Central Retail Corporation Public Company Limited (CRC) Earnings Call Transcript & Summary

Hello, everyone. My name is Rangsirach, I'm Head of Investor Relations of CRC. Today, thank you very much for joining our third quarter results update. And together with you, we have our management team, full team just like every time, Kun Yol, our CEO; Kun Nicolo Galante, our President; Kun Philippe, Central Retail Vietnam CEO; and Kun Ty Chirathivat, our Deputy CFO, joining together to give you an update. We will start by having Kun Yol giving the summaries and Kun Ty will walk everybody through the financial results. And Kun Nicolo and Philippe will update you on the business topic highlights that happened in quarter to date. Without further ado, let me pass to Kun Yol to start.

Good afternoon. Thank you for joining our call this afternoon. I think before we actually go deep dive into our presentation, allow me to give you a few minutes to give you an overview of our Q3 business performance. I think we have turned around very well in Q3. Top line and bottom line, we are back almost equal to Q1 pre-COVID. GP and income, we are back to Q1 pre-COVID. And in terms of cost, we are even better and firmer. Our costs being reduced by 40%. So of the category, Fashion overall, we performed better than the market. Hardline, we are at par. Food, we are slightly below the market due to channel shift, but if we exclude the tourist area, we are better than the market. Sales of growth improved, but still negative. So this is overall. But in terms of the economy, as you can see that for Thailand, the GDP forecast is about minus 7% to minus 8%. Italy, will be about 10%, 11%. Vietnam, only one that has a very positive growth is 1.6%. Globally, it will be minus 4%, minus 5%. Next year, every one asking about Thailand growing about is 4%, 5%. Now let me focus on the next things well, what we have done in terms of our strategy to action. We have also made a good progress. Omnichannel continue to perform well. Department store transformation, we're on track. Kun Nicolo will share more detail on that and also the expansion is on plan. And also, at the same time, we also make such investment by acquiring the COL. And now we got approval from the AGM. So it will be something coming in, in Q1 next year. And this is going to help then our underlying portfolio. So overall, I could say, okay, not bad. Our performance in Q3 against uncertainty and also a lot of bumpy along -- during Q3. So I think I can pass on to Kun Ty to deep dive a bit more on the initial number and then maybe in particular on the business update, and then we can go straight to the Q&A. I think we have enough plenty of time to do it at the end.

Thank you, Kun Yol. So the next section, I will be updating the financial performance of Q3. I'll try to go through this quickly because I understand that some of you -- most of you already went and listened to the numbers and follow MD&A. So it will save a lot of time and we have more time on the Q&A part to deep dive. So for the first page to highlight, as Kun Yol was saying, we had a good recovery. In Q3, our total revenue improved Q-on-Q by 15%, mainly driven by Fashion and Hardline. But of course, if you compare that against year-on-year, we're still about 11% down. So in Q3, we had sales of about THB 47.6 billion. In terms of the GP, we have also seen a good recovery. In Q3, we're at 25.7%. If you compare that against Q2, that was 21.6%, and we're even higher than GP of Q1, sitting at 25.6%. However, we still have a lot of homework to do to get back to where we were last year, but there's still a difference of about 280 basis points. In terms of cost saving or the SG&A, as Kun Yol mentioned, we did very well. This is from many cost initiatives across the BUs and in every country, given what will happen with COVID in Q2 and Q3. I'm happy to say that one is, we had a saving of 14% year-on-year. Secondly, that the cost also came down if you compare against Q2. That means in Q3, with recovering improvement of sales, we actually able to save even more in Q3. So reverse trend of -- so that's a very good news. In terms of the next normalized EBITDA and normalized net profit, let me explain a little bit on the definition. So normalized means that we took out some of the one-off noncore items. There were 3 in total. One is the foreign exchange. Second is impairment loss and third is disposal of assets. Those 3, if you combine, after tax is about THB 520 million in positive impact for Q3. So since it's noncore, we took that out. The second, we had a TFRS impact of minus THB 400 million. This was added back end to be apple-to-apple. And the third adjustment for you to realize is that we had Nguyen Kim that came in into our performance in Q3 last year. So if you compare Q3 together, you're able to compare. But if you compare 9 months versus 9 months this year, it's not comparable because we didn't have Nguyen Kim last year. Now going back to EBITDA, we had a good recovery. Our EBITDA in Q3 is THB 3.6 billion from a loss of Q2 at THB 870 million. And we're now back about 90% in -- from Q1; however, we're still 27% year-on-year below. And lastly, for net profit, I'm happy to share with you that we've now turned positive. We are now THB 746 million in black. In Q2, we were down THB 2.6 billion. But Q1, it was about THB 1 billion. However, if you add back the noncore items in Q3, Q3 net profit will be even higher than Q1. So you can see that in terms of bottom line, we fully recovered against Q1 and a bit on top line as well. So we can go to the next page. This one is just to illustrate to you what I mentioned just previously. Again, the sales here is sales of goods, does not include other income and also the rental. You can see that in total sales, we recovered from minus 21% in Q2 to minus 12% year-on-year. But again, we still lag behind Q1 because Q1 was exceptionally well on -- in terms of Vietnam and also in terms of Food in Thailand. But we're moving in the right direction. In terms of EBITDA, as I mentioned, we recovered a good V-shape recovery. Even the margin in 3Q is better than Q1, 7.7% versus 7.5%. And net -- NPAT, as I mentioned, we had a good recovery, negative 2.6%, up to a positive [Technical Difficulty] now. However, the recovery is not broad-based. So I want to highlight that out to make everyone clear. In Fashion, which is about 20% of our overall sales, we have good recovery. So if you can see total sales is on the top and same-store sales growth is on the bottom. The recovery is back to pretty much a Q1. And for same-store sales growth, it's even better than Q1 at minus 22% versus minus 28%. So fashion is doing better. Hardline is also doing better. Hardline is now in the positive level of total growth of 2% for Q3, which is pretty much almost nearing Q1 and positive 3%. So up from a negative 21% growth. So that has also a good V-shaped recovery. However, the issue stands out in the Food segment. The food we have businesses in Thailand and also in Vietnam. In Thailand, we had a huge impact on the tourist side. So we have many banners in Thailand, which are the Tops market, the Food Hall, the FamilyMart. Some of our banners has been impacted quite a lot because of the tourist locations. And also in terms of Vietnam, in July, we had a second phase of the COVID that has impacted the Food. And we also have flooding that happened in September as well. So that has impacted Vietnam business. But again, Vietnam has shown good recovery in October, November. We'll show you that later. We'll talk about that in Q&A. The next one, I'll just focus on the third quarter. The top left, you can see that the sales mix now in 2020, Q3, Hardline has improved from 28% to -- or grown actually from 28% to 31%, and Fashion has dropped from 31% to 28%. However, if you look at compared to '20 Q2, fashion has actually increased quite a lot from 22%. So because of the huge recovery in Fashion. So Food has stayed the same. If you look on the right side, Italy is still suffering, so it has not recovered that much. You can see that Vietnam has now gone up from 21% to 23%, while Italy has gone down from 7% to 5%. In terms of the GP recovery, previously, I gave you a big picture. And now I separate into 2 parts of the GP. One is coming from the sales of goods. The other one is coming from the rental and rendering of service. On the left-hand side, you can see that the GP is recovering to a Q1 amount, which is 23.8%, which actually is higher than Q1, which was 23.6%. Another thing you want to look at is the difference between -- the gap between 2019 and 2020. In Q1, the gap was 370 basis points. In Q2, it was 650 basis points and Q3 was only 290 basis points. So the trend of the GP improvement is becoming more prevalent, and we continue to -- we'll probably see that in the next few quarters as well. However, if you look at the gross profit amount, there's still a year-on-year decrease of 21%. In terms of gross profit rental, again, we see a recovery from 55% in Q2 to 69%, not back to Q1 yet, but it's above now last year. Again, this is a good recovery from our malls in Vietnam and also in Thailand. However, we still are giving some rental support, mainly in Thailand, will be case-by-case basis. And this is primarily in Robinson Lifestyle Centers. Next will be the SG&A. As Kun Yol mentioned earlier, we had a strong saving year-on-year of 14%. And we also have a Q-on-Q saving of 6%, so you can see that once COVID started in February and March, we had stringent cost measures across the board, and were able to reduce the cost from THB 15.4 billion to THB 14.1 billion to THB 13.2 billion, so trending downwards, okay? The 3 main factors are personnel, which is a minus 20% year-on-year or equivalent to about THB 1 billion. And the second one is Others, which is minus 21% year-on-year, coming mainly from better management of stock, but also there are one-off items such as the property tax amount of THB 100 million as well. The third one is marketing, which is about minus 18% year-on-year or about THB 119 million impact. Again, we can discuss about this later in the Q&A. In terms of balance sheet, we've shown you 3 columns end of last year in June and also in September. End of last year and also to end of September, the main adjustments will be the TFRS and also the IPO, so let me -- IPO proceeds. Let me focus on the June and September. So if you look at the total asset side, our cash has come down slightly THB 1 billion, from THB 23 billion to THB 22 billion, but still abundant for needs in the future. Inventory has slightly increased from THB 31 billion to THB 34 billion, a 10% increase. But if you compare it to last year, we're about 10% below. So again, this is due to better stock management. In terms of total liabilities, let me just point out in terms of the interest-bearing debt. At Q2, we're sitting at THB 74 billion, and now we're sitting at almost THB 70 billion, so a saving of about -- a decrease of about THB 4 billion. Again, because we have good cash flow coming in, in Q3, we're able to pay some debt back. In terms of the ratio on the right side, September versus December last year, the number doesn't look so good, mainly because number one, profitability this year has been impacted by COVID. And number two, the base for equity in asset has increased substantially, one, for the IPO proceeds and also from the TFRS impact as well. In terms of the leverage ratios, net debt to equity, again, the EBITDA -- net debt to EBITDA, sorry. EBITDA, we use the 12-month trailing. So in that method, the ratio is still 2x similar to what we had last year. Net debt to equity is 0.8% versus 1.2%, again, lower because mainly from the equity side, the IPO proceeds. In terms of CapEx, previously in the beginning, we have forecasted to use about THB 18 billion this year. But due to the COVID situation, we had to adjust that, again, for capital savings. We're able to reduce Q1 to Q3 substantially. We're only going to use -- we used THB 7 billion. But now that we believe the situation has started to turn around. So we have ramped up the CapEx to make sure that we have good growth coming in 2021. So we forecast to use about THB 6 billion to THB 7 billion in Q4, making the total year about THB 13 billion to THB 14 billion, again, still substantially below what we forecasted in the beginning of the year of THB 18 billion. The breakdown by category is on the right-hand side. Fashion is using THB 2.9 billion. Food is using THB 2.6 billion and Hardline is using THB 1.4 billion. Again, these numbers for a 9-month basis. And the key projects are listed below. So we had one new lifestyle mall that we opened. And then we have 2 rebranded malls that Kun Nicolo will mention about y Megabangna and Udon. We opened 5 Thai Watsadu. We opened 4 malls and 4 hypers in Vietnam. The next section is a new section we added in to give you more details. This will be categories and by country as well. So the first, let's start with Fashion. The Fashion, you can see on the left-hand side, it has gone down year-on-year by 21%. But if you look at the detail, the contributor is actually from Italy. So Thailand is a negative 17%. And if you look at below the same-store sales growth, you can see that Thailand actually is recovering very, very well. One of the key reason is because of our omnichannel business that has pulled back the sales recovery very well. While in Italy, we don't have this yet completely. So you can see that same-store sales in Thailand is negative 18%, back from negative 53% in Q2 and much higher than Q1 at negative 27%. In terms of EBITDA, again, we have recovered very, very well in Fashion. In Q3, we have positive THB 1.7 billion. In Q2, we had a negative THB 1.8 billion. And in Q1, we had positive THB 1.2 billion. So we are now much higher than Q1 for Fashion. So Fashion in total is recovering very, very nicely. In store network, on the right-hand side, this is showing the net increase of stores, so we had 6 stores increase. While there's a reduction of area, mainly because we closed one of the department store space, and we have a few department stores under renovation in Italy. If you go to the Hardline, next page. You can see that year-on-year in blue is minus 3% in Q3; however, if you split up Vietnam and Thailand, Thailand is actually growing at a positive 2%. The drag is actually on Vietnam, which I will ask Kun Philippe to mention a bit later on what's happening there. If you look at the same-store sales growth, we can see some recovery in Q3 as well. So pretty good recovery there. In terms of EBITDA, at Q3, we're about THB 1 billion, much increase from Q2 at only THB 0.3 billion, but slightly below Q1 at THB 1.2 billion. But again, we see good recovery going forward for Hardline. On the right-hand side, we show you the store network as well. A net increase of 2 stores and net sellable increase of 2% and mostly coming from the opening of in Thailand. One is Thai Watsadu at 4 stores, powered by open small concepts, about 10. And we had closures in Vietnam, about 12 stores there. Before I continue with the Food, maybe I'll Kun Philippe to quickly tell us a bit more about Nguyen Kim in Vietnam.

Good afternoon. So welcome, everyone. Thank you, Kun Ty. Obviously, the plan that we have actually explained to you is ongoing. We have been unfortunately hit by a second wave of COVID in the middle of Q3. And definitively, that has been slightly delayed the plan. Just as a reminder, store closure, as you can see, are moving on. Restructuring of the organization, both in head office and in store is also continuing. DC and supply chain, reassessment, merchandise, all of this is actually still ongoing. And we can see despite the fact that we have not been very good at Q3, we can see that there are already, we bought exceptional items, some good news. Margin is moving up. Deliveries from the DC is getting very close to 80% on the same day. We can see that the costs continue to go down. And we are still very positive of the output of NK. Top line remained a challenge. But definitively, bottom line and economic model is addressed and about to be addressed. Same as I was telling you analyst meeting after analyst meeting, probably Q4 and mainly December and next year, we'll see a new trend for Nguyen Kim, and that's what we commit to you initially. Thank you.

Thank you, Kun Philippe. Moving on to Food. The last business category. So Food, in Q3, we had a decrease of 11% year-on-year in total. But again, it's a different picture between the 2 countries. In Vietnam, we're still seeing positive growth even with the COVID Phase II and also the flooding. But the issue again is in Thailand. So in Thailand, as I mentioned earlier, we have many banners here and the main impact is actually coming from tourist locations, so which has impacted probably the most will be Food Hall banner because 6 of our 12 locations are in tourist locations -- sorry, 6 out of 12 total -- half of it is in tourist locations. If you look at the bottom, you can see that Vietnam is continuing to recover from minus 7% to minus 1%, but the Thailand is still a drag. Although we still see light coming in Q4, the numbers is a little bit more positive. In terms of EBITDA, Q3 is THB 945 million, which is an increase from Q2 of THB 650 million, but a substantial decrease from Q1 at THB 1.6 billion. However, we believe that Vietnam in Q4 will improve very resilient and have -- show good numbers there. In terms of the store, we have a net increase of 13 stores and also a good growth of net sellable area [Technical Difficulty]. And you can see the growth coming from the bottom, which format they are. Lastly is our Property segment. So Property in Q3 is a decline of about 18%. Again, there is a minus 17% from Thailand and also minus 3%. You're wondering why the total growth is higher than the other 2 segments because there is still some property in Italy, though small, we had a drastic impact there. So that's why the total growth is higher than the other 2 segments. However, if you look at the GP, we have shown you just now that the GP is recovering from Q2 is now 69%, and it's the same level or slightly higher than last year. In terms of sales, Q3 is, as I mentioned, THB 1.8 billion and has increased substantially from Q2 at THB 1 billion, but still a little bit shy from Q1 about THB 1.9 billion. And on the right-hand side, we have increased a lot on the net leasable area, 14% in total. Our occupancy is pretty much the same, 93%, but we have more malls. We have 2 more for Robinson Lifestyle in Thailand and also 3 more in Vietnam. So the section ends here in the finance. But of course, if you have a lot of questions later on, the details, we can answer them in the Q&A. So I'll pass it to Kun Nicolo.