Up next, we have Jollibee Foods Corporation. Presenters are Miss Cossette Palomar and Mr.

Richard Chong Woo Shin Financial Officer and Chief Risk Officer. Mr.

Shin will continue for the Q&A session joined by moderator Adrian Goh from Sun Life. Before we begin, please turn your attention to the screen for a short video about the company.

We are

the Jollibee Group, one of the fastest-growing restaurant companies in the world, home to formidable brands with Jollibee at the helm. We operate a network of stores across Asia, North America, and Europe.

From our humble ice cream house beginnings to becoming a dominant industry leader, the Jollibee Group has sustained strong growth for over four decades. We have received numerous international accolades over the years, from Best Employer to Most Outstanding Corporation, to Asia's Most Admired Company.

We recognize that our success is tied to the positive impact we create while conducting our business on the well-being of our communities, customers, employees, and various stakeholders all around the world. Our deliberate efforts towards sustainability are guided by our sustainability agenda, Joy for Tomorrow, and our three pillars of food, people, and planet.

As part of this commitment, our social responsibility arm, Jollibee Group Foundation, is focused on programs that promote access to food: uplifting livelihoods of small farmers to directly supply to large institutions through the Farmer Entrepreneurship Program, and alleviating hunger so children can continue their schooling through the Busog, Lusog, Talino School Feeding Program. Our aim is to grow the business with sustainability as one of our backbones, enabling us to continue our mission of serving great-tasting food, bringing the joy of eating to everyone, with consistent taste superiority, outstanding value for money, the highest quality of food, service, and cleanliness, coupled with the talent and commitment of our world-class organization expanding across the globe.

We will achieve our vision of becoming one of the top five restaurant companies in the world. We are the Jollibee Group.

I am sorry. Good afternoon, everyone, and thank you for joining Jollibee Foods Corporation's earnings call.

We would like to thank the Philippine Stock Exchange for hosting our earnings call. Before we begin, I would like to read this 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 for 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. During today's presentation, JFC Chief Financial and Risk Officer Mr.

Richard Shin will walk you through the key highlights of the Jollibee Group's financial and operating performance. His presentation will also aim to address some of the questions we anticipate from you.

Following the presentation, our moderator, Adrian, will read out the questions submitted through the chat box. In case we are not able to cover all questions during the call, please feel free to reach out to the investor relations team afterwards, and we will get back to you as soon as possible.

Thank you again for joining us today. With that, I will now hand the floor over to Mr.

Shin.

Thank you very much, Cossette, and what we've done purposely is really try to zoom in to some of the key areas for first quarter earnings. Let's start with at a glance.

Again, I think it was quite well-disclosed that our business, top line, starting with system-wide sales and followed by revenues, you can see that we had solid, significant growth. I can also tell you all of our 19 brands, all of our 11 brands in the Philippines and the balance of the brands in the rest of the world, they all actually had top-line growth.

I think that's a very important point to point out, and in particular because we play in the value segment in most of the cases where the price positioning is very relevant to the situation that many consumers are facing today in the world. Of course, Philippines, we're all very familiar about the inflation and the cost pressures.

Having said that, you'll see here operating income and NIAT on a temporary short-term basis has taken a dip. Many of the following slides will really deep dive into that and to really explain in a clear, transparent way what had happened.

Not to spoil it, but it is really about cost of inventory. Again, what solutions we have and and we have already implemented starting in April, and how that will unfold for the balance of the year.

Then finally here, we continue to realize and recognize that our brands are strong not only in the Philippines, but globally, with 181 new restaurants and cafes having been opened in the first quarter, representing around 4.9% of network growth, which takes us now to 10,421. Some of the interesting brands, you'll see groupings here of our beverage brands, our coffee brands of Compose Coffee in Korea, Highlands Coffee in Vietnam, and also of Milksha, which we have most of our shops in Taiwan.

You can see all of them are strong double-digit growth. In addition, Jollibee, the brand, that will pop up here in EMEA.

It will also show up here in North America, Asia brands, so that's essentially Jollibee. Of course, Philippines also all displayed very strong and robust system-wide sales growth.

Also some of our other smaller brands like Smashburger also delivered a quarter of growth, along with China and, of course, our newest brand, Tim Ho Wan, which plays in the Chinese cuisine segment. Now, moving on, what happened this quarter?

Many things went well, and and I wanted to just share some of those. First and foremost, as mentioned, top-line momentum both in the Philippines and globally.

So, 8% up in the Philippines and internationally 13.5%. New store openings right across the world.

Coffee and tea as a segment. Back, the other good news is the bean prices also have stabilized, and we've seen a decrease in bean prices, which is to say we expect even stronger results in the second half at the cost of goods line.

Shabu All Day is the newest acquisition, and this is really at the moment just in Korea. It's 170 restaurants that we purchased at a very good multiple, and on an annualized basis, this brand will add 2% to our global or consolidated revenue line and 8% to our consolidated EBIT line for the group.

Jollibee also continues to accelerate both in the Philippines and internationally, and again, we saw some very strong growth rates there. Tim Ho Wan, again, this is only the beginning of its second year since under our management, is starting to show very strong, rapid expansion, system-wide sales being up 22.5%, and our EBITDA excluding China has tripled in the quarter.

Our core market or base market of Hong Kong, where the brand is from, we've doubled our store footprints in just one year. Of course, shareholders return is very important for us.

Regular cash dividend of ₱1.33 was declared and paid, and this was 100% funded by organic cash flows. The challenge, which the following slides will address, is really inflation.

The geopolitical commodity inflation, so that's not just the war in Iran, because we all know that that had more of an impact in the second half of the month of March, but even preceding the first quarter, we had geopolitical risks everywhere. Ukraine, Russia situation has not resolved.

We have, of course, an economic battle going on between China and the US, and of course, many things right around our neighborhood around the South China Seas, etc. All of those inflationary all those pressures leading to inflationary increases really manifested itself in our business in the first quarter at a tune of 13.1% increase on our cost of inventories.

At the same time, I'll read you what our CEO has ported on the right as to our pricing strategy: We're taking disciplined steps to manage near-term volatility through measured price increases beginning in Q2, April, alongside thoughtful and targeted cost management, while continuing to advance sustainable growth and long-term shareholder value. Let me now get into the details of this pricing strategy, starting with our domestic business, which got hit the hardest.

This is again, just to frame it, this is just Philippines domestic view. This is the view of our gross profit margin.

Of course, that includes the cost of inventory, and also we do have some store and manufacturing costs in there, but predominantly, my focus is going to be around cost of inventory. If you look over here, same quarter a year ago, our cost of inventory as a percentage of revenue was 55.5%.

This quarter, Q1, it ramped up to 58.8%, and that is to say 330 basis point increase on the cost of inventory. If you look at the GP margin compression from 19.4% to 16.3%, that's roughly 310 basis points.

That is to say there was some efficiencies, but majority of the pain was really due to this cost of inventory. Because it's a percentage of revenue and because we did not take pricing in Q1, the impact fell all the way through, and of course, middle of the P&L is a largest number, then when it goes down to EBITDA, then net operating income, and then finally net income after tax, that's why you're seeing some of the larger percentage numbers, but it's effectively this and this issue alone.

Why do I say that? Because international was flattish on cost of sales, and so, therefore, we didn't see the pain in the same way.

It there was only a 50 bps movement, but net-net, international delivered a higher GP dollars as well. Now just on the right-hand side, just to reiterate again, our gross profit margin erosion is directly attributable to the domestic business due to pricing lag.

I say that, and later I'll go into our thinking around why the timing of pricing is important for us versus what has happened, which is the higher cost base. Point two, deliberate strategic choice to prioritize volume and share of market.

I've been saying this repeatedly for the last many, many earnings calls that because we're in the affordability game and because we're in the value segment of a necessity, which is food, we take this very serious, that we try not to pass on so quickly all of inflation to our customers, because we also know, as much as it's important to grow our business, we have to be very mindful in how this impact, the pricing impact our dear consumer and customer bases. That's what it is.

We we prioritize volume, and again, I've demonstrated that we continue to grow our volume and continue to grow our top-line sales and also our market share. The Philippines business remains fundamentally sound with very strong demand, scale, and unit economics.

I'll show you some of the data points later on to demonstrate that. Lastly, moderate single-digit price increase is required now to one, not only recover some of the profit loss that happened in Q1, but also to cushion the balance of the year, because we do believe that inflationary impact—now I'm going to bring Iran war back in—we do believe that Q2 will have that impact, and later I'll show you some of the data sets in what we're seeing as an impact.

Therefore, the pricing of mid- to high-single-digit annualized time-adjusted basis will get us to a place where we're able to recover, but also cushion the balance of the year's inflationary pressures. This essentially is the slide, but let me continue as we build this out.

Let's get a bit more specific now. What are we talking about?

We're talking about input costs, right? That's raw materials and that's packaging.

Raw material and packaging inflation was the majority of the pain, and that's 77%, as you can see by this diagram on the right that summarizes. Of course, there was a slight impact due to FX.

Why? Because we do procure a certain percentage of our raw materials from outside of the Philippines.

When we do that, there, of course, is a mismatch to our revenue currency, which is pesos, and our purchase currency, which quite often is US dollar, but other currencies as well as such as Australian dollar and New Zealand dollar, etc., where a lot of goods are coming from. If you notice here, the impact on freight is even larger than FX, and the reason for that, of course, is energy-driven.

We're starting to see that happening. PPV, as just as a reminder, stands for purchase price variance, and that is how we do our planning, which is standard costing, and how when the actuals come in, we release any of the hurt or the help from the standard rate to the actual rate.

Now, we are getting much better and tighter on this to the point that this quarter, we didn't have any PPV movements, but in Q1 of last year, we had a 273 million help. When you're looking quarter on quarter and you're looking at cost of inventory, that 273 was in last year's P&L in that margin rate that I showed you earlier and is no longer in Q1 of this year.

That also impacted to the tune of about 8% impact. Now, on the left-hand side, cuz many of you have asked specifically what are those raw material costs and what was the inflationary impact that you saw in first quarter, let me start with the column here that says percentage share.

This is the contribution of this particular category item in our total cost of inventory. We are mainly a chicken business, as you know.

Now, the good news is most of our ch—not most, all of our chicken is raised and procured onshore in the Philippines. The inflationary impact there, there's no currency impact, etc., except for upstream, fertilizers and so on that the farm is farmers may be importing to use.

You can see it was relatively okay, low singles here, with a slight peak here in March to represent, again, starting to feel the impact of the Iran war. Beef, on the other hand, is 100% imported.

We don't have any local beef. When we import beef from places like Australia, there's going to be a higher inflationary impact.

Now, if you're asking what happened in March, again, what to know on raising steer, in which we get the beef from, versus raising chicken, there is a different lead time to raising these animals. When there's weather weather-impacted and demand increase-impacted contributors, you will see that beef overall has been rising, in addition to that, the inflationary impact, you're seeing that coming through in March.

Again, if there's good news at all, it's relatively low index, it's less than 9% contribution to our business, and so forth. I wanted to show you the numbers behind it and the contribution of these raw materials.

Moving on. What are we doing about it?

What's what's going to drive our pricing decisions? I'll say it again.

I think this point is very important. Our pricing philosophy remains to be measured, thoughtful, targeted, selective, and designed to protect our margins, but without compromising volume or traffic, and also by making sure that we provide optionality to those discerning consumers who may still need, even though it's a 1% to 3% price increase, who may still need to be thoughtful in terms of whether they can afford it or not.

Therefore, we're going to continue with our mix and match and other types of programs that addresses this need for our consumers in the Philippines. There are many three main considerations.

We have to, of course, address the elevated inventory costs, which I've just shown you. We have to also, of course, maintain gold standard and quality and portions.

We will not reduce quality or portion to go to cheaper ingredients in order to manage our margins. We will not do that.

Why? Because that directly impacts our consumer satisfaction, which is very important to us, and of course, the long-term brand equity will suffer if we start to do that.

Therefore, we shall not. Then third, of course, is we have to address the margin compression and, of course, while allowing our stores, whether it's our stores or a franchisee stores, to continue to have a healthy unit economics so that we continue to get good returns on those stores so that we can continue to grow and expand through new store openings as well for both ourselves and our very important franchisee partners.

In the first quarter, margin pressure hit. Cost hit.

We had limited pricing. What do I mean by limited?

We had, on average, 0.4% price increase in the first quarter. I refer to that as no price increase or very limited price increase, certainly below the inflation rates that I've just shown you.

Second quarter, starting in April, we have actioned already, and we'll continue to do that in second quarter, multiple months, and we'll continue to also action that in Q3 so that we balance out the full year in terms of measured price increase at the right amount at the right time. The second half of our fiscal year, you'll see improved margins.

You'll also see operating leverage at the new run rate, which is, again, continuing to grow despite inflation. Now now that we've talked about cost of inventory, inflation, our pricing strategy, let's talk about our business.

Let's talk about our most important business, which is the JFC business here in the Philippines. What happened?

First and foremost, the business posted a 8% system-wide sales growth right across. That's an average of all our brands in the Philippines.

Just as a reminder, this is coming off a very high base, strong base in Q1 of 2025, where we had nearly 12% growth versus 2024. If you remember, we had also the opportunity to get additional volume and sales because of the the election spend, which, of course, this year we don't enjoy that.

Nonetheless, still an 8% growth while delivering an operating income margin of 7.7%, it's still very profitable and it's still a a business that continues to contribute and grow. Number two, our network also, if you look forward, has significant runway.

Let's talk about Metro Manila and the provinces. In Metro Manila, which now represents 1/3 of our network, with 2/3 being in the provinces, it this still remains unpenetrated from a demand perspective.

There's still a lot more that we can do to capture the demand that exists in Metro Manila. Although in terms of geographic penetration, i.e., real estate and location, we're about 90% there, but we can still grow the network of stores we have as there is the demand upside.

Now, in the provinces, it's slightly different in that only 15% geographically is penetrated, and of course, a significant, and it's hard to compute this, but a significant amount of demand upside because we're only 15% penetrated. We'll continue to expand our network.

Third point here in the Philippines, our champion brands, and by champion, we mean the brands we rely on the most and the brands in which we invest behind the most, and that's Jollibee, Mang Inasal, and Chowking, all in very different categories, the good news here is that's about 90% of our system-wide sales and operating income. That means we can be very focused in how we allocate our capital for growth.

Let me just show you a couple of really interesting things that's happening with Jollibee Philippines, again, still staying in the Philippines. We use this word of undisputed, dominant market leader because the data says we are.

Jollibee store network is at 1,346, and it remains larger than the next two Western QSR competitors combined. We've opened 13 stores in the quarter, and what's very interesting is these stores are returning around three-year payback or 30% ROIC, which is fantastic both from company-owned store perspective of capital usage, but also for franchisees who are getting very good return on their investments.

Second, strong and consistent growth with system-wide sales growth of 7.6% in Q1. Again, this is extending from a strong same period last year of 13.3%, growth on growth.

That was very encouraging to see, despite the cost pressures and despite inflation, there is no demand pressure for us, for our brands here. The brand strength this delivered share gains of plus 8.2% percentage points in terms of value and 7.3% percentage points in terms of occasion versus our next key competitor.

Again, we're widening the gap in terms of again, dominance in this space. Once again, I want to reiterate, April price increase has happened.

You can see some of the high-impact campaigns around our core products or hero products of Chickenjoy, Yumburger, Burger Steak, also as well as some tie-ups with very popular, very relevant brands such as Pokémon. We're also continuing, and I said this before, and I'll say it again, with our value platform.

This is very important, that there are optionalities for all consumers, so that we'll continue with that. Therefore, what I'm saying is even with a measured price increase, I do not think that the volume lost through price elasticity is of an issue for us, and that's how we planned it out.

We never want to take aggressive price as a reaction and then lose volume off of that. We want to be very thoughtful and measured.

Just a second and then and then I'll move on from that from the champion brands. Mang Inasal, you can see here, in terms of growth rate, in terms of new marriages, it's actually growing faster than any of our other brands in the Philippines.

We're consistently, this is not a one-off, but consistently delivering double-digit growth, which is, of course, underpinned by a very highly scalable expansion model with strong unit economics. What am I talking about?

What I'm saying is 98% of Mang Inasal today in the Philippines is operate is owned and operated by franchisees. Therefore, if I can just skip to point three very quickly, that results in a world-class level of 33% OPM, operating profit margin, and that's because we're highly franchised.

That's a great model for us because it's asset-light. Now, this model can only work if the store has a very strong box economics, and and it does.

What what do I mean by that? The most recent seven stores, as an example data point, that we opened, again, very good ROIC, but more importantly, our average daily sales in which we planned these stores at and in which the franchises when they bought had it in their plan, we exceeded by 43%, meaning the actual demand and actual sales was much hi- higher than what we had anticipated.

We continue for eight consecutive months with sales growth, and so, therefore, Q1 delivered a 16.1% in system-wide sales growth and a solid high single of 8.2% in same-store sales growth. Again, Mang Inasal will also take price, and has taken price in April.

Just mindful that I want to leave some time for Q&A, let me go through this. Now let's talk about the Jollibee brand, but outside of the Philippines, international.

We got here Hong Kong and Macau. We got North America, so that's US and Canada, and we got the rest of the world or EMEA, which contains Asia markets like Vietnam, etc.

You can see system-wide sales growth of 19.2, and if you reference it against other multi-brand peers or even single-brand peers, you can see as a rate we're significantly higher than everyone else in the QSR space. Same-store sales growth, getting productivity from our assets and also for the franchise is very important, you can see 7.6% growth, and looking at all the other brands, we're significantly higher once again, and hence we can make the statement of outperforming the peers.

Store growth, so that's network growth, we've added another 12% to the Jollibee just the Jollibee brand footprint, and again, as a percentage, smaller number, but as a percentage, we are building stores faster. As our process and systems get better and better, you will see the acceleration of new store openings coming from key markets like the US.

Speaking of North America, let me start with the first quite amazing data point: 63 consecutive months. We have not min- missed a single month in 63 where we had positive same-store sales growth.

That's looking at it both from traffic and also from average check, it's not from pricing, it's actually from more from mix and from volumes. Point number two, franchising, this is the future, as we all know.

We have 141 active inquiries from both the US and Canada. We've also deployed a full-time professional resource to look at Canada as a market to franchise, cuz today we don't have any franchise stores there.

You can see before I talked about two, three, maybe five store multi-unit franchisees. Today, we're seeing that number go up, and in the pipeline, we're also getting much higher number multi-unit franchisees, but I'll save that for Q2 and Q3 discussions.

We have 72 actual units that's under development in these various key cities in the US, and so that's very exciting. Of course, digital is is a key part, both through drive-throughs and also off-premise like delivery.

We need very strong tech support for that, and you can see the numbers here. Our investments from the past are yielding results and returns.

Vietnam is a phenomenal market. This is not a typo.

We actually had a system-wide sales of 46%. We're now number one right across the board in in all metrics of revenue, profit, market share, etc., in Vietnam.

What's very interesting is it's a mainstream patronage nearly 100% in Vietnam. It's a brand for the local people, and it's a brand that the local people love and admire.

Then second point here, it it's a brand that doesn't have a significantly wide menu, which means operationally makes things a lot easier for us, but our hero and core products are all doing very well, and we're getting tons of recognition in the country. Also very importantly, our aggregator partner Grab, which is the biggest in Vietnam, we're hailed as their partner of the year, which reflects also the business and volume size.

Shifting now to coffee. There's six things I want to mention to you about Compose Coffee.

We're now at a network of north of 3,000, as you can see here, with very little closures. System-wide sales increased by 31% year on year, so that's I think that's a pretty solid number.

International expansion, we've now signed a master franchise agreement with Taiwan and also opened our first store in Taiwan in April, not quite Q1, but it has happened. Product innovation and collaboration, I think we all can see the comeback of the K-pop group BTS, and of course, V, a key member of the BTS group, is our brand ambassador, and so we continue to enjoy the halo effect of that branding and that investments.

Of course, in addition to store, this brand can live outside of just the cafes, and we have a small victory here, but it's a very interesting one because it's an annual recurring revenue. That is to say, it's, it it just happens.

The way it happens is we have these pour-over coffee bags that sits in 500 rooms in this hotel called Hotel 101. The first one here outside of Philippines it was in Madrid in March, and so that's two packs a day, 500 rooms, and each day when it gets replenished, we can do the math very quickly, with very good margins.

As Hotel 101 expands to Niseko in the end of the year and eventually to LA and so forth, we'll continue to not only get the brand exposure, but a recurring revenue with pretty much no cost behind that to support. That's what we call the key account phenomenon that we saw happening.

Then last, I want to address it right here, cuz many people have asked what happened to the EBITDA, what what's happening really in the EBITDA is our choice again to invest in the brand, the organization, the menu, etc. I say that because when we bought this business, we bought a skeleton crew.

Everything was outsourced. We didn't have a finance professional, we didn't have a single market marketing staff, we didn't have any of these functions.

It was all really outsourced other than franchise sales relationship folks. Of course, for us to get bigger, faster, and more professional, we started to build a team, and so that's been reflected, and also the branding, the marketing.

It's not just for V, it's also other very important tie-ups with corporate sponsorships and so forth, not sponsorship, corporate partnership, which is very different. For example, we're tying up with Korea Telecom, which means everyone who is using that mobile service will get a message that says Compose Coffee, go get it, here's your e-coupon.

These are very important marketing tools that we need to be competitive, in particular with our local competition in Korea. Tim Ho Wan, I'll go through this a bit quicker, but there's so many wins, but I I think the key one here is we continue to grow top line and our profit, and you can see here, some of the sales growth rates in Hong Kong, in Singapore, etc.

We opened their first store in Irvine, California. It's a brand that's in its second year, but it's starting to really grab attention because it plays in that space of casual dining, but at really affordable price at Michelin-level star quality.

That formula is working very well for us. All right, financial highlights.

I said it early, but let me show you the numbers right across year-on-year growth, in terms of absolute, but percentage, right across all the brands, we're growing. This just wraps up the whole P&L on a slide, and I've spoken through what happened here.

This is really that margin compression due to cost of sales, which is very much reversible. Just a couple of quick slides: a financial leverage per- position, nothing really to report, we're way under our covenants.

In the case of debt service coverage ratio, we're way over, all very positive. In terms of our balance sheet, I think the key one I want to speak to really is there has been questions around safety stock, given the uncertainties.

We don't have a ton of reliance from procuring ingredients from that part of the world. Energy, of course, is very important to us, but we're lucky in that sense, but in any case, we did consciously increase our inventory days by five from 37 to 42 to make sure that we have the right level of security or safety stock.

All the ratios like current ratio, etc., pretty much identical, in a good place. Earlier, I had mentioned I I'll come back to the inflationary impact.

Again, the table on the right represents the national inflation view. Our basket of goods usually is higher than national because we're looking at specific raw materials, and but you can see here from March 4.1 boom Sorry, before March, before your Iran war, half of a month in Iran war, and then boom, up to April, and you can see that level sort of holding all the way through.

That's why I said earlier, we expect inflationary impact to come, and we have to be prepared to cushion that. On guidance, I'll just share with you our first quarter.

System-wide sales achieved, same-store sales with rounding achieved, but slightly below what we had hoped for, but nonetheless, we're very proud of that number. Network, 4.9% right there.

This is the miss which we spoke to because of the timing of our pricing. Last slide, this is our commitment, and I didn't put the rest of the year here.

We're we're talking now quarter-by-quarter type of action plans here. We know the direction long-term.

That's that's not the problem. We're very much focused on actions.

First, schedule pricing starting from April, implemented, of course. Second, cost containment, there is a cost containment plan both at the corporate office, but also at the BUs, and I will caveat this by saying we're going to be smart about it.

If there's a growth plan like Tim Ho Wan where we're getting very good returns on our headcount investments or our store investments, of course, we're going to continue to do that. The way we're looking at capex right now, we're making sure that it's very choiceful, and wherever we need to defer, we'll defer as the situation still needs to be observed.

Nonetheless, on the three quarters ahead of us, we're committed to ₱2.8 million cost savings. Then the last point here, of course, we've done this for a while, but it really kicks in as a really good strategy, and that is to accelerate franchising.

Underneath that branch, we have committed to converting our company-owned stores in Smashburger so that we can get to a path of financial viability. Of course, Yonghe, we've mentioned several times that we've been converting.

A little bit of the softness on the rolling base or same-store sales on Yonghe really is the channel mix impact. Before, the aggregators were pumping in quite a bit of funds to support these promos and programs.

That has pretty much scaled back, pulled back. Really, our dining, which takes a bit more time to catch up, that's why we're seeing the rolling base number in a slight negative.

Again, as I've shown you, system-wide sales, we continue to open only franchised stores under the new model of smaller footprint, lower capex, higher faster returning payback, and and that's working as we continue to grow China with that model. The impact from these conversion costs we put the number here for the balance of the year as well.

I shall take questions. Thank you.

Hi. Thank you, Richard, for that very comprehensive presentation.

Now, just a reminder for the audience, if you have any questions you want to ask, you can send them through the Q&A box. Maybe we can start with a question that's on a lot of people's minds related to the impacts of the war in Iran, Richard.

You mentioned earlier the specific raw materials that hurt margins during your presentation. To what extent should we expect those costs to remain elevated or increase even further in Q2 because of the Iran war?

Should we expect the crisis to impact your store expansion plans this year? For previous long-term growth targets to be pushed back, possibly?

Thank you, Adrian. Costs, we should expect our cost of inventory to be impacted by inflation.

That's a macro thing. We should expect that.

When we did the math and the calculation, we don't need to tip the scale too far in terms of price increase to really be able to absorb that. I'm very again comfortable and confident that by taking these measured prices, which we started in April, will get us there to try to stabilize our GPM, our margin rate.

In terms of opening new stores, slightly different thinking. Where there's a market and a demand and good ROIC, our cost of borrowing is significantly lower than the return on those.

Again, with an accelerated franchise opening plan, we continue to push that very hard. We're seeing that in all our businesses where we continue to open stores despite inflation.

Gotcha. Thank you, Richard.

Have you seen any, I guess, impact on franchisee demand for new stores and things like that in key markets like the US because of higher inflation, because of potential demand destruction?

We've definitely seen impact, but the impact is very much wanting to open our stores. I didn't mention earlier because it's outside of Q1, but the reality that happened in April and May, the last few weeks, is we're now getting multi-unit franchisees of 50 units and above coming to us because after Chick-fil-A and Raising Cane's, we're the number three in terms of our AUV, or our annual unit volume, which is our average daily sales times 365.

Being number three in that category in the fastest-growing segment, which is chicken, and the cost of beef sort of having its challenges, we're in a very good place with a strong brand, and we're only in 15 states in the US. I'm super excited about that.

Just to use another example, Korea Compose, we're building on average of 30 stores a month, we'll deliver around 360 stores. That's all franchise.

We started the journey two years ago when we bought the business. 99% was single-unit franchisee.

Today, that number is 70%, meaning 30% are existing franchisees that's taking on an additional one or two cafes. We see that trend continuing cuz it's a very good return for our franchisees.

Gotcha. Understood.

We have a question here about how your plans for the possible IPO or spin-off of the international business and the listing of Highlands Coffee might be impacted by current inflationary pressures. Are we still expecting those two things to be on track?

On Highlands, very simple. There is absolutely no correlation to inflation to our listing time.

The JFC international listing, I'm prohibited to say too much, but we are absolutely targeting the same date to IPO.

Gotcha. Okay.

We have another question here about, I guess, a higher-level question. Can you share how we think about adding new brands to our portfolio and how do we decide to acquire / build it from scratch?

For M&A, what kind of profile as well as expected return or valuation profile do we look for?

I think the stages of the life of JFC was such that in the early days when we were much smaller, we could only afford to buy the types of businesses and brands that we can afford. Single country mainly.

Now we're in a place where deals are coming to us more than the other way. Of course, we want to continue to focus on our number one brand, which is Jollibee, so that will always be priority one.

We're also seeing that the coffee segment is a very profitable segment for us and fast-growth segment. Of course, the white space is this Chinese cuisine, cuz no one's really doing that the way we're doing it.

We'll continue to focus on these businesses. Having said that, something like a Shabu All Day comes to us because we had that infrastructure now in Korea and the bolt-on ability, and it wasn't a high-price acquisition, but the bolt-on ability with management team, etc., is such that they have to pass the criteria.

The balance sheet has to be such that there's no debt and it's 100% franchise, all those types of criteria with much lower than average multiple for that industry or segment. We would entertain those, but beyond that, we're very much focused on our organic brands.

Great. It's really good to hear about the growth opportunities you guys have.

A lot of investors though still have, I guess, concerns about maybe some of the problem businesses, to speak. A lot of people have expressed concern on China and Smashburger, which had been improving up until the last quarter.

What led to weakness for both in the last quarter, and maybe you can outline the path to profitability for those two? Yeah.

I just want to clarify the dataset on Smash. Smash is showing same-store sales growth of mid-fives.

In terms of adjusted, we did take deliberate measures to close some stores as part of our conversion strategy that I mentioned. If you take that out, actually the bottom line for Smash also grew by 7.6%.

Smash, I would say, is on its way with leadership under Kim Sullivan, whom I talked about in the past as a really experienced turnaround expert. For China, other than the rolling base or same-store sales that I explained because it was the mix between the channel, I have to say all other metrics of new stores open, 100% franchise, etc., we're on our way.

We're on our way to get this to a scaled level, and as we all know in China, when you get to a scale level, that's when really your operational leverage or your flow-through of your top line to the bottom line really happens. We're not at all phased by it.

The last thing I will say about Yonghe King in China, it started many years ago as basically a breakfast brand. Today, we continue to dominate that daypart, but it's now almost equal to breakfast is lunch.

We're adding dayparts as well, and so yeah, we're just going to keep chipping away. Store closure or store conversion costs will come through this year's P&L, because as we're gearing up for 2027, I think that work has to be done.

Thanks, Richard. You mentioned franchising, and I think that's something that a lot of people are curious about.

How do we plan to improve that mix over time? What specific brands are going to drive that, and how is the margin of the franchised business?

Great question. Our average franchise rate is about 70%, 69% to 70% of our 10,000-plus stores are franchise.

We have extremes like Mang Inasal, which is the highest at 98%, soon to be 99% even. For every other business, effectively, unless it's a under-three-year with a high box economics under-three-year payback with a high box economics, it's automatically goes into the franchise mode.

The reason why that ratio cannot be higher faster is because in Vietnam, our Highlands Coffee has somewhere between 33% to 47% ROIC, which is to say it's paying back really quick, somewhere between let's say 2 to 2.5 years, to sometimes up to 3, and so we continue to open new stores. So, 250 Highlands will be opened this year.

When you add that number in, that ratio doesn't move as fast. The ratio of franchise stores to company-owned store opening, it's night and day now in terms of all the new stores opening, if you take the Highlands special case out.

We have a follow-up question to that over here. Are you looking to open franchise for other brands like, say, Tim Ho Wan?

Tim Ho Wan's our brand, we own it. Other than Hong Kong, Singapore, and China, every other market is a franchise market, or we work with a JV partner.

We'll continue that strategy. Now, having said that, we do own part of the JV in the US, and US is our number one market, you will see some capital investments.

If you look at our business in the US, it has so much potential for many, many more stores just in Southern California. We'll go with kind of like that cluster effect to build a strong brand rather than a sparse scattering of stores across the country, in which case supply chain and operations becomes a challenge.

Other than those markets, and we'll probably reduce exposure in China for Tim Ho Wan because we have Yonghe King that plays in the Chinese cuisine space. Other than that, yeah, we're very bullish on Tim Ho Wan because of the box economics and the returns.

Okay. We have a question over here about what the demand reaction to recent price changes has been, how widely implemented have the price changes been as well, and maybe you can share as well sales trends for what you've seen so far in April in the first half of

Yeah. April, I think we're going to end the month somewhere around low single same-store.

System-wide sales probably higher than that. The impact of the price increase, because it's done in the way it's done, is negligible to none.

I will say the election spend of last year April, and I think there was a few other timing differences around graduation day, etc., some of that we'll see in the numbers in the Philippines. We're not at all worried about April price increase.

Gotcha. We have a question here from Renz about your balance sheet.

Does JFC have plans to deleverage balance sheet, especially considering the impact of the US-Iran war to inflation and consequently interest rates?

Yeah. I think where we are in terms of gearing and everything else, it's not an issue.

I think the issue is if we tend to get into significant amount of large borrowings, which we have no plans to do. We like our position right now.

We do want to use leverage to grow, because in our business, that gives us a net positive return. There are no plans to go and open further or issue further bonds, etc.

Yeah.

Okay. We have time for maybe one last question here.

I know you mentioned it earlier during your presentation, but can you elaborate further on PPV and its impact to COGS? Do we expect its impact to be minimal moving forward, since 1Q saw no PPV adjustment?

Sure.

Yeah. Years back, our PPV sort of swung our cost of goods and our gross margin because we conservatively came up with standard cost, and then when actuals came in, there was usually a gap in favor of, meaning the actuals came in much lower than what we put as standard cost.

That was in the past. It took several quarters, but we corrected that discipline, because we didn't want these ups and downs, to the point now where all the inflation, anticipated inflation, etc., all that gets built into our standard cost.

We're really tight on our standard cost forecasting now. I think Cami is jumping on to say I'm done with time.

That's why it happened the way it happened. It's a shame.

I wish I had some PPV this quarter, but I don't. That's okay.

I think it's a better process. Thank you.

Gotcha. Thanks for the insightful Q&A session, Richard.

Passing it back to Cami.

Okay.

Thank you, Mr. Shin, and to Adrian Goh for moderating this session.