Inflation’s sting: Lucky Me maker Monde Nissin income slides as input costs rise

Art Fuentes, ABS-CBN News

Posted at Mar 24 2022 09:40 PM

MANILA - Lucky Me and Sky Flakes maker Monde Nissin on Thursday said its revenues edged up in the last quarter of 2021, but net income still slipped as the company faced rising costs to production. 

Monde Nissin said its consolidated revenue grew 1.4 percent to P17.8 billion in the fourth quarter, pushing full year revenue growth up 2 percent to P69.3 billion, based on unaudited financial results. 

However, its core net income attribute to shareholders also slipped 6 percent to P1.07 billion during the period, with the full-year figure at P8.18 billion or down 5.4 percent. 
During an online briefing, company officials said the decline in profits was due to expenses on advertising to build up its brands, and “continuing commodity cost pressures,” particularly the higher cost of energy, ingredients and logistics. 

“As you know, our 2 biggest input costs in APAC [Asia Pacific region] branded food and beverage are wheat and palm oil,” said Monde Nissin chief financial officer Jesse Teo. 

He said that the two commodities, which make up 40-45 percent of their raw material costs. Wheat prices had risen by 14 percent in December 2021 from the same month in 2020, while palm oil was up 33 percent year on year.

This year, wheat prices have surged to 14-year highs following Russia’s invasion of Ukraine. The two Eastern European countries together account for about 29 percent of global wheat exports.

Monde Nissin however said its supply of wheat is unlikely to be affected by the Ukraine crisis. The company is also implementing measures to shield itself from wild price swings caused by the crisis. 

“The good news is that, where we source these 2 commodities is far away from the conflicts,” Teo said. 

He said the company buys its wheat from North America, while palm oil comes from Southeast Asia. 

“Unless there’s major escalation of the conflict and there is global disruption and shortage, we project that there should be a steady supply of wheat albeit at a much higher cost.” 

The company has also “locked in” its costs for wheat until the end of the third quarter of 2022 by entering into forward contracts. 

While this means wheat costs are higher than last year’s prices, they are still lower than what they would have had to pay if they were buying from the spot market. 

Palm oil costs were similarly locked in until the end of the second quarter, while energy costs were also locked in “from a sustainable source” until the end of the third quarter he said. 

Monde Nissin said its forward buying and hedging of key commodities; wheat, palm oil, and coconut oil resulted to around P1.1 billion in cost savings last year. 

Henry Soesanto, Monde Nissin’s CEO, said that the company is doing these measures as it is mindful that its consumers are also hurting due to current inflationary pressures.

“While further price increases from us seem probable, we are mitigating these by having hedged a significant proportion of our input costs,” he said. 

The company said its financial position remains strong with P13.9 billion in cash and cash equivalents and an improved net debt to equity ratio of 0.26.


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