Good morning to our participants in Asia, and good evening to our participants in the U.S. Thank you for joining Del Monte Pacific's results briefing for the Q2 and first half ending October 2021. Representing Del Monte in this call are Cito Alejandro, Group Chief Operating Officer of Del Monte Pacific, DMPL. Parag Sachdeva, Group CFO of DMPL. Greg Longstreet, CEO of Del Monte Foods, and I'm Iggy Sison, Chief Corporate Officer of DMPL. Parag Sachdeva will now present our Q2 and first half results.
Thank you very much, Iggy. Good morning to all the participants in Asia, and good evening if someone is joining from the U.S. I'll start my presentation on Slide 5. Very pleased to share the key highlights of our Q2 results. DMPL Group continued its strong performance with a net profit of $35.8 million, up 63.8% from $21.9 million in the same period last year. Our U.S. subsidiary, Del Monte Foods, increased its EBITDA by 22.6% to $70.8 million, and its net profit was up by 151% to $22.7 million, which is really continuing its path to higher profitability following a turnaround performance in fiscal year 2021.
Our Philippines business through Del Monte Philippines grew its EBITDA by 4.9% to $40.6 million, and net profit by 9.8% to $26 million. Our group continued to improve leverage profile, and its debt to EBITDA is now down to 4.3x from 5.8x last year. For the first half, DMPL Group delivered strong profitability with EBITDA of $182.3 million, which is up 33%. Net profit of $54.1 million, which is triple of prior year's $18.6 million. On Slide 6, as far as outlook is concerned, it's largely unchanged.
Our strategy is to strengthen the core business, expand the product portfolio, which is in line with market trends for health and wellness, and grow our branded business while reducing the non-strategic business segments, which is the strategy that we have been on for the last 2 to 3 years. More product availability through better distribution and expanded sales channel, both offline and online, plus also emerging channels as dollar stores and convenience stores continues to be a big priority. We are also very well-positioned to build on momentum achieved in fiscal year 2021, and expect to offset the impact of commodity and transportation headwinds. Barring unforeseen circumstances, we are expecting to generate higher net profit in fiscal year 2022. On Slide 7, on Q2 group results summary.
Sales of $651 million is up 4.4%, with U.S. sales up 6.9%. Philippines was lower by 5.8% in dollar terms, and 2.5% in local currency. S&W branded sales in Asia grew by 16.2%, driven both by fresh pineapple and packaged exports. JV in India decreased by 2.4% in local currency, driven by modern trade sales. An EBITDA of $107.4 million is up 13.8% from $94.4 million due to higher sales, better sales mix in the U.S., and price increases to offset inflation. Operating profit of $83.2 million is up 22.9% from $67.7 million.
Net profit in line with operating profit is up 63.8% from $21.9 million last year to $35.8 million in this quarter. On Slide 8, we'll provide you a little bit more perspective on our results. Q2 sales at $651 million, up 4.4%, and that has been driven by higher branded sales in the U.S. and international market sales, including S&W business in Asia. We'll cover this in a little bit more detail in the turnover analysis. Gross profit at $178.5 million is higher by 11.7%, driven by higher branded sales in the U.S., favorable impact of pricing and trade spend optimization, both in the U.S. and base business, and continued benefit from execution of asset-light strategy in the U.S.
Our gross margin at 27.4% is higher by 180 basis points, led by pricing to offset inflation and favorable sales mix in the U.S. These two factors really helped us a lot from a margin perspective. Margin for DMFI at 24.9% is an improvement of 210-215 basis points. Margin for the base business also improved by almost 70 basis points during the same period, driven by improvements in international business, including fresh. EBITDA, as I covered in the summary, of $107.4 million, up 13.8%, due to increase in gross profit as well as lower fixed costs, particularly G&A. OI of $83.2 million is up 22.9% in line with our EBITDA.
Net finance expense of $27.5 million, marginally lower due to lower interest rates in the base business, particularly Philippines. DMPL share in the FieldFresh joint venture in India was a loss of $0.5 million. Margins in India are also under pressure due to commodity headwinds such as soy oil. Our higher tax expense reflects DMFI returning to profitability, but we also are enjoying favorable tax costs for Del Monte Philippines, driven by reduction in regular income tax rate from 30% to 25% and higher profits from international business that has a lower tax cost. Our net debt at $1.532 billion is higher by $68 million due to the inventory buildup in the U.S. ahead of the season.
Also, our deliberate attempt to increase inventory to improve customer service levels, which is clearly reflected in our increased market share. Our gearing ratio at 2.3x is an improvement of 0.3x , mainly driven by higher profits and retained earnings. As mentioned in the key highlights, net debt to adjusted EBITDA lower at 4.3x and is a significant improvement versus last year, driven by stronger profit performance. On Slide 9, I'll cover the turnover analysis and provide more context on our sales performance. Americas constitutes, it's around 74% of total group sales and higher by 6.9% in the Q2 at $481.8 million. That's mainly driven by higher volume of branded products from distribution gains and improved supply.
Branded retail sales grew by low double-digit, offsetting reduced sales of non-core private label as planned. Our 52- and 13-week volume share growth outpaced category growth across four of the major categories and increased market share at the same time. New products contributed 5.3% to DMFI's net sales in the Q2. Asia Pac sales in the Q2 declined by 4.5% to $159.1 million from $166.5 million, mainly due to lower sales in the Philippines and export sales of fresh pineapple impacted by lower supply due to timing of harvest. We expect this to be limited to Q2 only. This was offset by strong sales of S&W packaged pineapple and mixed fruit in North Asia.
In the Philippines, as mentioned in a number of places, sales was lower by 5.8% in dollar terms and 2.5% in peso terms, coming off a high base, which was brought about by the pandemic last year. Growth behind packaged fruit and new products was offset by a reduction in culinary and beverage categories. However, compared to the Q2 two years ago, retail or grocery sales in the Philippines grew by 6.5% in dollar terms. The new products that we have launched in the past three years contributed 8.9% to total sales market sales, and that includes dairy products and expansion to other adjacencies such as Mr. Milk and Potato Crisp biscuits.
Lastly, Europe sales increased by 66%, though it's a small base to $10.2 million from $6.1 million, driven by higher packaged fruit and beverage sales. Now from Q2, let me take you through a number of slides on our H1 results. On Slide 11, starting with group results summary. Sales of $1.1 billion is up +7.4%, with U.S. sales up 8.1%, and Philippines being lower by 2.1% in dollar terms and 2.2% in local currency following a high baseline in 2021. S&W brand in Asia grew by 17.9%, driven by fresh pineapple and packaged exports. JV in India increased by 12.2%, driven by recovery of B2B sales and continued growth of e-commerce channel too.
The EBITDA of $182.3 million is up 33.3% from $136.8 million, driven by higher sales, better sales mix, particularly in the U.S., price increases to offset inflation and lower fiscal year 2021 pack costs that we continued to sell in the first half. Our operating profits of $140 million are up 58.4% from $88.4 million last year. Net profit is triple of last year at $54.1 million. On Slide 12, we'll provide a little bit more context. First half sales, as mentioned, have been growing at 7.4%, driven by our strong performance in the U.S. as well as international market sales, including S&W business in Asia.
We'll provide more context in the turnover analysis. Gross profit at $311.9 million is up 23%, driven by higher branded sales in the U.S., favorable impact of pricing and trade spend optimization, both in the U.S. and base business, and continued benefit from the execution of asset-light strategy in the U.S. Our gross margin at 28% is higher by 350 basis points, led by pricing to offset inflation and favorable sales mix in the U.S. Also, a significant improvement in fresh sales to North Asia is also a good contributor when it comes to improvement in our group margins. Margin for DMFI at 25.3% is an improvement of 450 basis points.
Our margin for the base business also continues to improve by almost 50 basis points during the same period, driven by strong performance of international business, including fresh. EBITDA of $182.3 million, as I mentioned, is up, driven by higher gross profit and controlled and lower G&A. OI up 58.4% at $140 million. Net finance expense very much controlled at $52.2 million and marginally lower due to lower interest rates in Philippines. DMPL's share in the FieldFresh joint venture in India was a loss of $1.2 million. As I mentioned, the margins continue to be under pressure due to commodity headwinds while we are recovering sales of B2B business. Higher tax expense is a good thing as DMFI returns to profitability.
At the same time, we are also enjoying lower tax costs for DMPI, driven by reduction in regular income tax rate, which was announced in March of last year, March 2021, and was actually applied retrospectively, but you will see that in the Q4 results. Our debt-related KPIs I have already covered in the Q2 results, so we'll skip those. On Slide 13, when it comes to the turnover analysis, Americas continues to constitute around 70% of total group sales and is higher by 8.1% at $781.6 million, mainly driven by higher volume of branded products from distribution gains and higher sales of co-pack channel too. Branded retail sales grew by 13%, offsetting reduced sales of non-core private label, which we have always planned.
In the Americas, the branded retail accounts for 73%, while private label accounts for less than 5% of sales. New products is contributing to 5% of DMFI's net sales in the first half. Asia Pacific sales during the same period increased by 4.1% to $315 million from $302.4 million, mainly due to strong sales of S&W packaged pineapple, mixed fruit, and S&W fresh pineapple in North Asia. Exports of fresh to North Asia has recovered from the impact of pandemic that we experienced, particularly in China a year ago, as well as from expanded distribution coverage that Cito will talk about.
Coming from a higher base a year ago, Phil market sales were down by 2% in dollar and peso terms, driven by COVID-19 restrictions, and also lack of pantry loading that we experienced last year, particularly in Q1 of last year. Compared to the same period two years ago, sales in the Philippines increased by 7.6%, while retail sales improved by 13.9%. New products continue to be a big part of our strategic initiatives in Philippines too, and contributed 6.8% to Phil market sales. Food service channel has begun its recovery from the pandemic-induced closure of restaurants and it is expanding by 52% in the first half, but obviously yet to fully recover to pre-pandemic levels and is down still significantly worse than two years ago.
Our Europe sales increased by 54% to $16.6, driven by higher packaged fruit and beverage sales, which was led by higher pineapple volume that we experienced in first half and tremendous productivity that our supply chain has achieved. With that, let me hand over to Greg and Cito to provide additional color on and perspective on the business performance. Thank you very much.
Thank you, Parag. Pleased to share the results for Del Monte Foods, USA for the Q2 and for the first half of fiscal 2022. As Parag alluded to earlier, our sales reached $477.5 million, or 73% of group sales in the Q2. Strong sales growth. Total branded sales were up 11%. Consistent with our strategy to focus on building our branded business, we benefited from having extra supply and a supply advantage versus our competition that helped drive distribution gains and really helped support some very strong momentum on our core vegetable business. Our vegetable business is our flagship business. It's 1/3 of our sales, and we've had a fantastic year on that business and continue to gain, and I'll share those details with you shortly.
Overall sales up 7% as we continue to remove and eliminate non-branded, margin-dilutive private label sales. We're just about done with that process now. Our last contracts actually ended in the Q2. We'll be moving forward with a very small percentage of private label sales, as Parag mentioned, less than 5% for the company. As you'll recall, back four or five years ago, private label sales were 28% of sales and really drove down our profitability and our margins. Very pleased with our innovation efforts. You're seeing a few of those examples here that are pictured. Really doing well with this Joyba bubble tea beverage launch in grocery. Sales are exceeding supply. We are continuing to add capacity. Internally, we make that product in our Mexico facility, and really pleased with our expansion efforts there.
We've done well in the frozen food category. We're definitely bringing the Del Monte brand to new places within frozen. Our handheld sandwiches, our pocket pie products, have done quite well with the largest retailers in the U.S. Our newest line that you're seeing featured here are riced vegetables, riced cauliflower and broccoli blends are doing well, exceeding expectations and gaining a nice national footprint distribution. Some of our newest products in refrigerated produce are the fruit infusion wellness cups. These snack cups offer various nutritional benefits and are fortified with on-trend nutrients. Then we're back in the pineapple business in the U.S. I'm really proud of our team for really building a very solid base of business in pineapple and really accelerating our growth.
Our business, as you'll see soon, was up dramatically in the Q2 and first half on pineapple. New products averaging about 5% of sales. That continues to grow for DMFI. Gross margins are really performing ahead of expectations, up to 24.9%, versus 22.8%. That's a combination of price increases, better sales mix. Those margins are slightly lower than the Q1 due to sales mix. As Parag mentioned, we did ship some more co-man product this quarter and completed our private label sales this quarter on some of our vegetable business. EBITDA soared to $70.8 million, up 23%. And net profit jumped 151% to $22.7 for the quarter. Much of that work is driven by cost savings.
You know, the benefits and tailwinds from asset-light continue to bring benefits that were expected and anticipated. We're seeing increased utilization and absorption in our factories. Our factories are running with more production. They're running full. Our factories are also running with increased efficiency. We've done a number of things in operations and throughout our logistics and supply chain to help remove touch points and remove costs. We're operating with lower cost of goods and being much more effective. At the same time, you know, our customer service levels have been exceptional. You know, we are really outperforming our competition with our service levels, our fill rates, and overall logistics support. Of course, what's also driven our profit growth and EBITDA growth and gross margin growth is revenue optimization.
We took some pricing action early this year, up 10% on some of our core business and also took pricing action across food service and other categories early in the year and throughout the first and Q2. That, along with just growing the business, we continue to drive branded growth. That 11% branded growth is really driving the overall profitability of our portfolio and for the company. On a first half basis, sales were up 8% to $775 million. EBITDA up 59% to $108.3 million. Important to note that $108.3 million is more than 50% of our goal for the year, and our outlook for the year remains positive.
All of this work on cost savings, all the work on revenue optimization, focusing on brands and sticking with our strategy that we rolled out over three years ago, is keeping us on track. We are offsetting the inflationary headwinds with all of these actions and remain positive in our outlook for the year. Of course, the profit turnaround that you're seeing here is just the beginning. We have higher aspirations in 27.5 in our goal for the year, and we're on track to keep delivering enhanced and increased profitability for the company. On the next Slide 16, we'll look at market share. I have a few more slides here this time to give you a little more detail on what's happening with market share. I'm really encouraged by share growth in the U.S.
Obviously, we don't have the dominant position that we're fortunate to have in the Philippines due to our years of leadership and execution there. We are the leaders in the U.S. in some very competitive categories. Our share is up across our core business. This is our biggest business. This business is our highest margin business. We're very fortunate to see this canned vegetable, canned fruit, and fruit snacks business up in a relatively stable business with canned tomatoes and broth, very competitive space, but we're encouraged by the most recent results, particularly in tomatoes, where we're seeing four-week and 13-week share gains within our national accounts business and added distribution that will help benefit us in the second half of the year. Really encouraged by these brands.
The power of our portfolio is what differentiates us, and we continue to invest in these brands, drive extra distribution, and partner with our customers as we build these brands. A great example is the next slide. Our vegetable business, again, our flagship business, which is 1/3 of our revenue. We have been laser focused on growing this business and beating the competition. What this chart indicates, as you look across the top row, you'll see equivalent volume trends, which is just our cases move through the system, and then you'll see value or dollar trends below that. What this indicates if you look at the latest LM, is latest month, 13-week fiscal year to date and 52-week data as you look down the Del Monte share change column, you'll see that we are experiencing very strong growth. This is unusually high growth.
Normally to get 0.5 to one point of share is exceptional. We're picking up five and six share points at a time within these increments. We're seeing sustained success for the business. Our nearest branded competitor, Green Giant, has lost in each of those time periods, as has private label. In the U.S., what happened early during the COVID outbreak is we saw an influx of consumers coming into our brands, new households buying our brands, and we worked hard to make sure we had the supply and the support for them and increased our marketing efforts to reach them. That's created a real pivot. The consumers have left private label over the past two years and sought brands that they trust.
Brands that they trust, they could count on, that delivered slightly higher quality is what's happened throughout the grocery store business in the U.S., and we've been the beneficiary with our our very strong brands. You're seeing similar trends down below with dollar sales share growth, so very encouraged by this. A lot of this is new distribution, enhanced distribution. We've done very well in the club store channel with customers like Costco and Sam's Club. We've done well throughout traditional retail. We're doing well in new channels like the value channel with our partner, Dollar General. Really encouraged by what's happening here. The next slide gives you a little more color to dive deeper into vegetable trends on Slide 18. What that will break down on the top left, what this helps us evaluate is our distribution points.
In the red box in that top left quadrant, you can see the dip of distribution points that we had throughout the country. That was really the result of the peak of COVID demand when we temporarily ran out of some supply and really had to hurry to catch back up. We did catch up with supply and we have been in an enhanced supply environment relative to a lot of our competition. That's been a real secret to our success. Down below that quadrant, the bottom left quadrant is an indication of our pricing action. We took our pricing up by 10%, as I said earlier. Our average retail price on this core vegetable business is now $1.45 a unit. That's risen dramatically over the last four years.
You may recall we used to retail these products for roughly around $0.89-$0.99 every day on shelf. Over the past couple of years, through a series of price increases, we've tested the value of the products and the consumers have stayed with us. That's the good news. Consumers see the value of the brand, they trust the brand, we've maintained our quality, and we've increased our advertising support. Extra pricing is not affecting us. As you look on the right side of the page, you'll see base trends. Base trends are non-promoted trends and that's a result of just very strong brand equity and strong execution. Our share, EQ share versus year ago is up 30%. Our base volume EQ share is up 38% versus two years ago.
You'll see down below what's happened to Green Giant and Libby's and private label and next closest competitors to us. Really encouraged that the non-promoted business is there. Consumers are picking us up when we're not on sale. Every day they're buying more Del Monte vegetables. Down below when we are on promotion, we're also seeing success. We're seeing our promotions being more effective. We're out there winning the holiday merchandising activity with our largest customers this year. The top 10 customers all feature Del Monte, just like they do in the Philippines. That's why the Philippines has such success because they own that display period, that merchandising period. The consumer when they're buying for recipes and family events will naturally gravitate towards Del Monte. We're doing the same thing now in the U.S. with success.
Really encouraged by this data, and this is data we look at on a very regular basis to appraise and evaluate our business. The next Slide 19, some good news to share here. This is a little sneak peek at the holidays. This is after the quarter. This is a look at Thanksgiving sales during the last two weeks in November. We dominated the merchandising environment. We had the supply. We were out there with all of our largest customers, as I mentioned, on display. Our vegetable business share point change was up 3.8. Broth was up almost a share point. Tomatoes was up almost a share point.
Our core fruit business was up 3.6, and our pineapple was up 3.4, which represents a 66% change for us. Really encouraged by that EQ volume growth across the businesses, but love to see pineapple growing the way it is in the U.S. That's really a result of the new Deluxe Gold pineapple that we're producing in the Philippines and our base pineapple business, which has been an enhanced area of focus for us. Building on the success of that we've had with this new variety, this more premium variety, the sweet pineapple, the golden pineapple, now in a packaged environment, we're really impressed with the results of that product. The next slide is also some good news. The next slide really helps tell the story of our Del Monte vegetable share business.
Again, our biggest business, our flagship business. We've reached a five-year high with share. We're up to 24% now in terms of market share. The work that's gone on over the past several years to fix this business, to focus on brands, to reinvest in our brands and drive distribution growth in new channels and increase distribution in existing channels, it's working. This is gonna be a sustained success for us. Encouraged by the outlook here and the performance. The next slide are just a few slides on our overall sort of marketing support. We really believe in the power of marketing. We're investing to support our new products. As you're seeing on the left-hand side of the page, our new frozen products, like our pocket pies, have been named Product of the Year for families and children.
In many cases, Parents Magazine featured that product. Really encouraged by that. Our social media and in-aisle signage, really telling consumers that we have a new product in the freezer aisle is helping us. Our vegetable television program, Growers of Good, has been very effective. Now we're into our third year of that television campaign, which is really resonating with consumers. Also excited about some of the other things, like our vacuum-packed crisp corn product. We now have five varieties and really encouraged by the receptivity of that product. We actually oversold our forecast and really had to scramble to find more production this year. So the outlook for that product also looks good. The next Slide, 22, is a look at just some additional marketing and PR efforts.
What you'll see on Slide 22 is really some exciting work on Joyba as well. Next slide, please. There you go. Slide 22 looks at this Joyba business, which is really we're reaching a younger consumer. We're into the beverage aisle. We're competing in this tea category with a very innovative product that really no one else carries. We're highly differentiated. We're reaching college campuses. We're blitzing retailers like Target and Costco and really having tremendous success with this product, exceeding all of our expectations as well as our customers. It's good to see us in the beverage business like we are in the Philippines and being highly innovative and having success here in the U.S. market. The next Slide 23, looks at our food service business.
Parag mentioned this earlier, but our food service business has been resilient. We grew this business last year, double digits, both sales and profits, and we're doing it again this year. The economy has begun to reopen here in the U.S., but it's been spotty and it has not been consistent. We've been able to pick up new business, new contracts, and really find new outlets for both our existing core business as well as our new innovative products. I'm really encouraged by the work that our food service team is leading. We're out there across the country partnering with these distributors and these outlets, reaching consumers away from home. With this, I will now hand over the presentation to Mr. Cito Alejandro.
Thank you, Greg. All of you in the call, I hope that you know you found Greg's excellent results very encouraging. Actually, you will see that there has been significant improvement in the U.S., quarter-on-quarter, and the results have become more consistent. That's all good news for us. Let me talk about Del Monte Philippines right now. Sales of $186 million in the Q2, up 3%. For the first half of the fiscal year, it's $362 million, up 11%. Excuse me. International sales was strongest in the Q2, up 18%, driven by packaged food and beverage in the U.S., Europe, and S&W in North Asia.
Sales in the Philippines were lower in peso terms, coming from a very high base last year, with which Parag alluded to earlier. However, marketing support continues on key brands to drive consumption. We are likewise pursuing further improvements in our retail distribution network. Good to note that new products now contribute 9% to total revenue. Good news also is our food service is starting to rebound, with first half sales up 38% versus prior year. EBITDA and net income performance were very good. In the Q2, EBITDA + 15%, net income + 10%, and for the entire first half, EBITDA at + 13% and net income at + 22%.
Next slide, please. As you will see here, despite the challenging first half we faced, we were able to hang on and in fact build on our leadership positions, except in beverage, which is now our focus category moving forward. I'm not worried about this. We will get the share back. We have a very strong summer program coming up, and we believe that this will help further rebuild our beverage market share in preparation for FY 2023. Next chart. In the food category, our marketing program centered on in-home preparations and home celebrations as people continue to spend more time at home, particularly during the August, September lockdown months in the Philippines. Our digital program has been very effective in reaching our target consumers. In-store promotions and activations continue to be key drivers at point of purchase. Next slide.
In beverage, we continue to push health and wellness in our 100% pineapple juice line. While in the more casual fruit juice drinks, we highlight the variety of our fruit flavors to push everyday home consumption. We have launched the new product portfolio of Fit 'n Right that I reported in the last investor meeting. So far, we have seen very favorable consumer offtake, even as we continue to optimize our distribution and merchandising resets. Next slide. Pleased to report that we have launched the Del Monte-Vinamilk products in the Philippine market. Initial results have been very positive, and we continue to execute our distribution, product trial, and retrial generating programs. Below the chart is the product portfolio. Yogurt is our entry in the drinkable yogurt category targeted against the young population.
IQ Smart, in the middle, is our entry in the flavored milk category targeted against children. Last is we have milk tea, a very popular drink and a big hit among millennials. Next slide. Quick update on our one-year-old Mr. Milk. It was our maiden entry to the dairy category. It continues to do well, and we look to further accelerating growth with increased sales and marketing activities this fiscal year, and on to next year too. Next slide. In our most profitable culinary category, it was all about maximizing opportunities with the rise of home cooking, again, as people spend more time at home. Importantly, we introduced and advertised new line extensions of spaghetti sauce to broaden the appeal of the brand, which is a real good way of expanding market share.
Next slide, more news in culinary. Our goal is to own a critical part of the holiday meals, particularly Christmas and the New Year. Right side of the chart are some of the initiatives to expand consumption and usage occasions of quick and easy meal mixes and tomato sauce. Next slide, just a quick summary of our entry into the biscuits and snacking category. Left side is our Potato Crisp, and on the right side is our latest entry, Fruit Monsters. These are delicious cream-filled fruit cookies. Both continue to generate meaningful incremental sales for the Philippine market. Next slide. Moving on to S&W. Pleased to report that we grew our premium fresh pineapple business in the first half compared to the same period year ago that was negatively impacted by COVID.
S&W remains the leading fresh pineapple brand in China and strong top three in Japan, South Korea, and the Middle East. We have also grown in e-commerce, and we're present in most of the major portals in China and South Korea. Q2 sales of S&W branded business grew by 16% on higher sales of packaged pineapple and mixed fruits in North Asia. In China, we expanded our fresh distribution coverage by 1,500 new stores from our existing distributors. In the second half of this year, we will begin expansion into Tier 2 and Tier 3 cities. First half sales of S&W branded grew by 18% coming from packaged pineapple products as well as fresh pineapple with S&W branded growing a strong +15%. Thank you, and I now turn you to Iggy, who will discuss sustainability and ESG.
Thank you, Cito. Sustainability is one of DMPL's five strategic pillars, supporting our vision, nourishing families, enriching lives every day. We are very pleased to share that DMPL received the Singapore Corporate Governance Award last October from SIAS, which included sustainability aside from governance as part of the criteria this year. From an ESG standpoint as well, we're also pleased to report that DMPL ranked 19 out of 519 companies in the Singapore Governance and Transparency Index last August. DMPI updated its environmental policy, issued its health statement and responsible marketing policy. During the pandemic, our foundation continues to provide nutrition to communities. Del Monte Foods in the U.S. has a range of initiatives to optimize product usage and minimize food waste, as well as initiatives to increase the content of recycled plastic and to make plastic packaging more recyclable.
On Slide 36, to recap our outlook, we will continue to strengthen our core business, expand the product portfolio in line with consumer preference for health and wellness, and grow our branded business while reducing our non-branded business. You can see the impact of that on our robust results in the first half. Improve product availability through better distribution and expanded sales channels, including offline. DMPL is well positioned in this environment, as explained by Greg in the U.S. as well as by Cito in the core Philippines and Asia-based business with our growing market shares across our markets. DMPL is well placed to build on momentum achieved in FY 2021, as Parag explained earlier, and expects to offset the impact of commodity and transportation headwinds.
DMPL Group expects to generate higher net profit in FY 2022, as you have noted in our very strong Q2 and first half results. With that, we would now like to open the floor to questions. Our colleague, Jennifer Luy, who's responsible for IR, will read some of the questions that have already been posted.
Good morning, everyone. We have a number of questions in the Q&A box. I'll begin with questions from Vivian. She's covering our company. She said, "Philip, with the price increase in the States in the Q2, could management share a rough percentage increase, and how much did it alleviate impact from higher costs?
Sure.
No, go ahead, Greg.
Okay. Yeah, we did execute between a 7%-10% price increase on our retail business and followed that price increase across our food service and non-retail business. Thus far, through two quarters, we have executed 1 complete series of price increases, and we're currently working on plans for further price increases in the second half of the year as we try to pass along inflation. We're watching these closely to make sure that they don't disrupt consumption or market share, but we've been successful thus far. That's one piece of what we do. Reducing trade promotions is another. Of course, all of our cost savings initiatives that Parag and I have been closely involved in are the other part of the equation as we do offset headwinds. We do anticipate being able to successfully offset inflationary headwinds this year, and our outlook remains positive. Anything to add, Parag?
No. Thank you, Greg. Just to build on it, right? Overall impact from the pricing action that we are taking, including all channels in the Q4, we expect to gain around 160-170 basis points from that in the second half, whereas the impact of cost headwinds is expected to be around 250-260 basis points. But that would be also offset by improved revenue mix, sales mix with higher branded sales. For the second half, we would be achieving our target gross margin that we had in our annual plan.
Okay. Thank you, Parag. Thank you, Greg. What is the reason for the lower gross margin for DMFI quarter-over-quarter?
Okay. Two main factors. First of all, we did have an increase in our co-pack revenue, which was a very deliberate move as it improves our working capital by bringing forward the sales as we label and sell the products. Number two is also we started to see some headwinds, particularly from transportation, both international and domestic, which slightly diluted our margins. Overall, still very healthy performance at 24.9%, which is an improvement of 215 basis points versus last year.
Okay. Thank you. This is gonna finish off all the margins and cost questions. Can we expect gross margin for DMFI to reach 27% in FY 2022 and higher than 30% in FY 2023?
We would expect our margin to be at H1 levels in the Q4. That's what our goal is. Traditionally, in the Q3 where we get into holiday promotions, our margins are somewhat lower than the first half. The margins would be back as we take pricing in Q4 across channels, which Greg shared the details of.
[crosstalk] Those margin targets are not inconsistent with our long-range plan that Parag and I have created. We do intend to get to those levels, 28%, 27% and higher, in the out years. It's a very steady and linear path, as Parag described. That 24%-25% range is our first goal for this year.
Thank you, Greg.
Thank you. Still on U.S. There was a question on food service. DMFI has started recovery in the food service, but with many F&B outlets shuttering during COVID, can Greg provide color and strategy and steps to recover fast?
Yeah, I know it's the food service sector for us is somewhat new, and it's been a very small percentage of our overall sales mix. We're building off of a very low base of business. We've hired a new leadership team. We've put salespeople throughout the country, and we're building those relationships with distributors and end users, and college and universities and other types of hospitality centers so that we can build as the economy reopens. For us, it's really incremental business. When we did grow sales last year, we grew profits last year, and we're doing the same this year. Over time, we would like this business to be north of $100 million and on its way to $200 million in sales for us, so it becomes a bigger part of the portfolio.
We've been encouraged by the opportunities that have presented themselves and the customers that are looking for partners in the fruit and vegetable, pineapple and beverage categories.
Thank you, Greg. For DMFI, the Q2 net profit has come close to that of DMPL's own Q2 net profit. Given DMFI's huge turnover and wider product line up and reach, will this year be the first time since acquisition that DMFI breaks out to lead group profits?
Yeah. I mean, it's a solid performance for us in the first half, and we are expected to meet our plans or actually, when it comes to our internal targets, we are aiming to strive for beating our plans. It would be great to see DMFI's contribution improving significantly. More than net income, it's the contribution to EBITDA which matters, in my view. If you look at the contribution to EBITDA, we delivered $170 million for DMFI last year. This year, we are expecting to deliver north of $200 million. That would be a remarkable achievement with 60% contribution coming from DMFI. Now the turnaround plans are working, and in our view, we are six to 12 months ahead of our long range plan that we had presented to the board.
Yeah. Thank you, Parag. Still on net profit. Management was guiding for a 30% increase in profit this year. Is there any revised guidance? Will Q3 be expected to be the strongest quarter?
I did hedge my bets when I said 30%-40%. I stay confident that we would either achieve that or do better than that. We think that the momentum would continue. I just want to remind everybody, though, even though sales-wise, it's a big quarter for us, the Q3, we do heavily promote in the Q3. Our margins would be somewhat diluted as compared to H1, particularly in the U.S. I would say that for H1, we would be definitely doing better than last year, but Q3, with the headwinds that we are seeing, plus our continued promotional activity, we would be seeing some dilution in our margin performance.
Thanks, Parag. Let's move on to DMPI and the base business. S&W is a primary brand in North Asia, mostly China, where it is category leader and holder of the largest market share. Could we get a sense of how big in U.S. dollar terms is that business? Also please update on growth strategy in North Asia.
Yeah. I mean, that business, I would request Cito to cover more, but what we are looking at is a sales of a good $70 million-$75 million in North Asia from S&W business itself, both fresh and packaged fruit put together.
I guess to add to that, the strategy in China is really to further broaden our distribution of our S&W branded pineapple, you know, which is really very much preferred over competition. First step we have taken this year is to increase new stores by 1,500. The target by the end of the fiscal year is 2,500 additional stores. This is on top, you know, on top of whatever gains we will get in expanding to Tier 2 and Tier 3 cities. We're very encouraged by our position there, and we're going to continue maximizing this, and we will have the supply to support our growth in China.
Thank you, Cito. Thank you, Parag. DMPI's product lines are shallower than DMFI. Is that a deliberate strategy?
Well, not really a deliberate strategy on our part. As you will know, it is very important that we continue to protect and expand our leadership positions in our categories because these are the ones that bring in the revenue and high margins for us, no? On top of that, we have a very robust innovation program, no? Such that if you take a look at the long range plan that we presented to the board, we expect that 15% will come from new products in the next five years. So we've done that. With our entry into the dairy segment, and that in itself is a huge category, no? And then our entry into the biscuit segment.
We will take it one category at a time. Beyond that, though, there are continued renovations in our core categories of beverage, culinary, and fruits, no? By renovation, I mean, number one, strengthening our current brands, where we feel that we can continue to improve their performance, so that consumers will continue to prefer them. On top of that, introducing line extensions so that we can broaden the appeal of the brand across a broader range of age groups.
Thank you, Cito. From Aaron of RCBC: What's the reason behind lower market share of beverage in the Philippines?
I think there's one region where we got challenged particularly in the Visayas, because Coke expanded their distribution of Minute Maid, no? That impacted our shares there and obviously impacted our national share. We believe that we will be able to get that back. Initially, you'll get trial when there's new distribution of new products, no? Our program remains solid and the image and the preference for our juices are very strong. I'm not really worried that we will get that back very soon, and we have programs in place to further rebuild the share.
Just a broader comment to supplement Cito's answer. The supermarkets where we are more strong did see a lot of softness and downward trend when it comes to the shopper traffic. That's pretty much public information which you can check. That was also a factor that impacted our bev sales.
Thank you, Cito. Thank you, Parag. Moving on to the balance sheet. What is the plan that the company for preference shares issued previously?
Yes. We are. That's a priority for us. We are on track to refinance and redeem the pref shares that are falling due in April 2022 and December 2022. Two tranches, $200 million would be in April, and $100 million would be in December. We have already raised $90 million through unsecured bonds, which was pretty successful for us. We are also on track to raise the balance through a combination, either of bonds, additional tranche of bonds or for that matter, loans from our partner banks.
Thank you, Parag. From Ramesh: C ould management update on the high-yield $500 million bond of DMFI? Noteworthy the recent $90 million raise at DMPL at around 4%. Can we look forward to restructure the bond this year? I guess he's referring to the $500 million of DMFI. I can't escape noting that DMFI interest burden is as much as the net profit after tax reported. Please provide color.
Yes. We are planning to refinance high-yield bonds in the second half of fiscal year. We are working on the same, and if the market remains conducive, we should be able to refinance it in Q4 of fiscal year 2022 or Q1 of fiscal year 2023. We do expect significant savings through this refinancing effort, which is a priority for Greg and myself in the second half.
That refinancing effort has been aided by our rating agency upgrade by Moody's and S&P, as well as our improved leverage position. We, Parag and I, feel quite good about our potential to dramatically reduce our interest burden.
Thank you, Parag. Thank you, Greg. From Hital: As the business continues to improve operationally, the balance sheet, specifically debt and interest-related expenses, continue to be elevated. In fact, even more debt was issued recently. Can you discuss debt repayment plan to allow for equity holders to participate in the operational improvements? What are the debt level targets for 2022, and how is the company thinking about refinancing risk, especially within an interest rate environment that's expecting higher rates?
At a group level, we expect our debt to EBITDA to continue to improve. As I mentioned during the update, we have brought it down to 4.3x , and we expect it to be below four times by the end of the year. That would be a great achievement for us. Our debt to equity also has marginally improved from 2.6 x- 2.3x . With the initiatives that we have underway, including refinancing of high-yield bonds, plus also the DMPI IPO that we expect to undertake as the market conditions improve, though we don't have any firm timing yet, we would hope to bring down our debt to equity for DMPL Group to around 1.5x to two times in the next 12-18 months.
Yes. You touched on the IPO of DMPI. There's also a question on updates for DMFI IPO.
I mean, on the DMFI IPO, all we would say is, for Greg and myself, our immediate priority is to refinance the high-yield bonds, which is in progress. We will continue to evaluate potential listing opportunity with our board as our business continues to be on track with our long-range plan, but no firm timelines or plans yet.
Thanks, Parag. Given that the U.S. business is growing well and our long-term plan is to list it again, what's the revenue and profit figure when we start to pursue a U.S. listing?
Greg, would you want to take that?
We have within our long-range plan that Cito and Parag and I have aligned with the board, we fully expect to become a $2 billion company, and we expect our EBITDA margins to reach 14%. Within that makeup, our gross margins would approach that 28%-30% range. We've aligned to that plan. As Parag mentioned earlier, we're ahead of that plan right now. As we get close to those milestones, we do believe we'll be a very attractive candidate to be listed. I would add an important milestone for us as well is to have our leverage under 3%. We do see that future as well for the organization.
DMFI is gonna be a very attractive asset. Given current multiples for CPG companies in the U.S., whether it's revenue or EBITDA, there's a lot of value here at DMFI. As we continue to get better and stronger financially and improve our balance sheet, that value is only gonna be better. We're looking out. As Parag said, we don't have a defined date, but we're aligned in our plans, and do see a path in the future to such an event.
Thank you, Greg. Parag, there's also a question on how will the debt equity ratio look like once the preferred is repaid?
In the short term, our debt to equity would be more than three times during fiscal year 2023. That's what we are anticipating, till we bring it down through increased profits, retained earnings, as well as our plans to continue with the DMPI listing. It doesn't really concern us too much considering our debt to EBITDA performance and cash profits, plus our fixed interest coverage continues to be very healthy.
Okay. Thanks, Parag. CapEx has risen in the first half. What's the CapEx for, and what are the expectations in full year 2022?
Yeah. No, we are excited to continue investing in the business, both in the U.S. and Philippines. I mean, our vision is to invest as much as possible in cost-saving initiatives to make sure that we are reducing our labor requirements in the U.S. in our plants. We are also investing in DC optimization programs. All these investments plus increased capacity are expected to be improving our profitability, and the payback is generally between two to three years. Very much in an investment mode when it comes to our plants in the U.S. and also our DC footprint.
When it comes to the Philippines, again, it's about driving margin improvement, bringing some of our projects in-house if they add more value and are profit accretive, also investing significantly in ESG initiatives to drive the sustainability program, either through our own investment or lease programs too. That's also a big priority from a group and corporate perspective. Let me see if Greg and Cito have something to add.
Nothing more to add from me, Parag. I think you've said it well.
You're welcome.
[audio distortion] Go ahead, Jenny.
We have a question from Paul Chew of Phillip Securities. When prices are raised in the States, how do consumers view this? Because to improve branding, volumes are not impacted, or is it because household income's getting better and consumers are trading up?
Yeah, that's a good question. I think it's a bit of both. I do think whether it's the stimulus or it's household incomes, consumers are willing to spend a little bit more for brands. I also think that as consumers have changed behavior in the past two years and have migrated to more home meal preparation and more home meal occasions, they're trying to recreate a restaurant experience with high quality products. They're gravitating to high-quality brands that they know and trust. Both of those factors are helping us while we raise prices, still benefit from increased sales.
Thank you, Greg. What's the share of private label sales to total sales in the States? Has it now shrunk to the level where it stops being a drag to reported revenue growth rates? If not, by when and how much further will this business shrink? What's the quantum of loss from this business on an annual basis?
We probably would need another hour to answer that question. There's a lot there. What we've seen, private label is a very strong force in the U.S. and what we have to do is constantly challenge ourselves to differentiate from private label, to provide a reason for consumers to buy our products and really promote our brand trust, our brand quality, our brand equity. You know, we're winning right now. The leading brands across U.S. grocery are winning because of this trust factor with consumers.
Because private label has struggled in many cases from a supply chain standpoint to keep up and keep current with consumer needs and demands, you know, the decreases in private label share that have happened across the grocery stores over the past two years, we'll see if those are sustained. You know, in a recessionary environment, consumers do gravitate towards value, so private label does play a role. What's important for us is that we beat other brands, that we are the number one or number two brands in all of our categories, and that's how you win, and that's how we intend to win and continue to win in the U.S. market.
Thanks, Greg. Okay. On for China. China pineapple business is growing very well. Is it a good time to expand the product range and grow even faster?
The strategy in China is two-pronged. First, we want to maximize our fresh sales. We believe that in focusing on that one in the next couple of years, we'll further bring about more profitable incremental volume, bigger increment in 2,500 additional stores by the end of the year, and also getting into Tier 2 and Tier 3 cities. To us, that is the first priority, you know. As far as expanding the portfolio, we are looking at the packaged products segment of our business there, and we're now into packaged pineapple. We are also into juices.
We're also selling not from concentrate juice, the same fruit material that is sold as a fresh pineapple. We're also into the frozen business. We're selling frozen pineapple there, whether it is through our Nice Fruit technology or IQF. Beyond that, we have not envisioned yet how the portfolio is gonna go. We would rather be focused on these areas that have been successful and where we believe there is still significant opportunity for growth.
Thank you, Cito. We have a question on ESG from Ramesh. ESG is becoming a greater measured metric among global funds. Can Iggy or management provide the type of engagements that funds are having with DMPL?
Certainly, ESG has become more important, especially in this pandemic environment. In the recent $90 million issuance of the notes, we had healthy discussions on ESG with certain investors that would like to know more about our carbon footprint. We have our solar energy project. We have our Rainforest Alliance certification project, soil conservation, you know, plastic reduction initiatives, and so on. When we were in the process of doing the DMPI IPO as well, we had over two dozen ESG discussions, especially with funds based in Europe, some in America, Asia, Australia. Definitely it's becoming more important to the investors as it is to us. We also have ESG credit facilities, for example. Not just with investors, lenders, even with the SGX, with SIAS, with GRI and other stakeholders. Definitely important. Thank you.
Thank you, Iggy. How does the price increase in the States compare to those by competitors? Are they comparable?
Yes. Our pricing was a little more proactive than our competition. We took pricing earlier, and our pricing has been slightly higher than what we've seen from our competition reflected on shelf. We continue to watch this. This will keep evolving as inflation continues to pressure our supply chains in the U.S. Pricing is being raised on a regular basis, so but thus far, I would say that we are at par or better than our competition in terms of the level of price increases for Del Monte.
Thank you, Greg. Question from Aaron, RCBC. Is there a debt covenant for debt to equity for DMPL?
[audio distortion] Yes, we have that. We also have interest coverage ratio too. Those are the two main covenants that we have for our group loans.
Thanks, Greg. There's some echo from your end. Okay. Oliver sent some questions in the chat box, so the panelists are not able to see it in the Q&A box. I'll read some of them. Is there a chance the Q3 promotions leading to reduction of margin would be minimized given the strong market demand and rising costs?
Yeah. Some of that has occurred, but most of those events were put in place several months ago. As we look forward, it would be more towards the Q4 horizon or Q1 of next year, where we'd see a curtailment o f promotions and a reduction of discounts. I would add, you know, year-over-year, we continue to bring down our level of trade spending and trade discounting as a company, and we're very diligent in managing that process.
Okay. Thanks, Greg. Also from Oliver: Why doesn't DMPI consider investing in real estate, pineapple plantation instead of just leasing these farm lots?
Just to answer that, Jenny, the agrarian reform law of the country that dates back to 1986 prevents any individual from owning land more than 3 hectares. So we really cannot. We are forbidden to own huge tracts of land, so leasing is still the option. That has been going on since 1986. We've been able to also expand our hectarage by leasing more land in our plantation area in Bukidnon, and there are still opportunities to lease more land.
I will ask three more questions, and we'll close the Q&A from here on, because it's already 10:15. Last three questions are, Vinamilk currently pipelined in 1,700 supermarkets and groceries. What's the target by year-end and by FY 2023?
I think the way to put perspective into this, we are selling our Vinamilk right now in all areas other than Manila. That is deliberate, because we thought that we would concentrate first outside, approve, build a brand in that segment before going into Manila, considering the significant listing fees that are involved when you enter the Manila stores. Right now, if you look at the coverage of Del Monte, we have direct coverage on 95,000 stores. That's national. Half of that, a significant well, 1/3, at least 1/3 of that is in Manila.
If you look at the Target stores, you're really looking at something in the vicinity of 50,000 stores as your universe of potential stores for our target market. As you know, the Vinamilk product is very much centered to supermarkets. If you take a look at the supermarket segment alone, you're talking about 3,000 stores nationally. Then we will expand to groceries and some of the targeted downline stores. We expect a significant improvement in our distribution and then perhaps looking at at least 30,000 store coverage for this product.
Yeah. Thanks, Cito. From Vivian Ye: What's the perentage reduction in tax rate for DMPI?
[audio distortion] Corporate tax reduction is 5%, from 30% to 25%, which came into effect from March of 2021. Just to remind everyone, it was effective July of 2020.
Thanks. Last question: What's the expected interest savings from the recent $90 million notes raised by DMPL?
[audio distortion] It would be savings from a cash perspective, as we would be replacing pref shares with unsecured bonds. The savings to the group is expected to be around 200-250 basis points, which for $90 million itself would be around $2 million-$2.5 million.
Okay. Thanks, everyone. For those questions, we will send them by email. If you have further questions, just drop me an email.
Thank you, everyone.
[crosstalk] Thanks, Greg, for joining our call.
Merry Christmas to everyone. Merry Christmas.
Happy holidays. Merry Christmas to everyone.
Thank you.
Thank you.
[crosstalk] Thank you, Greg. Thank you.
Thank you, Cito. Thank you, Greg, Parag.
Thank you, Parag.