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CNBC Transcript: Christopher Po, CEO, Century Pacific Group

Below is the transcript of a CNBC interview with Christopher Po, CEO, Century Pacific Group. The interview played out in CNBC's episode of Managing Asia on 11 September 2020, 5.30PM SG/HK (in APAC). If you choose to use anything, please attribute to CNBC and Christine Tan.

Christine Tan (CT): As a second-generation heading Century Pacific, did you ever imagine you would have to steer the group through a pandemic crisis?

Christopher Po (CP): Well, Christine, it's a black swan, certainly a lot of disruption going on. But as they say, in crisis, there's also opportunity. So, we should look for the silver-lining as well.

CT: Right in the middle of the pandemic, Philippines went through one of the longest stay at home quarantines in the world. What can you tell us about the panic buying that followed? Was it a mad scramble on your part to really try to handle the sudden surge in market demand?

CP: Our products are considered essential items, and there was definitely stockpiling. People were worried about how they're going to feed their families. So, we had to make sure that our factories were running, the products were being delivered to the stores and the shelves were filled. There was a lot of uncertainty because in the early days, there was a lot of question marks about the virus. How can you get it? How do you keep people safe? So, we went into crisis management mode. So, the first thing is to make sure that our employees are safe and healthy. The second is to make sure that the shelves are stocked, that means keeping the factories running. Maybe at the low point, some of the factories were running 60 to 70%, because we had to social distance within the factories. Some of our raw materials were a little bit delayed. Some of the challenges included just getting the products from point A to point B where we passed through different local government units where the interpretation of the rules, especially in the early days, were a bit ad hoc. So, we had to put in calls with the Department of Trade to help us sort things out with the task force which was led by the government. So, what was a job became a mission, because we realized the role that we play in the food supply of the community. Because the health crisis also is keeping people locked up at home. The Philippines has a very big proportion of daily paid workers. When they don't work, they don't earn. So, we also had to mobilize to help the community because we were worried about families going hungry. So, it was a very tense and hairy first few days until we kind of got used to it. We've settled into a rhythm.

CT: You were able to ramp up production capacity by putting your newly commissioned tuna plant at General Santos straight into work. What are some of the logistics involved getting the new production going?

CP: We weren't actually fully ready to get the factory up and running. But given the supply situation, we thought we needed to go with what we had and accelerate. There was equipment that required technicians from abroad to come in and commission them, so we had to do that remotely via Skype or via zoom. So, we had to kind of "MacGyver" our way through. We did thankfully get the factory up and running, and that was why we were able to continuously supply the requirements of the market. The other upside of that was we were able to create 1,600 jobs by starting the factory. We are actually quite pleased that that was the case and the timing worked out. We are also advancing the increasing capacity for our meat plant. So, a lot of things going on and certainly the pace has been very frantic.

CT: There are also concerns about the coronavirus entering the food chain, given recent reports we've seen coming from China. How do you see this risk and what are you doing within Century Pacific to avoid any sort of contamination?

CP: So, there are still a lot of unknowns at this point, Christine, but the bulk of our products 95% or even more are shelf stable. What that means is that they are heat-treated so we can keep the products for a year or even two years on someone's shelf. They're ambient, so there's no need for refrigeration. From what we've seen so far, it's really the cold chain where there's some question marks whether the virus can survive as they are transported from one country to the other. But as far as ambient or shelf-stable of products, it hasn't been an issue. As long as people are taking that extra step and cleaning whatever surface they come in contact with. So, for our products, there isn't much of a concern.

CT: Century Pacific Food is one of the few businesses that are booming during this pandemic, how big boost will it have on your earnings this year?

CP: We actually just announced our first half results. Our revenues are up 28% and our earnings are up 31%. While the stockpiling, the panic buying has subsided, at least for our products, the demand is still elevated. It's still higher than pre-COVID. So, we're actually going to be quite busy for the balance of the year building up stock. We don't know if we'll be asked to lock down again. Every time there's an announcement of a potential lockdown, there is some kind of stockpiling that happens. So, we just have to be ready for that. All in all, we'll finish the year strong. We try to finish the year at maybe +20% better for the full year vis a vis last year. So, yes, it is going to be a record year.

CT: The bulk of your revenue is generated in your home market in the Philippines, about 75%. There's still so much uncertainty out there, not to mention rising concerns about a slowdown in overseas worker remittances, do you worry that this might start to impact consumer spending and in turn hurt demand for your products?

CP: For sure, there's an economic downturn that's happening now. Philippine GDP numbers came out. S, in the second quarter, our economy contracted by 16.5 percent. So, these are numbers that are mind-boggling, never heard of before. So, yes, there will be some kind of slowdown. We are seeing some switching from premium brands, even within our portfolio, to the price brands. But overall, because our products are value for money products which are catered towards the base of the pyramid, we are essential items. Our products are considered staples. Our brands are trusted and leading brands. So, while there will be headwinds, I think we're still going to be in a fairly good position.

CT: The Philippine economy has fallen into recession first time in 29 years. As a businessman sitting in Manila, how do you read the pandemic situation? When you look at rising cases, do you worry that the Philippine economy might not have the ability to bounce back quickly?

CP: Well, there are two sides to this. One is the health crisis and then, there's the economic downturn. They're interlinked. So, the better we solve the health situation, the faster we can bounce back. On the health side, the numbers are still rising but what I've seen is that our Government is doing our best. I do get pulled into discussions between private sector and public sector. The government does come and ask for our feedback on how to solve this issue. So, the good news is the treatments are coming in, we are building additional healthcare capacity, testing capacity is also increasing. On the economy, our government has actually set some measures in place. They have put in 7-8% of GDP worth of fiscal and monetary stimulus. We do have a Build, Build, Build program of administration. So, that's another trillion pesos per year that roughly about 5% of GDP that is supposed to be spent every year for the next few years until our infrastructure situation is improved. Then, we have a very strong balance sheet. Our government debt to GDP is below 50%, so that's better than a lot of economies. We have, quite frankly, also some pretty good intrinsics. We are a young population, three quarters of the economy is consumption-based, and a lot of that consumption is spent on essentials rather than discretionaries. So, I think our ability to bounce back is definitely going to be there. There are still definitely challenges ahead, Christine, but I'm confident that we will see the back of this crisis.

CT: Do you think the Philippine economy could return to growth in the second half of the year?

CP: It will take us two to three years before we get back to pre-COVID levels of activity for the general economy. Hopefully, it happens sooner, but that's how we're planning. So, we're prepared for a few years of maybe slower growth. That's how we're planning and that's how we're investing.

CT: Over the years, Century Pacific Food has become less of a tuna producer and more of a diversified group with meat, milk and coconut becoming fast growing categories. Are you trying to be less reliant on the volatile tuna business? What other new food categories could you possibly venture into?

CP: that's a good point. Christine. when we went public in 2014, more than 50% of our business was marine-based or tuna or sardines. Today, it's roughly around 40%. So, we have entered new categories.

We are a challenger now in the dairy business, whereas in 2016, that was a smaller part of the business, less than 10%. Today, it's almost a quarter of our total business. Five years ago, we also did not have a coconut business. Today, that accounts for about 10% of total revenues. So, we are going to continue on this path of diversification.

CT: As you diversify more into these new food categories, whether it's meat, milk or coconut, what's going to happen to your legacy tuna business? Will it still be your core business in the long term?

CP: It's a very important part of our business, Christine, it will always be there. The name, the sign on the door has Century which is our flagship brand. So, it will always be an important part of the company. It also lines up well with our health mission. We do want our portfolio products to be pivoting or leaning more towards healthy food items. It will always be there. For the last 10 years, it's been growing 5,6,7 percent, so that is still an attractive business. It will still be an attractive business going forward, except that our growth ambitions are higher. We want to grow 2X of GDP - 10 to 15%. So, in order, for us to continue growing at that rate and be able to double every five or seven years, we need to look at other categories as well. So, over time, the tuna business will become smaller as a proportion of the total. But it'll always be there, and it'll always have a sentimental value for us.

CT: Let's talk about your restaurant business because your family actually bought the franchise of U.S. pizza parlor chain Shakey's for the Philippines and some parts of Asia, as well as the Middle East. You also bought the Filipino restaurant chain, Peri Peri Charcoal Chicken. What's the vision behind these acquisitions? Are you simply trying to target the rising middle class?

CP: That's exactly right, Christine. We see in many developing economies, as the middle class grows, the propensity to consume outside of the home gets more and more pronounced so as a business group we thought you know we wanted to be present there. So, we did want to have that share of stomach which led us to the acquisition of Shakey's. So, it's a strong brand, I think we have a bit of a track record nurturing brands, so we felt confident enough to take that leap of faith.

CT: How's the restaurant business doing given that you have to observe social distancing rules?

CP: It's quite challenged, Christine. The level of business is probably at maybe 55-60% of pre-COVID levels. There's still quite a bit of fear for people to leave the homes. Right now, what's really allowing this business to go on is our delivery and carry out business. So, a lot of things have been turned upside down, but there are opportunities. We are taking this opportunity to transform. We are investing in our e-commerce abilities, so making sure our app is very competitive. We are working on our delivery strategy, making sure that our deliveries are done within 30 minutes or less. And then we are also mining the data. Then finally, we're experimenting with new formats like ghost kitchens, so that we can adapt to this new environment.

CT: As an essential food provider in the Philippines, what are you doing to reach out to the needy and the community severely impacted by Covid-19?

CP: The first order of the day is to make sure our employees are healthy and safe. So, we do provide extra health benefits, health kits especially for our factory workers. We transport them via shuttles into the factories or into the offices, providing food and financial aid as well. Then, we go beyond our company's personnel to various communities because we are a food company. Our main advocacies are hunger alleviation and nutrition. So, year-to-date, we've served 2.5 million free meals. We've identified the top 10 most impoverished areas in in the Philippines and a number of them in Mindanao. So, we are targeting our efforts to those parts of the country. So, for the balance of the year, we'll probably be able to distribute another 3 million or more meal kits to make up maybe 5.5 to 6 million free meals by the end of the year. So, it is a big challenge, but I'd like to think that we are kind of doing our part.

Like his wife, former actress-model Nanette Medved-Po, Chris is also a big advocate for sustainability.

CT: Your father Ricardo Po was the one that started tuna can business in the Philippines. These days tuna fishing is attracting a lot of attention from environmentalists who are lobbying against overfishing. What are you doing within Century Pacific to adhere to sustainable practices?

CP: It's a very top-of-mind issue for everybody in our industry, the tuna industry. The good news is, for the last 15-20 years, industry players, governments, the academia, NGOs have really come together to try and solve this issue. So, there are quite a number of sustainable fisheries around the world and where we source the majority of our tuna in the western Pacific. The harvesting of tuna is below the maximum sustainable yield, and that's achieved by first limiting the capacity of tuna catching, so that's actually very regulated. So, tuna fishermen and tuna fishing companies are only allowed to fish a certain number of days in a year. The catching methods are also regulated, for example, the size of the mesh and the nets are regulated to make sure that if catching happens, that the juveniles are allowed to escape and grow to maturity and reproduce. On our part, we make sure that we're very compliant with all the regulations. We're also part of an international board, The International Seafood Sustainability Foundation which makes policy and advises governments on how to regulate tuna fishing. So, we like to think that we're doing our part, Christine.

CT: There are also concerns about climate change and the impact it's also having on fishing supplies like tuna. One of the things you're trying to tackle is how to manage your plastic waste. What's the process like and how exactly do you mitigate the impact?

CP: We are not huge users of plastic whether the Century business or the Shakey's business, but we've found a way to neutralize our plastic impact on the environment and that's through co-processing. How that works is we measure the amount of post-consumer plastics we put into the market, then work towards buying or acquiring that same tonnage of plastics, and then convert that into energy. So, that kind of offsets the usage of coal as well for our energy partners. So, we've been plastic neutral since 2019. We've done it through the Plastic Exchange, which is an innovative exchange where companies like ourselves can go and offset their plastic usage. We intend to continue to be plastic neutral going forward.

CT: Where's the push coming from for you to go plastic neutral?

CP: Well, yes, so I have an unfair advantage. My wife is kind of like an eco-warrior in a sense. So, she is the founder of this Plastic Exchange that I mentioned. It's a very interesting business model that they have. It's a not-for-profit activity. So, pretty innovative.

CT: You're 50 years old this year. You graduated from Harvard, spent a few years in the financial industry before joining the family business. You're now the CEO of Century Pacific Group as a whole. How would you describe your leadership and your management style? Are you anything like your father?

CP: Yes, so we've gone through different stages. So, my father is the founder-entrepreneur. Back in the early days, the business was just really a source of livelihood, he had to feed his kids and put food on the table. So, I'd like to think we've kind of graduated from that. We went through a growth phase. I guess now we're in a phase where we're really building the business for posterity. We have a lot of stakeholders. I mean, the family is only one of the key stakeholders. So, I guess my style of management has to evolve with the stage in which maturity level of the business at this point. I believe in human capital, so building the best team that's available. I guess I'm the guy in the room who's always asking what's next. So, this is I guess part of the training of being an entrepreneur - it's great, we have five different projects going on right now, but what's next? How can we push forward and find the next innovation? Something that will contribute maybe not today but our growth five years from now will come from these next things that we need to look at. Maybe, finally, what I'll say is, I'm a zoom-in, zoom-out kind of person. I try to consciously spend maybe 30% or more of my time looking at the big picture, looking for opportunities, looking for threats to our current businesses. Then, certain areas where I would zoom in is when it comes to choosing key managers, as well as innovation projects because that's when I'm the one pushing for growth, I want to make sure that certain innovation projects are moving at the right pace. So, zoom-in, zoom-out as needed.

CT: And finally, can I get you to zoom out for a little bit and talk about what's next for Century Pacific group after you steer the company through this pandemic crisis? What's next?

CP: Being a second-generation business owner or entrepreneur, we were given this platform passed on by the founder, my father, we have to make the most of it. We want to create value, but we want to do it with a purpose. So, it has to be more than just the bottom line. So, we are trying to do things in a more sustainable way. We are trying to get healthier products out into the market. We are trying to be more inclusive and more caring of the communities where we operate. We will innovate, but we will also look at adjacent categories where we think we have the know how or what we call it the right to win In order to bring our mission into the market which is to bring affordable nutrition into the market.

CT: Chris, sounds like you're going to be a very busy man in the next five years. In the meantime, thank you so much for the interview. I wish you well, stay safe and healthy during this time.

CP: Thank you, Christine, it has been an honor. Stay safe and healthy.

END

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