we call nontraditional. And what's important about nontraditional is that segment of our business is doing extremely well. There are airports and there are other places like universities and military bases, et cetera. But if we take airport as a high-density traffic place, we can see consistently our operators are enjoying over 20% EBITDA margin from the Smashburger business. So for that reason, we've been quite a bit in demand, and there's quite a bit of new opportunities that's in the pipeline. Detroit is just an example that opened 2 weeks ago in -- airport in Detroit, I should say, that opened 2 weeks ago. So we're very excited about the progress of this channel. And of course, we are looking to refranchise or convert, if you will, 100 of those 204 stores that I mentioned. And what this will do is it will unlock capital. And as we convert these stores, of course, we'll have a store development commitment that will mean that we'll be adding more stores into the pipeline to essentially convert this business into nearly a full franchise business while maintaining our base in Denver with some company-owned stores there. So this asset-light model, plus what we're seeing in terms of traffic creation activities will continue on. And so the light at the end of the tunnel is very bright on this brand. And so we're very excited about the comeback of Smashburger. So here are just some snippets of what we're seeing in the press. So articles such as the new menu item is one that no one expected. Our hot dogs are best sellers. And we think pound for pound, we probably have the best beef hot dog out there, and we're getting similar paces back from consumers and also the trade. And then you can see some of the visuals here around our everyday price of the 2 burger variants, the All-American and the Deluxe, single patty. Here's the hot dog visual that we mentioned. We have 4 variants of that. We've launched also the brisket bacon burger, and that's back again. So again, very much focused on the quality of the food, improving the standards around service and continue to do what Smashburger was meant to do, and that is to really make the best beef burgers. Moving on to the Coffee and Tea segment. How is that performing? Simply put, very strongly. So the strong EBITDA growth is supported by a very strong top line growth, and our margins are very resilient. So what do I mean? So let's go one by one. In terms of system-wide sales, these numbers here are those quarters that you see below in reference to the same quarter a year ago or versus last year as we call it. So you can see even before Compos comes into the equation, 21.5% growth for Q2, moving on to nearly 49%, nearly 59% and then ramping up to nearly 69%. And you can see in gray here, the impact of Compos coming in. But you can also see Highlands -- sorry, CBTL also being still the largest contributor and growing very strongly in the second quarter versus the first quarter and also second quarter versus last year. We're enjoying very strong growth there. In terms of footprint or number of stores, it's now about 52% of our 10,000-plus stores. It is in the coffee and tea category. In terms of money or EBITDA profits, we see a growth of 77% versus the same quarter of last year. And if you want to strip out Compos and look at it organically, it's still a high double-digit of 19.2% EBITDA growth from the same quarter of last year. Continuing with the coffee category, let's move on to what is on everyone's mind, and that's the cost of goods or bean price. Back in Q1, it was pretty scary to some extent as we started to see this kind of curve happening in Q1. Then, of course, like everything else, things do come down and up, et cetera. And so the peak was $4.39. And you can see now as of 2 days ago, when we had a look for -- yes, when we took a look, it was down to $3.20 and you can see. Now the question really is not what is today's price, but it's what's our procurement policy and how do we then purchase beans so that we're not stuck with high-cost beans, et cetera. And in short, I can say this is a very, very important area for us. We spend a lot of time analyzing and thinking about it. And I can tell you, we do both short and long holds, and it's worked out very nicely. So I just wanted to reintroduce and maybe introduce for those who don't know, our brand ambassador for Compos Coffee in Korea is one of the most popular and famous members of the BTS Group. And as some of you may know, V just came back from military service in June, and we're very proud to say that Compos Coffee is really the first company that he's now come out and done work with. So this is the second signing of V. So this is his second term. And one of the differences I wanted to point out here is really the 3 drinks, these were actually collaborations or collabs with V who help design these drinks. And the way we're going to go to market in terms of marketing and advertising around that is we're going to talk about the drinks, and we're going to talk about the fact that we had full endorsement and participation from our brand ambassador. Here, the Korean text, if I may just translate, it just says coffee the way coffee should be. We do have a major media campaign starting on August 19. So today is 4 days prior to that. So we can't show you the full video, but we did get permission from his management team that we can show you a small teaser. So I just wanted to show you this 4-second clip. [Presentation]
Richard Shin: So what he just said in Korean is I missed you as he was in the military and let's meet at Campos. So we're pretty proud. There's a few more videos, which are a little bit longer, of course. And again, it's not just about network expansion for Campos, but we're really thoughtfully building the brand as well for both growth in Korea and also potentially, if we were to take this brand outside of Korea, we would have the marketing assets and the brand ambassador and the product and price positioning that allows us to be very competitive outside of Korea, should we take that move sometime in the future. Let's switch now to our flagship market, Philippines. So is the Philippines' business demonstrating sustainable growth and profitability? The answer is yes. I wanted to show you not only 2 versus 2024 Q2, but also versus 2023 Q2. And the reason is, I think it's important to know that the base of Q2 2024 was coming off of the highest then base of 2023. And you can see the growth rate in 2024 versus 2023 is unusually high, if you will, for industry standards, but these were all driven really behind Jollibee and some of our core brands in the Philippines like Mang Inasal and Chowking, which are doing phenomenally well for us, plus all of our other brands that's also doing very well for us. So off of that base, we still delivered an 11.3% system-wide sales, translating into revenue growth of 10.3%. And I will talk a little bit about some of the compression, if you will, on our profit growth rates. Again, so if you look at the double-digit profit growth rates that we had versus 2023, it's not the same rate. But in terms of dollars, they are also moving north, so accretive, if you will. And the reason is because cost of inventory, in particular, within cost of sales as the cost of running the stores and the factories, we actually had efficiency savings there. So it's really about cost of inventories. So inflation still exists to some extent. And we've taken a conscious decision not to price out inflation in full to our consumers. And that has worked because we're able to grow the top line double digit in a highly competitive market in the Philippines. So that is to say that -- we've taken only 1.3% price increase on our flagship brand, Jollibee, and that was in June, so the last month of Q2. So we're not seeing the full impact of that price increase coming through in the back half of the year, we should have a better profitability mix to the top line mix. Again, overall, still a very strong performance and the business continues to grow. And for the first half of the year, delivering PHP 6.1 billion to NIAT. Inflation -- sorry, tariffs. I think this is also very topical for many of you. In our case, the expected tariff impact on overall costs, we assess right across our major businesses and markets to be low with the highest impact, if you will, on CBTL. And I think we all understand the components of that. So Brazilian coffee bean price, obviously, landed in the U.S. will be impacted by the 50% tariff rate that the U.S. has imposed on Brazil. There are many things we're doing to counter that. But overall, at the moment, we consider this risk to be manageable and so classified as low. How are we doing in terms of funding and how are we funding the growth? I'll start by saying there's a deliberate use of debt. And later, you'll see some of the impact of that through the short-term interest expense increases. But I say the word deliberate because the key point here is we're shifting from 66% debt, 34% equity capital structure to now a 90 debt 10 equity structure. And that means going forward, we are going to be improving or reducing our WACC rate. So when we start to look at ROIC increases, which we're driving, and I'll come on to that in a second, and we start to see lower WACC rates, we're going to start to see a wider ROIC to WACC spread, which, of course, is very important for all of us in terms of our ability to be able to really drive that component of the business. So let me just give you the major component of that switch. As some of you may be familiar, we had a $396 million perpetual bond that matured Jan 1 of this year. That was previously enjoying a coupon rate of 3.9%, pre-pandemic rate, of course. And when we refinanced it, we did a couple of things. We took $96 million off of that, which is to say we converted it into pesos. So we lowered our exposure to USD by nearly 1/4. This is now refinanced through peso loan on a floating term loan base. The balance of the $300 million of the $396 million, we've converted from perpetual, which was equity accounted to senior. And we got a very good rate at the time of 5.4%. And so this effectively shows up in our interest expense comparisons. But again, this was done with thoughtful reason. And overall, we believe there will be a benefit to the company by restructuring it this way. Second component of funding relevance here is Compos Coffee, which we, of course, funded partially through term loan and also -- let me just click this off. and also through cash on hand. And the Compos Coffee business will return 36% ROIC. And this is the standard ROIC formula of NOPAT over invested capital of Compos Coffee. It's also important to note here that we are seeing very good flow or strong dividend inflows. Again, as a reminder, it's 100% franchise business for us. We bought it at around 2,400 store level. Today, 1 year later, we have 2,800-plus stores and 100% continues to be a franchise model. So the payback for this investment is quite rapid. How is ROIC progressing relative to our return thresholds and capital allocation strategy? So again, capital allocation strategies both for organic new investments and inorganic as the example we gave on Compos. And so this is what we're seeing from an ROIC perspective. So new investments ROIC, we're seeing them around 10.5%. And for Compos Coffee's ROIC, again, 36%. Now let me get into the financial highlights now that we've gone through the top-of-mind questions. So the summary, again for the first quarter -- sorry, the Q2 summary, system-wide sales number I just shared, 19.6% revenue growth of 15.5% at just under -- sorry, PHP 78 billion, translating into a good gross profit gearing, 13.1%. We're running our business still in the 19% and above range. Our NOI or OP margin is -- sorry, growth is 19.1%. Our margin rate is 7.8%. And of course, our NIAT grew and significantly better than Q1 as well at PHP 3.2 billion or 5.6% growth versus a strong Q2 of last year. And in summary, this is where we sit in the first half of the year. Let me give you a little bit deeper dive in terms of key metrics. So here, again, we're looking at versus 2024 and also one previous year of 2023. So you can see the evolution and the growth rates over 2 years. So Q2 versus Q2 '24 and Q2 '23, starting with '23 to '24 growth rates, you can see extraordinary rates, I have to say, very high double digits, 28% on revenue, positive gearing up to gross profit growth of 36%, 51% for OP growth rate, EBITDA growth rate of 34%. That's all cash, of course, and NIAT growth rate of 38%. So coming off of that very strong profit delivery, we continue to grow double digits up until OP level. Some of that again, reflects, as I mentioned, our deliberate choice on financing, but also higher taxes given that our profit base is higher as well. So just to make sure I have enough time for Q&A. So let me just go through this a bit quicker. So EBITDA by region or key businesses. The big picture takeaway points are here, 13.5% growth on EBITDA versus last year. And what that means for the first half is we're up 11.5%. For Philippines, we're up 5.2%. And the softer growth here you see on EBITDA is what I explained earlier, is the cost of inventories, which we're not pricing out, but we're getting transaction count and volume in place. So we'll continue to grow the pie. In the second half of the year, that shape is going to change, of course, and the flow-through, of course, will be different as well in a higher rate basis. You can see Smashburger's loss of 0.2 compared to the first half, which is to say Q2 is half of Q1 loss. And with the Summer of Smash program rolling out and seeing early signs of traffic improvements, et cetera, and also margin dollar improvements. We're not losing margin dollars. We're actually gaining margin dollars, even though unit margin is coming down a little bit because of some of the pricing that we decided on everyday burgers, et cetera. We're seeing that net-net, we're making more margin dollars. And what we're going to see in the second half of the year, of course, is a much-improved momentum of that coming through. This year, North America is driven mainly by Jollibee so it continues to grow at double digit as is EMEA, mainly Jollibee and then the coffee category, which earlier I showed some breakdowns. You can see CBTL's growth, Compos, there's no comparison because we didn't have Compos in Q2 of last year. Quarter-on-quarter, so this is quarter 2 versus quarter 1, all double-digit top line growth and high double-digit bottom-line growth. For example, NIAT, we were 33.5% up from Q1. Cash flow and balance sheet. Again, before lease payments, our business is running at 10.3% free cash flow margin rate and taking into account the lease payments, 6.6%. The difference that you see here from Q2 of last year really is in our outflows and inflows of working capital. Just to break it down, we're taking a different position on inventory and the cost base of inventory has gone up a little bit, but some of this also is a deliberate decision to hold an extra day of inventory because our growth is so rapid. We want to make sure that our safety stock is well-protected. Our underlying EBITDA margin rate continues to be in the 14% range. And of course, our other key item here to call out is our CapEx, which we are well within the range that we guided. Just very quickly is to say that we're way below the covenants. And if I can move on to this and just highlight to you the accounting change from equity-based accounting of perps to debt on the senior is really what you're seeing in terms of movement here in terms of cash on hand, slightly higher than where we were last year. So just to wrap up with guidance, system-wide sales are significantly ahead. Here's the range that we guided. Same-store sales growth or RB growth on the high end of the range. Network significantly ahead, CapEx, PHP 5.6 billion and the back half of the year, of course, usually ramps up a little bit higher than the first half. But nonetheless, I would say, comfortably within this range to slightly on the lower end of the range or even outside the lower end of the range. Operating income growth, significantly higher than what we had guided on the NOI. So final 2 slides, 3 slides, the key takeaway. First and foremost, JFC is a -- I think we've been a proven successful brandfolio, and that is to say we are a company with more than one brand, but we are very focused, of course, on the food and beverage space. And we have scaled both organically but also through selective acquisitions. JFC is also positioned well for growth. And also, we are mitigated from certain risks, for example, dependency on a single brand or category as we're in 4 categories, as I always talk about chicken, coffee and tea, better burgers and Chinese. And also equally important, we are not a single market risk dependent, so -- sorry, risk exposed. And so we do focus on other markets outside of Philippines as well. And you could see our international business has grown quite a bit. So 42% of total EBITDA for Q2 has come from the international business segment, and that's a record high that we saw in Q2. We have a clear path to financial viability for Smashburger as well as China, which I spoke to, through an asset-light model and franchise-focused scalable box economics. We do have a proven box economics in China that we're scaling, and we're working on Smash converting company-owned stores as well. We are intentionally leveraging that to continue the rapid scale of high-return investments, and that's through disciplined CapEx and strategic capital allocation. That's also through looking for accretive returns on new capital and franchising. And that is to say new capital investments now we're seeing for many of our businesses, delivering somewhere around 2- to 3-year payback. We're also incrementally investing in significantly higher-yielding ROICs, which I spoke of earlier. We have strong operating cash flow, strong cash on hand as well. And this is for reinvestment as well as shareholder return. And lastly, I just wanted to show you a wider view. So that is from 2022 to 2025. So you can see here CAGR rates around our store network, 17%. You can see in terms of system-wide sales, a very strong double-digit CAGR rate on system-wide sales and very closely following that is our revenue CAGR. Our gross profit margin, again, we're running our business at 19.1% and our NOI CAGR has been 25.5% over this period of 3.5 years. And that is now to say that our strong track record of outperformance against peers and industry despite market volatility is reinforcing our conviction to what we said, and that is to deliver our 2028 target of tripling NIAT. Just to wrap up, we have global icon brands. In each of the categories of chicken better burger, Chinese cuisine and coffee and tea, we have multi-country favorites that are accretive and adding to our P&L. We also have very beloved local brands. And of course, we have some strategic brands or franchise brands in the Philippines as well as, of course, we have our foundation where we're always reminded to work with the community and give back to the community. So I will now switch over to Q&A.
Hazel Tanedo: So thank you, Richard, for walking us through Jollibee's performance and outlook. Congratulations on the very good set of results. So we'll move now to Q&A. [Operator Instructions] So let's kick off with the first question on store performance. So we've seen consolidated SSSG come in at 5.5%. So given that there's a bit of uncertainty on the macro front moving forward, are you expecting similar or faster growth in terms of SSSG in the coming quarters? How confident are you in sustaining that given the current situation?
Richard Shin: Thank you, Hazel. So I'll reiterate, we are not changing our guidance. We are committed to our guidance. And I think the back half will be as strong or better. And in terms of the macro headwinds and uncertainties, I believe that we have been living through that for the past couple of years as well. So one theme I mentioned several times is our strategy to now pass on all of the inflation to our consumers. And that's working really well for us because in terms of same-store sales growth or system-wide sales growth or transaction count growth, we continue to grow. And that's because we continue to provide top-quality products at very competitive pricing. And as we do that, we have opportunities also to increase our margin through price that we will take in the second half, but moderately and smartly.
Hazel Tanedo: And then there was one question here on any planned price increases in the coming 2 years?
Richard Shin: Coming 2 years. I'm not sure about coming 2 years, but back of the second half of the year, we do have a planned price increase, again, moderate, strategic and where and when as needed. And with coffee price coming down, we're also seeing that there could be also some givebacks to our franchisees if needed.
Hazel Tanedo: Are you not looking to upgrade operating profit guidance despite the first half being well ahead?
Richard Shin: Thank you for the question. My team and I debated this many times as well. We do believe the second half will be very strong because if you look at Q4 in particular, and to some extent, Q3 of last year, there's many opportunities for us to really be stronger. But we'll keep our guidance for now, but we're very confident -- very confident that we'll deliver the guidance on the high end of the range.
Hazel Tanedo: How confident...
Richard Shin: Very confident.
Hazel Tanedo: So let's head over to some questions on Smash. First, Smashburgers SSSG in 2Q, was it due to improved consumer sentiment? Or was it successful interventions, change of strategy? How -- why -- what was the reason for stronger SSSG, both in Smash and China, sorry?
Richard Shin: So China's SSSG was an application of the strategy that I spoke of, which was really to take our pricing to a place where the market had changed to. So in terms of what consumers felt was value, even though we're a value business in China with Yonghe, the market had shifted. And so we, of course, shifted with the market. So we're seeing that. Our transaction count increase is both coming from dine-in, but also a very important channel of delivery. In China, delivery is a big component of our business as it is for all other businesses. So it's really working with the aggregators smartly and working with programs, et cetera. So that's what it was. For Smash, I don't think we've seen anything yet in Q2. I think it's more about Q3 and Q4. And really this Summer of Smash, beyond a launch of a campaign, it's a reset of many things. And so we're very excited about the second half of the year for Smash because we're already seeing data points in July and August to support our excitement and confidence.
Hazel Tanedo: I think you already answered why 2Q was a bit weak for Smash. And you already answered also what the company has been doing to revitalize the brand for the long term. So the follow-up question is, what is your target timeline for Smash improvement in terms of hitting positive SSSG and profitability?
Richard Shin: Right. So if you think about it, if you're going to be 90%, 95% franchise business, profitability reflects that. And so our target to really -- it's not a lot of stores. It's literally 97 stores, as I said earlier, around stores, is to convert those. And in order to convert those, you need a certain level of transaction count, which then drives store-level EBITDA margin, which makes it box economic attractive for our existing franchisees, but also for new franchisees. So if you think through that, it's not going to take long with this new strategy. Second, within the franchise channel, our nontraditional is absolutely smashing it, absolutely doing well. And so we're getting more and more requests. I think we're probably one of the few burger brands, if not the only burger brand that's been invited by militaries to come and open. So -- and university as well. We do have presence in Ohio State, one of the largest populated universities. But these are all opportunities for us in the nontraditional. So yes, I think profitability, you can see follows that very quickly.
Hazel Tanedo: I think, Richard, part of like the anecdotal evidence we got from investors in the past, and I'm sure you've heard of this a few times, is that the location of Smashburger stores in the U.S. is not so ideal and management has started to kind of fix that already. Has management already like fixed the problem? Or is it -- you're still seeing it in a bit of -- in some branches where location is really a different...
Richard Shin: If you go back 3 years, I would say it's night and day. I think we're about 350 stores back then. We're now thinner at 204. So that was deliberately getting out of those types of locations. I think there's still a little bit more to go, but that's going to happen just naturally as leases come up, there's no need to take big hits on the P&L, but it's to naturally exit those leases. So that's part of the strategy as well. But we are in places like Times Square and Eighth Avenue in New York, et cetera. And New Jersey is a great market for us and Texas is a great market for us, et cetera. So yes, there's always work to be done for every brand, I would say, but it's night and day versus 3 years ago in terms of where our stores are. And then we'll rebuild from that, of course, as I mentioned, when we sell our stores, it comes with network commitments. And so we do see the network ramping up again to a larger size, of course, by 2028. We have ambitious targets as well done through franchising model.
Hazel Tanedo: And then Richard, going back to the business as a whole, can you talk a little bit more about the higher input costs and OpEx that drag the margins?
Richard Shin: Yes. So it's the cost of inventory. So the increase in cost of inventory was higher than the revenue growth line in some cases. And when you really look down, what's really reassuring for us is for our biggest business, the Philippines, our biggest brand, Jollibee. If you look at the Philippines, the raw material that is the most important for us, of course, is chicken. And we are 36% -- 36.4% of total raw material cost is in the chicken category. And we are all locally sourced on that. So we don't have currency and other types of exposures. And the index of inflation on that was only 2.5% compared to our basket, which was 4.8%. So when we look at that, we know we're in good price. We can price that 2.5% out easily. We chose not to, as I mentioned. And then if you kind of look down the list and see where the big one is, it's things like coconut oil, et cetera, but again, a smaller contribution to raw material. But when you add it all up, that was really what was driving it. But our margins are still very strong, as I demonstrated, 19.1% GP. And so I think we're doing the right strategy. And when it's time to take pricing, we will take moderate pricing.
Hazel Tanedo: Okay. And then -- shifting to capital structure. Can you expand on the capital structure transition, especially debt-to-equity?
Richard Shin: So if you look at your classic WACC model or formula, 2/3 really is your market cap and then 1/3 is what you can adjust and amend and that's really the fact that cost of debt is really lower than cost of equity. And so when we thought through this, we said we don't need to do equity accounting. We don't need that for any of our covenants. So let's take the direction of really working on improved WACC and working on the WACC to ROIC spread. ROIC, again, is stuff from the past, capital investments in the past, but it's also capital investments that we've been making presently. And so therefore, I shared a couple of the numbers to try to illustrate that we're very much focused on this, and this is our top priority and #1 KPI for the business that we work on making sure our ROIC delivers to the top quartile 20% by 2028 as we've indicated. So we're seeing very good progress that's happening this year, and we'll see more progress next year onwards. So we're also very confident to deliver what we promised on the ROIC rate.
Hazel Tanedo: That's very clear. Again, on COGS, OpEx appears to have dragged the EBITDA margin as well. Can you elaborate on that?
Richard Shin: Yes. So it's exactly that is the cost of inventory driven by inflation and our conscious decision not to price everything out, but to rather go for volume. And that's why you're seeing those tremendous top-line growth as well. Net-net, we make money, of course. The efficiency ratios change, but then that also then puts us in a position and also as cost of some of these items get hedged out or get stable margin or operating leverage on that cost of goods line starts to drop to the bottom line. And that's what we expect for the second half of the year.
Hazel Tanedo: And then moving on to Campos. We have a few questions there. What is the full-year store opening target of Campos? Any seasonalities in store rollout we should be mindful of, i.e., slowdown in 4Q or 1Q due to winter months?
Richard Shin: Yes. In terms of new store openings, we have not slowed down. So we're averaging 30 to 40 per month. And so we are looking to be very close to, if not cracking, 3,000 by the end of the year. We're already at 2,800. We're only -- we're less than 10% market share in the world's #3 coffee market per capita. So -- and we don't spend any capital opening stores. And so for us, it's really driving that KPI very hard. And how do we do that? We do it really by starting with a -- sorry, non- quantitative KPI, and that is to be the best franchisor. What do we mean by that? When we look at our competitor, I won't mention names. And they have a very different philosophy around new store openings. So it's a bit more aggressive than, I would say, our philosophy. But we've actually quartiled all of the 2,800 stores. Most of these are single-unit operators. So I think that's an important fact, which means a lot of them need assistance and help, whether it is in terms of operations or running or retraining them, training them multiple times, visiting them more frequently or it's operators that might need a little help in understanding their cash flow or P&L or balance sheet. So we've broken down to what the opportunities are. So I'll give you a very concrete example. So I'll use some pants on this one. We were the lowest price for Iced Americano, which is about 40% of our business. And the Iced americano price of KRW 1,500 was the lowest in the market. So other value players, they were sitting somewhere around KRW 2,000. So that's quite a difference. So after much analysis, we decided to take KRW 300 retail selling price increase from KRW 1,500 to KRW 1,800. And understanding our franchisees, we gave all of that, that KRW 30 we gave all of that to the franchisees to enjoy as incremental margin. We didn't take any of that. And what that has done is, of course, these stores continue to grow and continue to order from us. And so therefore, our business grows because we continue to sell coffee beans to these stores. So that's an example of, I think, how we're thinking differently and servicing our franchisees differently. So we're very confident, and we're seeing that in the numbers now as well. We are seeing a switch over from other brands into Compos in terms of franchisees wanting to open with Compos now. So that's been very exciting. So our network growth will continue to be aggressive. July, we're also seeing incredible high double-digit numbers in terms of system-wide sales growth. So I think our strategy is working.
Hazel Tanedo: Richard, what is the sustainable gross margin for Compos for 2025? And why should lower -- sorry, why should lower coffee costs flow into the margins?
Richard Shin: Okay. So let me talk about this a little bit because I think there is a curiosity out there when you look at our Q4, so we bought the business in August last year. But if you look at our Q4 margin rate versus the margin rate of Q1 and Q2, a lot of people are wondering if there's been a margin erosion. So what has happened is -- and let me start by saying, in Korea, you're allowed to do accounting for Korean GAAP using either the 3PL, so that's third-party logistics or 4PL. Now I don't want to get too technical, but the difference there on the bottom line in terms of absolute dollars is 0. So it's the same absolute dollar. Depending on which accounting methodology you use, it's just the how and who is owning that inventory. And so therefore, your revenue number is different. So the margin percentage, of course, looks different as we switch to the 3PL accounting versus the 4PL. And we did that. So they were using 4PL. We bought the business. We finished the year with 4PL. But this year, we started with 3PL because all the other players in the value segment are using 3PL accounting. So we did that purposefully. And so the margin rate comes down. Having said that, our NOI or OPM or NOI margin rate of 19% compared to 7% to 8% for JFC as a group is significantly higher. So it's a very profitable business. So we have not seen margin erosion. It's an accounting change. Now there are 2 components that could reduce profitability. One is how we want to invest in brand building, as I mentioned earlier. So that's marketing expense because there are -- that's a choice that the company can take. And you only do that if you want to build a brand because you see that this brand could live outside of Korea as well. And secondly, the bean price. But again, the way we completely revamped the way procurement was done and the way we are doing it, we're smartly buying on short and long. And so therefore, we're not seeing a full impact. Of course, there's always some impact when bean prices do go up, but I would say that's still manageable. When bean prices come down, we do not plan to necessarily price that out in terms of rebates. I don't think there's a need for that. Why? Because earlier, I mentioned, we allow the franchisees to take pricing and to keep all the margins from the pricing. And so therefore, I think overall, net-net, the franchisees will still enjoy very good profit margin levels. And so that was, again, a very well-thought-out strategy that we implemented, knowing that bean prices do fluctuate over time. So we're trying to normalize all the ups and downs and deliver consistent profit levels for Compos. So that's what it is. So again, just to reiterate the point, the accounting change is what you're seeing in terms of the margin rate change from Q4 last year versus this year.
Hazel Tanedo: Thank you, Richard. Very, very clear. We have a few questions on the cost again. First is the impact of the recent increase in minimum wage and the impact on margins moving forward. We'll start there. And then I think the second is about E&P spend for the first half. Can you provide color on the level of E&P spend for the first half versus last year and how the second half A&P spend will be to stay flat, lower or higher?
Richard Shin: Yes. Let me start with the A&P question first. We were slightly ahead in terms of percentage of for this year versus last year. If you remember 2 years or even further back, the struggle was always the catch-up in the fourth quarter. And so we made a lot of conscious effort to try to spend differently. And so I think net-net, the percentage for the full year will be similar as we are 69% franchise business. This is also part of how we invoice up to our franchisees the A&P funding. So there's a certain level of percentage commitment. So that's how we work through that. In terms of the labor impact, when we looked at it, again, taking Philippines as our biggest market, it was, I think, very, very nominal to our business. And so it did not register as a top risk for us. And so yes, so we recognize it, and we follow the laws and regulations of increasing pay to our employees, but it's not impacting our business in any meaningful way.
Hazel Tanedo: Thanks, Richard. Last 3 questions. We'll cut it there. We're running over time. The first one is on the Philippine SSSG. Can you expand a bit on why the SSSG and the Philippine business was slower compared to the previous quarter?
Richard Shin: Okay. So I'll give you the technical answer in a second, but I also want to say the more generic point that every time the business grows, the percentage is off of a larger base. So I think it's important to know that math or that mechanics is happening as well. But we did -- and it's not an excuse, but we understand Philippines does have some harsh, how do I say, typhoons, weather conditions, et cetera, and that has impacted as well. I think in particular, June, there was an impact of that. We also saw some impact in terms of getting ready to send kids back to school. So the timing of that and how families spend because of that. So I think those were the 2, if I remember, 2 main reasons why we saw some of that movement. So then the natural question is what does July and August look like? I would say the latest that we're seeing in August is back to a very consistent, strong same-store sales growth, again, on a bigger base. So we're not worried about Philippines. In fact, that's the least of our worries in terms of growth. We'll consistently grow this business in Philippines, and the infrastructure is very strong here for us to continue to take market share.
Hazel Tanedo: And then on CBTL, your quarterly SSSG is quite volatile. How should we think about this? What are the drivers or reasons behind this? Is this a function of geography performance variance or seasonality?
Richard Shin: If you look at our Q2 versus our Q1 in CBTL, we made significantly more profit. And so that's an indication of top-line growth as well. And our star performers, our biggest company-owned market is Malaysia. It's 100% company-owned, and we're seeing very strong growth there. And in the U.S., we saw also strong growth as well as Middle East. So we have a lot of markets. We have 23 markets for CBTL, but we also have the top 5 markets that we track very closely. But I have to say that the brand is doing quite well. And in many places, it's #2 after Starbucks or -- yes, it's a homegrown brand in many parts as well. So I'm not sure if that answers it exactly. But again, I'm not seeing too much fluctuations in CBTL, and I'm actually seeing growth quarter-on-quarter.
Hazel Tanedo: Can you confirm, Richard, what drove the improvement in EBITDA margins in the second quarter?
Richard Shin: Overall as a company?
Hazel Tanedo: Yes. For CBTL.
Richard Shin: For CBTL. Yes, when we dug into it, I believe Ramadan in Malaysia was in Q1 last month. So we had some benefits coming from there. And also U.S. was the other market that gave us the largest growth. And that's new products being launched. That's -- we have a new leader in the U.S., Tara Henkel, a very seasoned veteran there. So yes, it's new product launches. Malaysia launched its app as well. So we saw good performance coming through that. So Malaysia and U.S. and the Middle East were the reasons for the strong growth.
Hazel Tanedo: And then for the final question on debt. What is your view on interest rates going forward? And how does it shape up your debt refinancing strategy? And will it be biased towards short-term or long-term loans? I think you kind of talked about this already available. But just to...
Richard Shin: Yes. I'll probably say it's the same view as I think most CFOs who listen to the experts, the economists and so forth. The trend, we believe, will go down. So therefore, earlier, I don't know if people caught it, but when we refinance to term loans, we are using floating rates. So we haven't locked into very long-term rates. And we're waiting for the basis -- sorry, the rate cuts, et cetera, like everyone else. But in the meantime, we know all of our investments are yielding much higher return than the cost of debt. So we'll continue to use leverage as an enabler to grow.
Hazel Tanedo: Very clear. So with that, any additional questions, you can e-mail it to me. We can send it to Richard. But with that, we end this session on Jollibee Foods. And we thank you, Richard. Thank you, Cossette, for sharing your views today and for answering all our questions. To all the participants, thank you for joining us. If you have further questions, again, please let me know. Otherwise, you may disconnect. Have a good weekend.
Richard Shin: Thank you everyone.
Corazon Palomar: Thank you.