Good afternoon to everyone, and thank you for joining Del Monte Pacific's results briefing for the second quarter and first half ending October 2022. Representing Del Monte in this call are Cito Alejandro, Group Chief Operating Officer of Del Monte Pacific, DMPL, and President of Del Monte Philippines. Parag Sachdeva, Group CFO of DMPL. Greg Longstreet, President and CEO of Del Monte Foods, and I am Iggy Sison, Chief Corporate Officer of DMPL. Parag Sachdeva will now present our results.
Thank you so much. Good, good evening to everybody in Asia, and good morning for those who are joining us from the U.S. On slide 5, would start by sharing the key highlights for the second quarter's results. Very pleased to share with everyone on the call that across all parameters, that is sales, market share, gross margin and EBITDA, we had a very strong performance. Our sales grew by 7.4% to $698.9 million, with all the key markets, U.S., Philippines and international, delivering higher sales. Our market shares improved in the U.S. and Philippines on strong fundamentals and commercial execution.
Gross margin increased by 200 basis points to 29.4%. Our EBIT, EBITDA grew by 16% to $124.4, whereas net income grows by 38% to $49.5 million. On slide 6, let me draw your attention to the outlook. Continues to be driving market share improvements through strong commercial execution, including channel and distribution expansion while managing the COVID-related hurdles in China. Entry into adjacent and new categories at the same time will also allow us to maintain our revenue and income growth over the years to come. We also expect new growth stream from our recent acquisition of Kitchen Basics and new channels such as e-commerce, convenience stores and natural channels.
Moreover, we are also planning to increase substantially our MD2, which is a fresh pineapple production that will support our premium exports in years to come. That would become a big focus for us, and we would look at expanding our footprint substantially in this area. DMPL Group is very well positioned to build on the momentum which has been built in the last two or three years. We expect to offset the impact of commodity and transportation headwinds through commercial and cost initiatives. Barring unforeseen circumstances, the DMPL Group expects to generate higher net profit in 2022, building on the momentum of the second quarter. On slide seven, sharing with you a little bit about the markets and our performance.
Sales, as I mentioned, for the group was $698.9 billion, a growth of 7.4%. Our US business grew by 5.3%. Philippines rebounded strongly and grew by 22% local currency and 7.7% in dollar terms. Our international business grew by 13.1%, driven both by fresh pine and packaged exports. JV in India grew by 2.6% in local currency. Just to remind everybody on the call that Del Monte Foods in India discontinued the fresh business, and if you just look at the packaged business, the sale was up double digits at 13% in INR. EBITDA of $124.4 million, up 15.9% from $107.4 million on better operating results of DMFI and strong sales performance of the base business.
Operating profit of $103.2 million, up 24% in line with the strong EBITDA growth. Net profit of $49.5, up 38.3% from $35.8 million due to higher net profit of DMFI, including the refinancing gains. On slide 8, we'll take you through the Q2 results in a little bit more detail. Second quarter sales, again $698.9, was 7.4% higher than last year on the back of higher branded sales in the U.S. and international market sales including S&W business in Asia, also having a pretty strong quarter. Growth from pricing and trade optimization, net of unfavorable Forex, mainly on our Philippines business was approximately 8.7% on a group wide basis. We'll share more on this in the turnover analysis.
When it comes to gross profit, we did $205.3 million, which was higher by 15%. Related to it, the gross margin at 29.4%, was higher by 200 basis points, really demonstrating our ability to protect margins via revenue and cost drivers both in the U.S. and Asian operations. Gross margin for DMFI was at 28% and was an improvement of 310 basis points versus year ago. We took multiple pricing actions in Q4 of fiscal 2022 and then again in September 2022, more than offsetting the impact from cost headwinds. We also benefited from sale of fiscal year 2022 pack in Q2 and H1 that has lower costs than the fiscal year 2023 pack.
Gross margin for the base business decreased by 60 basis points during the same period, driven by commodity headwinds such as cost of fertilizers, increased packaging costs, partly offset by pricing. As explained earlier, overall, from a group perspective, impact of revenue on revenue and margins from pricing is approximately 8.7%. EBITDA, $124.4 million, up 16% from $107.4 million, mainly due to increase in gross profit. Net profit of $49.5 million, an increase of 38.3%, driven by higher sales and improved gross margin. When it comes to net debt, we were at $2 billion, which was higher by $506 million due to additional loans that we took to refinance last April the redemption of DMPL Series A-1 preference shares amounting to $200 million.
working capital loans of DMFI, which includes the acquisition of Kitchen Basics, which is approximately $100 million-$101 million, and working capital loans again for the U.S. business due to higher inventory for seasonal bills and increased costs. Overall, gearing ratio as a result of net debt being at $2 billion, it increased to 4.5 times, which is a 2.2 times increase. The B ratio, just to further explain, would have been 4.1 times, or 4.4 times lower if we exclude the one-off impact from the redemption cost on retained earnings. Net debt to adjusted EBITDA, was at 5.6 times, which is 1.3 times higher against... due to increased debt as explained above.
On slide 9, we'll do a little bit of deep dive into our revenue for the quarter. Americas constituted 72.6% of total group sales, higher by 5.3%, and ended at $507.5 million, mainly driven by double-digit growth when it comes to branded retail sales. Branded retail sales grew by 11.1%. The revenue growth was mainly driven by pricing taken across categories in line with inflation, offsetting the volume impact from shift to normalized stocking levels, and going back to pre-COVID days, and some supply constraints that we saw in segments such as plastic food cup as well as produce business.
Our Kitchen Basics contributed a revenue of $12.1 million, representing 2.4% of net sales. If we exclude KB or Kitchen Basics, DMFI's net sales would have increased by approximately $17 million or 3.5%. Our 52 and 13-week shares continued to grow across all major categories of canned veg, fruit, and tomato segments. The new products that we have launched in the last 3 years have contributed to 5.3% of DMFI's total sales in the second quarter. Moving to Asia Pac. Asia Pac had a pretty strong quarter, growing at 11.6% to $177.4 million, driven by strong performance in the Philippines as well as significantly higher exports of S&W branded fresh and packaged pineapples.
Unfavorable impact, as you can appreciate, our Philippine Peso devaluation on revenue of Philippine business was approximately $11.7 million for the quarter. The fresh business performed strongly and was up 46%, driven by the additional sales from the premium pineapple variety along with the improved supply of S&W Sweet 16 pineapple. We continue to gain traction across North Asia with the S&W Deluxe premium fresh pineapple, and our market shares continue to surge in Korea and Japan. Philippines, after 2 quarters of decline, we had a strong recovery and generated sales of $107.9 million, which is 21.9% higher in PHP terms, and 7.7% higher in USD terms. The core categories delivered higher volume and sales, especially for packaged fruit, culinary, and innovation on the back of improved distributor operations and successful transition to the new distributors.
Europe, which is a pretty small part of our total portfolio, also had an increase of 38% to $14 million from $10.2 million last year, driven by higher sales of packaged food. From Q2, let me now take you through our H1 results. On slide 10, we'll give you a brief summary of our overall performance and some insights into our revenue growth by each of the major business segments. Sales overall at $1.2 billion grew by 3.8%. U.S. sales were up 3.7%. Philippines was lower in dollar terms by 4.7%, but higher by 7.7% in local currency following the strong recovery of the second quarter. International business grew 14.5%, driven mainly by the fresh business.
Our JV in India also grew 10% in local currency, driven by recovery of B2B sales and continued growth of B2C sales as well. EBITDA at $194.5 was up 6.7% on better operating results of DMFI, our operating profits were up 9.7% at $153.6 million. Net profit of $69.2 was up 27.9% from $54.1 due to higher net profit of DMFI, including the savings on refinancing as well. All figures for profitability exclude one-off items, mainly from Q1. Would also like to remind everybody that as we refinanced our pref shares in April, we took over additional debt of $200 million, which increased our interest cost approximately by $6 million-$7 million.
These results and net profits that I mentioned are actually including the impact of higher interest costs, which was previously our pref dividend expense and did not impact operating results. On slide 11, would also like to take you through the one-off item that we had in Q1. In May 2022, just to take you through what we did on the refinancing front, we raised $600 million through a 7-year term loan at an adjusted SOFR, with a floor of 0.5% plus a spread of 4.25%, primarily to redeem the high yield bonds on which we had an interest rate of 11.875%.
This has lowered our interest rate considerably. We are expecting to save approximately $20 million+ on an ongoing basis. The redemption of these notes incurred a one-off cost of $72 million or $50.2 million post-tax. This included $26.3 million of the redemption cost, which was non-cash. On slide 12, we'll share our first half results in a little bit more detail. As I mentioned, first half sales was at $1.15 billion, grew 3.8%, driven both by the U.S. and international market sales, including the S&W business in Asia. Growth from pricing and trade optimization, net of Forex unfavorability in Philippines, was approximately 5.6% on a group-wide basis. We'll take you through more details in the turnover analysis.
Gross profit was up 8.1% at $337 million primarily due to higher sales. Our gross margin at 29.2% was higher versus last year by 120 basis points, really demonstrating our ability to protect margins both via revenue and cost drivers in the US as well as Asian operations. Gross margins when it comes to the US business for DMFI was at 27.2% and improved by 190 basis points versus a year ago. We have taken multiple pricing actions in Q4 of fiscal 2022 and then again in September 2022, which has more than offset the impact from cost inflation. We have also benefited from the sale of fiscal 2022 pack in H1 that has lower cost than fiscal 2023 pack.
Gross margin for the base business decreased by 120 basis points as we could not completely cover the cost of commodity headwinds, such as cost of fertilizers, increased packaging costs. But we did make it up through a very strong volume performance in the second quarter, which is expected to continue in the coming quarters. Overall pricing impact was favorable by 5.6%, offsetting the impact of headwinds. EBIT down $194.5 again, up 7% due to the increase in gross profit. Net profit of $69 million, up 28% from $54 million due to higher net profit of DMFI, including refinancing savings. If we exclude the impact from one-off costs incurred on redemption of high yield bonds, which was approximately $50.2 million.
Debt-related KPIs we have already covered in the Q2 results. On slide 13, when it comes to the revenue construct for the first half, again, Americas constituted 70.2% of total group sales, which was higher by 3.7% in the first half to $811 million, mainly driven by higher branded retail sales, which grew by 7.6%. Revenue growth, as we covered in Q2 results, was mainly driven by pricing action that was taken across categories to offset the inflationary headwinds. The pricing action also offset the volume impact that we had from the inventory de-loading by key customers, mainly in Q1 and some supply constraints that we faced in the second quarter.
Kitchen Basics contributed $12.1 million, just to remind everybody, was acquired in the beginning of August. It pretty much is a second quarter acquisition, and that represented 1.5% of DMFI's net sales. Excluding KB, DMFI's net sales would have increased by $21 million or 2.7%. Just to remind everybody, our sales from retail accounts for 76% of total sales, which is very much in line with the strategic intent that we had announced 3 years back. Private label sales continues to be deprioritized, that is only 4% of the total sales. The new products contributed very much in line with the second quarter at 5.1% to DMFI's total sales. Asia.
Asia Pac on the back of a very strong second quarter rebounded and grew by 2.6% at $323 million from $315 million last year. That was mainly driven by strong sales of S&W Fresh Pineapple in North Asia. Philippines market sales were up 7.1% in PHP terms. The recovery was mainly in the second quarter as we went through the second quarter results. Improvement in sales is seen across all channels driven by culinary and innovation segments. While sales from cold beverage and fruit were also in line with last year. Innovation grew very strongly. Sijo will talk more about the higher sales that we have achieved in the dairy segment, particularly of Mr. Milk .
New products in the last 3 years have contributed to 7.8% of total Fin Market sales. Europe also grew at 30.6% to $22 million from $16.6 million, driven by higher packaged fruit and beverage sales. On the next slide, as a subsequent event, would like to just clarify that we are redeeming $100 million of preference shares on 15th December 2022 that had a fixed rate of 6.5% with a step-up rate if we did not redeem. The redemption will be financed via bank loans on the due date. With that, I would hand over to Greg to take us through the U.S. business in much more detail.
Thank you, Parag. On slide 16, I'll begin with some more insight into the U.S. business for us in the quarter. Couple of highlights, as Parag alluded to, our sales contributed to 72% of total group turnover at $506 million for the quarter, up 6% on higher retail branded sales in food service growth and development, as well as some success in Latin America. Our focus, as we've discussed in prior quarters, is growing our retail branded business where we generate the highest margins. Those sales were up 11% for the quarter. Some of that pricing action was to address inflation. We also saw success with our expansion of our very innovative new line of Joyba bubble tea, which we took on a national scale with several key retailers.
We also generated an incremental $12.1 million from our newly acquired Kitchen Basics broth and stock business, which Parag alluded to. New products contributed to 5.3% of sales for the quarter or $59 million in sales. They are on track to reach $150 million in new product sales over the course of the entire fiscal year. Some of the highlights on new products for the quarter, the launch of our new organic brand, Take Root Organics, which features six tomato products. We're one of the largest growers of organic tomatoes in the U.S. This is our first big brand that we are launching to reach a growing consumer base that's looking for organics, but is also looking for excessively priced organic foods.
Also, I'll give you some color and some highlights later around our new line of specialty vegetables, which includes artichokes and mushrooms, our new frozen food line that was launched this quarter, which is our pocket pie line. These products are based around popular pizza flavors like plant-based pepperoni, plant-based sausage and mushrooms, and four cheese. All of this further strengthens our plant-based food heritage. Really pleased with our improvement in gross margins for the second quarter in our U.S. business, up over 300 basis points, delivering 28% gross margin from prior year quarter, 24.9%. Driven by our pricing actions as well as our reduced sales of low margin dilutive products. EBITDA for the U.S. was $86.5 from $70.7 a year ago, up 22%.
While net profit was $37.8 from a year ago, $22.7, which is up 66%, driven by higher sales and improved sales mix and lower expense from our refinancing efforts. On slide 17, a brief recap on our market shares. Pleased to report that we gained share in each of our core five business segments in the quarter, and we continue to win the fight versus both branded competition and private label. Our canned vegetable business, where we have a number one market share position in terms of brands in the U.S. market, reached 21.5%. Canned fruit, also number one, up 3 points, 0.3 points to 21.3%. Our fruit cup snack business has seen some dramatic growth.
We gained 4.3 share points this quarter, taking share from competition and seeing some very accelerated growth in our multi-pack formats. Our canned tomato business was also up to 6.1% in our number three position. Our broth business was up both with and without the addition of Kitchen Basics. Our College Inn basic business was healthy, and the addition of Kitchen Basics further complements our growth strategy, reaching 9.6% total share. Market share, you know, is really driven by strong commercial execution, increased distribution of core products, and our complement of new products. We continue to expand our presence in new and underdeveloped channels, that's a big part of our success, many of which are not captured in market share data.
Encouraged by our total approach to building our brands and really taking our brands to where consumers are shopping in these tough US market conditions. On slide 18, some highlights around innovation. As we think about innovation, we really focus on consumer trends in the US, and our primary focus is closer to fresh products, plant-based goodness, culinary meal helpers, purposeful snacking, and everyday value. Each of these resonates with different types of consumers in the US marketplace, and really pleased by the breadth of our innovation platform that's really having success and helping to fuel our growth. On slide 19, I'll give you a little more color around these products. Slide 19 refers to our new line of unique and upscale vegetable products.
Many of these products which are packaged in glass, which include some new products, artichokes and mushrooms, that complement existing products such as asparagus, beets, and sauerkraut. Really pleased with our ability to expand our brand presence within the vegetable category. These products have been very well received and actually distribution has exceeded expectations. We're also out really supporting these new SKUs with consumer messaging, shopper marketing programs, and really helping to fuel increased traffic down the vegetable aisle across grocery stores in the U.S. The next product I'm pleased to discuss more about is our veggie full pocket pie pizza launch. Really encouraged. This product really caters to the largest segment of frozen handheld food, which is pizza. Our products are healthier and better for you, they taste great, and they're also affordable.
Really pleased with this line of products. We're out talking to consumers, and have also partnered with several influencers to really help spread the word and drive trial and awareness of these very healthy, better-for-you products in the frozen food category. The next line, really pleased to talk more about organics. Organics is going to be a big focus for this company in the future. We, as I mentioned earlier, we're a big grower of organics. This is our first truly authentic organic brand. Really pleased by our ability to support our organic farmers and really build on our heritage, but also provide organics that are accessible.
You'll find these price points to be accessible for consumers, and really provide a trusted brand and a source of credible organic growing practices that we feel will really resonate with consumers. The early reaction to the line on the next slide 22, has been exceptional. Our retail partners really believe in this concept. We tested this concept last year nationally with one of the largest retailers in the US with great success. Some of the benefits include leading three third-party verification, so certified USDA organic as well as Non-GMO, 100% California grown organic Roma tomatoes, you know, packed with the peak of freshness and really this source of vine-ripened California Central Valley tomatoes we feel is the best available, and we're really an expert in this business.
Encouraged by the early success here. We're supporting it with our new website and social media campaign. Our ultimate objective is to be the leading brand of organic tomato products in the U.S. marketplace. Slide 23 is just another look at some of the new ways that we're reaching a broader set of consumers, both with our core traditional products. We've been doing quite a bit around the holidays in terms of simple holiday meal preparation. Our new program, The Love of Sides, has been well received and is really an easy way to promote our products. I'm doing a lot across traditional social media. We're getting a lot of pickup on TikTok for our new Joyba line and overall retailer media support continues to be an investment for us that we're quite pleased with.
Slide 24, just a recap of back to school. Back to school is a very important season for us. That time of the year is when we really promote our snack cup business. That's one of our fastest-growing segments is our snack cup business, both in our traditional 4-pack, but especially in our 12-pack sizes. There's some examples of the digital ad campaigns that we're doing across retail banners and some unique partnerships that we've done during back to school. We'll do more of this in January during return to school as well. Of course on slide 25, this time of year is all about merchandising for the holidays in the U.S. marketplace. We had a very strong season. These are examples.
There's many more, but these are examples of displays that are out in stores with major retailers across the U.S. marketplace, from Kroger to Publix to Food Lion to Meijer to Target, to BJ's, to Costco's, to Sam's Club. You name it, we're there, pushing our holiday products, our side dishes, our favorite corn and green bean products, really encouraged by the support we had this holiday season. We're seeing some of that success in our November consumption numbers. Expect more of this in December. On slide 26, another activity for us in the second quarter has been our investment in holiday support, gearing up our College Inn business. Really promoting that as a key meal ingredient for all holiday meal preparation.
Pleased to show some examples of our new Contadina Ripened for the Moment campaign, which is our newest campaign for this business. We're seeing some very solid growth in Contadina across the country as an authentic but also accessible brand of authentic Italian tomatoes. On slide 27, what we're featuring here is, you know, one of the strategies that we have in this US economy, given the adversity that many shoppers are facing, we've really advanced our portfolio into a good, better, best strategy and really tried to push our products into more of the value channels. We're having a lot of success in the traditional value dollar channel with some of the products that are featured in the bottom right slide across vegetables and tomatoes and fruits.
We're having success entering the natural channel for the first time with our Grown Good label. We continue to expand our assortment of club channel products where we've seen some exceptional growth across all the major club customers. Very, very encouraged by the power of our brand and the extendibility of our brand into multiple channels where consumers are really moving, seeking value in brands they trust. Slide 28, a quick summary on some of the work we're doing in food service. Pleased to announce that we launched an exciting new product line, Fruit Salsa, this quarter, and are supporting that with a lot of culinary tips and digital marketing communications. Pleased by the acceptance so far and the interest in this line.
Also pleased we advanced another new national contract on our canned fruit branded products this quarter with Premier. Another avenue for us to grow. Food service is an exciting channel for us, and we continue to see growth even in these tight eco-economic times. Just a couple more slides here. On slide 29, we highlight the acquisition that Parag mentioned earlier. Really excited to acquire a very powerful leading brand in the broth and stock category. This very much complements our traditional College Inn business. It's deemed a more premium line. It's a line that's very strong and recognized as a leader within the stock category, and it's highly innovative for its presence in organics and its presence in emerging segments like bone broth. Really excited. We're out now nationally.
We're selling and distributing this Kitchen Basics line, and we're seeing a lot of success. On slide 30, I'll talk a little bit more about this. As we think about the Kitchen Basics acquisition, what this really enables us to do on the, on the left-hand side of the page, you'll see the core markets and the traditional distribution of our College Inn business. Very successful on the eastern seaboard. We dominate. We're the number 1 brand on the eastern seaboard. That brand, it really stops where it's distributed and where it's recognized in terms of brand awareness and distribution. We bring in Kitchen Basics to now give us a national presence that enables us to build on all of our expertise in terms of consumer insights, R&D formulation, innovation, our retail partnerships.
It's a very easy fit for us to now be selling broth and stock on a national scale, and really encouraged by the feedback we've received. We've already gained a number of key distribution points, and we're expanding the new channels with Kitchen Basics. Look forward to the year ahead as we grow this new acquisition. With this, I will now transition over to Mr. Cito Alejandro.
Thank you, Greg, for a terrific second quarter and first half results. Thank you. I shall now talk about Del Monte Pacific. The second quarter was a period of solid growth for DMPL. Sales of $207 million grew 9% on higher sales from both Philippine market and international. We basically turned around the Philippine business after a poor start in the first quarter. Sales of $108 million was 22% higher on peso and 8% on dollar terms. Our leadership market shares likewise improved, if not maintained. This performance was driven by strong marketing and sales initiatives to support grocery retail. Food service continues to grow, with quick service restaurants returning to pre-COVID, while convenience sales benefited from reopening of core outlets. International sales composed of fresh and packaged exports came in strong at 13% above a year ago.
Fresh sales was solid, 46% growth, and the premium Deluxe variant has gained increasing popularity and acceptance among retailers and end consumers. On the other hand, we did see our sales impacted by extended COVID lockdowns in China towards the end of the quarter. EBITDA and net income, though, were affected by higher raw and packaging material costs and energy costs. All our efforts in growing the volume, increasing prices, cost savings, and productivities weren't just enough to offset the huge cost headwinds which included Forex devaluation and higher interest rate expenses. Chart 32 on market shares. As you can see, Del Monte maintained its leadership position across four categories in the recent October report and the previous three-month August to October period. Excuse me. Packaged pineapple and tropical mixed fruits gained market share.
Beverage is a big positive for us, gaining 2.4 points in the recent October share at 47.1%, which is actually higher than previous 3-month average. Spaghetti sauce shares gained 3.8 points. Finally, in dairy, we built a 14.9 share after only 2 years in the market. Chart 33. This chart shows the progression of our volume in the Philippine market from the 1st quarter to the 2nd quarter. In the 2nd quarter, the growth was pretty much broad-based, with all trade channels growing from modern trade all the way to convenience stores. All categories also registered growth. Most notable is the turnaround of 100% pineapple juice and all fruit juices from a 17% decline in the 1st quarter to 4% growth in the 2nd. Chart 34. Our beverage recovery plan consists of several components.
In our most challenged 100% pineapple juice, we aired new compelling advertising featuring new benefits unique to pineapple, bromelain being one of them that helps promote health and wellbeing. In Fit 'n Right, due to popular demand, we reintroduced our original classic line, which is doing very well since we launched it back in August. Another key initiative is expanding distribution in the fast-growing grocery and sari-sari stores. This is a key driver of renewed growth. As you can see, our first half results are favorable on 100% pineapple juice. However, we still have work to do on fruit juice drinks. On our one-liter tetra format, this has gained strength due to its perceived higher value, and we aim to further accelerate growth by encouraging more consumption in new locations and increasing consumer purchase by way of bundle pack promotions.
Chart 35. We have found in our markets, including in the US, that a combination of offering affordable low cash outlay units along with discounted multipacks is one proven way to address the impact of shrinking consumer budget due to inflation. This now accounts for 28% of total Philippine market sales. At the left side of the chart are the low cash outlay packs across the categories. The pricing ranges from a low of $0.21 to a high of $0.55. On the right side is our assortment of bundled packs, also multi-category, all offering some price discounts. These have been working well, especially during this holiday season. Chart 36. As we continue to progress our new products in dairy and snacks, they now account for a combined 8% of sales and growing.
The addressable market of these categories is about $3.5 billion, so lots of opportunities and upsides for these products. Pleased to report that Mr. Milk continues to be a success after two years in the market. It is now tracking more than 1 million in cases on an annual basis. Next chart. The return to face-to-face school in the Philippines favored our daily products Del Monte, Vinamilk, and Mr. Milk. Here is an example of our back to school program on Mr. Milk and Fruity Munchsters biscuits, which involved health tips for children along with product sampling activities in selected schools. Chart 38. The October to December holiday season is a big event in our calendar. Nearly 40% of our annual volume happens over this period. It is during this season that we build leadership merchandising displays across all major channels.
Here's an example of merchandising and promotions this holiday season covering supermarkets as well as downline stores. Next chart, please. Pleased to report that our food service business, about 10%-15% of our sales, has sustained strong momentum. This is driven by the increased consumer traffic and dining out. Sales grew 21% but still below pre-pandemic level. On a by account basis, we are already serving about 96% of pre-pandemic stores. This is very encouraging, and we look to further improvements in the coming months. Next chart, please. This is about the resurgence of convenience stores with the opening of more outlets. Our sales grew 48%, and we have also managed to introduce more product lines in the stores. As you know, convenience is led by 7-Eleven with Ministop a far second. Next chart, please. Here is innovation in our international market.
Total sales potential of these products is as much as $100 million. We have built this into our long-range plan. You will see that our nice food frozen pineapple sticks are now sold in more than eight geographies worldwide. I would also like to call your attention to the lower right of the page, where we have our Deluxe line. This is the naturally extra sweet variant of our regular S&W fresh pineapple. We have a version packed in a can that is sold mostly by our Del Monte Foods in the U.S. On fresh, we remain the largest pineapple exporter to China at 53% market share. We are still among the three biggest exporters to Japan, Korea, and the Middle East.
Below is our Deluxe premium variant that has become a favorite of the trade and the consumers, particularly in North Asia. On this chart, you will see that the Deluxe fresh pineapple was introduced in China and has been very well accepted. Very well accepted for its unique product benefits. It has been featured in several news and trade events and in social media. As you can see, we've had a lot of TikTok videos from independent influencers and even store owners. Going now to our India business. Pleased to report that the business continues to gain very strong traction for two quarters now. Second quarter retail sales were up 8%. B2C grew by 13% with modern trade and e-commerce growing by 24%.
Our gross margins have significantly improved, and EBITDA and net income are now positive. Finally, I just want to show you our latest new product in India, our entry in the large and fast-growing mayonnaise market. With that, I shall now turn you over to Iggy.
Thank you, Cito. Improving sustainability is one of DMPL's five strategic pillars supporting our vision, nourishing families, enriching lives every day. I'm pleased to share some key highlights on sustainability. On governance, DMPL won the Best Managed Board Award at the Singapore Corporate Awards last August, while the company also received the Singapore Corporate Governance Award at the SIAS Investors' Choice Awards in Singapore last October. On fuel efficiency, we continue to install GPS in more trucks, delivery trucks to improve fuel efficiency, as well as use double-decker trucks in our third-party delivery transport. We continue to improve our ESG engagement with internal and external stakeholders through our social media posts, including LinkedIn, through our publications as well as weekly newsletters.
With respect to our foundation programs, we have provided nutrition to over 150,000 people in indigent communities through over 500 partner organizations during the first half of FY 2023. We're also pleased to report on slide 47 that we published our 2022 ESG update in the U.S. last October, highlighting ESG goals, partnerships and programs, and our ongoing commitment to being growers of good. Highlights include commitment to nutrition education, science-based targets for carbon reduction towards the net zero goal that we announced several months ago, new upcycled certified products, diversity, equity and inclusion, and philanthropy.
On slide 48, to recap our outlook, DMPL Group is very well positioned to respond to consumer trends, given our nutritious products. We will continue to enter adjacent and new categories, as discussed by Cito and Greg earlier, to maintain our revenue and income growth over the years to come. We will continue to drive market share improvements through strong commercial execution, including channel and distribution expansion. We will continue to remain vigilant in managing our operating expenses, as discussed by Parag earlier, along with improving sales mix with more sales from higher margin categories. This includes our expansion of the MD2 fresh pineapple production, which will support our premium exports. We will execute pricing in the second half of FY 2023 as needed. The group expects to generate a net profit in FY 2023 after one-off redemption expenses incurred in the first quarter.
With that, we would like to open the floor to questions. Our colleague, Jennifer Luy, will moderate our Q&A.
Good afternoon, everyone. We have some questions in the Q&A box already. The first one is from Michael. He's asking about the peso appreciating to 55+ level. How much is the impact on profitability for Del Monte Philippines for the third quarter?
Thank you so much, Jennifer, for the question from Michael. There are two aspects to this. When it comes to our imports, we would obviously benefit. Just to give you more perspective, we have already taken a hedge from January onwards, which will help us cover from January to April, when it comes to our FX requirements. For Q3, we benefit through a lower cost, approximately around half a billion dollars. That's what I would expect. On our sales, our export sales, we are also covered at 57.5% to the extent of around 40%-50% of our sales. We benefit from the hedge that we have taken.
Obviously, going down to 55 would unfavorably impact us to the extent of $1 billion as our exports in Q3 is expected to be pretty robust and high.
Thank you, Parag.
Hope that answers. Thank you.
Paul would like to ask his questions live. I'm gonna ask him to unmute.
Yeah. Thank, yeah, thanks so much for the, for the, very detailed, presentation. Can I just focus a bit on just on the balance sheet? Can you just remind us again the amount of variable rate loans that you have? Related to that as well, like, how are the loan covenant terms in terms of the limit to EBIT EBITDA? My third one on I'm sorry, just on the balance sheet is, no, we did see a 40% year-on-year jump in your inventory, but obviously it could be a reflection of sales growth. Just wondered if you could help us understand a bit better on the jump. Thanks.
Yeah, no, great question. Let me start by talking a little bit about working capital and inventory. Yes, our inventory has gone up. It's a function of an increase in cost. As you know, the cost of goods sold generally has gone up by 20%. As you would appreciate, particularly for the U.S. operations, we end up backing all our inventory or 80%-90% of our inventory is back from July to November, and then we continue to sell that inventory throughout the year till the next pack. We build more expensive inventory that is sold subsequently, and we get the benefit of increased pricing or any price increases that we are taking on that inventory going forward. That's a big part of total inventory increase.
We also are increasing our inventory levels in certain areas as our business is expected to continue growing from a volume perspective in the second half of the year and also in the first half of the next fiscal year. Now on the second question that you have, just bear with me just a second. On the second question around the D/E ratio that you raised, which is again a good one and an important one, our covenant requires us to have a D/E ratio of four times.
We very well knew that with the preference share that we have renewed, plus the one-off redemption cost that we incurred during the year, we would be more than 4 times, especially because of the seasonality of our business when our borrowings do peak in October and in January. We have obtained a waiver from both our partner banks when it comes to our existing facilities that we have, and that waiver is in place up to end of fiscal year 2023.
The third question that you had, would you mind repeating that, please?
Yeah, sure. No, no problem. Just could you just remind us on the amount of loans that are variable rate, yeah. They're on a variable rate, yeah. Thank you.
I mean, our total loans, as you know, are around $2 billion. Our term loan that we have is though variable in nature. We have taken an interest hedge on the same, or interest swap on the same, which would come into play from April 2023 onwards. It would be more or less fixed from then onwards. Our total rate on the outside would be around 7.75%-8% on that particular loan. When it comes to rest of the loans that we have, I would say 15%-20% is fixed and the rest is variable.
Okay. Thanks so much. Could I just, again, sorry to take up so many questions. Just 2 more parts for me. For the U.S., I'm just wondering with a possible no slowdown in the U.S., I mean, who knows? Assuming we have that scenario, I'm just wondering, are the channels more cautious on their inventory levels? That's my first one on the U.S. Yeah, you know, September was I believe your 3rd price increase since May. I think that was what was mentioned last briefing. You also indicated that second half you will also be taking another price increase. At the same time, cost of goods coming off, I thought maybe commodity prices might have been kind of tapering down.
There just some thoughts on the ability to raise price while possibly no cost might be coming on. Yeah. Thanks again.
You know, great questions. First, we have absolutely seen a tendency across the retail trade in the U.S. to take their inventory levels down. We've seen that across the largest and the smallest retail trade. During COVID, most retailers doubled their weeks of supply in an effort to keep their stores shelf stocked and to access inventory. That's changed now, and we've certainly seen that behavior. We have had 3 price increases. We have recently announced our 4th price increase. We're doing that in, you know, very selective categories where we're attempting to pass through our inflationary costs and, you know, we're doing that on a mindful manner so that we don't risk market share in a slowdown in demand.
As we think about pricing, we think about cost of goods as you alluded to going forward, we're not seeing a significant amount of deflation over the next 12 months. Most of our key input costs, we're seeing signals that will remain very similar. Some areas of costs are likely to go up, such as our raw product costs, labor, utilities, and that, you know, will be offset by some relief in transportation and in a few areas within our P&L in terms of input costs. We're not seeing on the horizon any significant deflation. This last round of price increases was intended to help us stay in tune with our cost structure as we look out the next 12 to 24 months.
Yeah, thanks. Please bear with me. Just one last one for me, just on the Philippines. you know, you know, there was a 22% rebound in sales in PHP terms. I just wondering, is this a reflection of the recovery in the consumer, or is this a restocking of the channels due to the revamp of your distribution that you mentioned the previous quarter? Yeah. Thanks. This is my final question. Thank you.
I just that's a good point to mention. The rebound is actually broad-based. It is not just one channel, you know. Obviously the general trade segment which was our focus last quarter in terms of strengthening our fundamentals, that has started to gain traction for us. You know, trade inventory is very low, you know, and we've been able to manage that. The growth is across the channels. Also from a category standpoint, as showed you earlier, the growth is also across the categories, you know. Which is... The most significant part of that growth is really beverage because first half was a 17% decline versus the prior year.
We have been working hard at turning it around since the late in the first quarter. Again, we have seen growth happening in the second quarter with 4% growth. That's all good for us in beverage. I don't think the work is far from over, and we will continue to build on whatever successes and momentum we have started to generate in Q2.
Thanks. We can kind of summarize that there is a no improvement in consumer spending. I mean, just, is that also there's a macro reason behind it? Just to kind of summarize it, yeah.
I think yes. I think yes, there's consumer purchases are up even in our main channels, like for example, SM and Puregold, these are the major accounts that we have. All of them are up, you know. Consumer purchases are also up. Our reading of consumers is fairly positive relative to Q1. It is also, I would say, not just us in improving the way we are calling on our accounts, but there is support that it is consumer led too.
Okay, yeah. Thanks again for taking all my questions.
Thank you.
Thank you.
We have a question from George. How much more pineapples per area to be planted in the planned expansion of production?
I think, George, I mean, I wouldn't want to tell you exactly how many more because we're in the process of making sure we have the right land in place now. One thing I can say is, you know, we started this journey at about 10 years ago when we really didn't have much and this year we want to ship 18 million cartons. We will build from that. Where we have the opportunity to convert some of our corporate lands, we are doing that as fast as we can. As you know, land is not an easy asset to acquire right now in Bukidnon.
Not only is it a question of acquiring the land, no, we have to make sure that the conditions are very much favorable to growing this special variety.
Thanks, Vito. For Parag, are there going to be one-time costs in the redemption of preference shares this month? Are there any more one-time costs this year and next year?
Oh, no. None on that, George. No one-off costs on pref shares and no other one-off costs that we have planned and pretty much in line with our transformation plan. Nothing material planned in next year as well.
Okay. Thank you, Parag. We have a question from Wee Ben. I note the large increase in inventory levels at the end of 2Q, presumably due to the inflationary effects and the ramp up for the festive sales. If so, what would be the estimated inventory levels we should be expecting at the end of April 2023 before the next packing season?
I mean, we would expect the inventory levels to normalize in terms of the weeks cover that we would carry. The general levels that we would have is around 16-18 weeks. That's what we would maintain on most of our business getting into the next fiscal year for the U.S. side, and it could be normally around 8-10 weeks when it comes to our Asian operations. Those are pretty much it that we would have our inventory levels brought down to.
Thanks, Parag. Another question from Wee Ben. Are there more pricing actions expected for the rest of FY23 for either Del Monte Foods or for the base business? If so, what is the adjustment?
Yes, we have a modest price increase that's built or expected from January when it comes to our local business in Philippines. We have selected price increase that we are going to execute from February onwards in the U.S. business as well.
Will Del Monte Foods sustain the gross profit rate in the next quarter?
That's a great question. I think we alluded on this previously in our updates. We had benefit in our first half from the sales of lower pack inventory from fiscal 2022. In Q3 and Q4, we would generally sell our new pack inventory, which is 23 pack inventory, which is at a much higher cost, as we know. Secondly, we also increase our trade promotions, they are more heavy during the holiday season in the third quarter as compared to the first half. We are expecting some dilution when it comes to our margin profile in the second half.
All I can assure you is we are tracking ahead of plan, ahead of our plan, and our margin would be on track to show an improvement in fiscal year 2024 by almost 100 basis points as compared to fiscal year 2023. That's what we are focused on when it comes to the US margin. We would see some margin pressure on the base business as well, but overall, we should be ending at more or less the same levels as we saw in the first half.
For the second quarter, we see a full quarter of sales contribution from Kitchen Basics and the gross margin above 30% is impressive. What is the net profit margin for Kitchen Basics?
Great question. Our EBITDA, just based on the gross margin you saw, would be pretty impressive for Kitchen Basics business. We are looking at cash profits of around $9 billion-$10 billion, if not more, on an annual basis. When you talk about net profit, obviously if you attribute the interest expense to the acquisition on a fully absorbed basis, you would still end up having a net profit of around $3 billion-$4 billion.
Thanks, Farhan. We have another question on pricing. How many price increases has the company implemented since the beginning of calendar year 2022?
We have taken multiple price increases. It depends on which business you are talking about. If you look at the U.S. business, we have taken pricing. Our first increase in 2022 was in March, followed by September. Those were the two ones, and the third one we are executing from February of 2023. 3 price increases in all. Those are the major ones on our retail business. When it comes to our base business, we have, again, taken multiple price increases almost every 3 months of 2%-3%, rather than going for a big price increase in one go, so that we are passing on the inflation just as we are experiencing it and not burdening the consumer in one go.
Okay, thanks. Let's move on to the balance sheet. From Mohammed, our shareholder. Given debt continues to increase and increasing interest rates offset the reduction in lower interest expense, can you discuss what the management believes is the optimal Debt-to-Equity level? In addition, can you discuss when free cash flow to equity will start to increase in line with the underlying positive business performance?
It's a great question. Thank you for the same, Mohammed. Just to give you some color on it. The way we are looking at it, our inventory increase this year has been unprecedented because of the cost increases. We have managed that cash flow with some support from our strategic vendors and have done an incredible job at that. Going into next year, we are hoping that on our working capital, our working capital increase will be, or inventory increase will be normalized. Most of the profits that we would make would end up into our operating free cash flow.
Except for the capital requirements, which are roughly around $100 billion, give or take, for our overall group. With the trajectory of our profitability being $350 billion-$400 billion, I would expect our operating free cash flows to start turning positive and stabilized from next year onwards. We are on track for that, and that will organically help us from a leverage perspective. Obviously we are also contemplating and continue to work progressively on our capital structure, with listing of the U.S. business and also DMPI business in the coming year or two.
We would like to bring our leverage down to less than 2 times in the next year or so, if we are successful in our listing of the U.S. business. Actually less than 1 time, if we are able to list and continue with our capital restructuring program on the DMPI business as well. Hope that answers.
Perhaps with a very comprehensive answer. As a continuation to that, what are the listing plans for Del Monte Foods and Del Monte Philippines? Del Monte Philippines needs to raise capital to cut down the debt ratio and interest expenses, unlock the value of the stock to benefit its shareholders.
I think it pretty much answers very similar question. I think as I mentioned, we are now contemplating and progressing on the DMFI listing. If you ask timing-wise, very difficult to confirm, but it should be in less than 12 months. That's our plan. That would be followed by our continued capital improvement plans on the DMPI side as well.
Okay, thanks so much. We don't have any more questions. Thank you to all our panelists for a very great presentation. Thank you for the good results, and we look forward to better results in the second half.
Thank you so much.
Thank you.
Thank you.
Thank you.
Thank you for doing this.
Bye.