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

So good morning to all our guests. So welcome to Central Retail Investor and Analyst Conference today, which will cover business results and the financial update of the second quarter and the first half of 2021. My name is Rangsirach, Head of IR, CRC, and I am your host for today's session. Onward to our program this morning, I would like to introduce our management team. First, Central Retail CEO; Mr. Yol Phokasub. Second, Deputy CFO, Khun Ty Chirathivat. Third, Central Retail Vietnam, CEO, Mr. Olivier Langlet and last, Chief Digital Officer, Mr. David Llamas. [Operator Instructions] And now may I pass the floor to [ Khun Yol ].

Good morning, everyone. Thank you for joining our call today. I think overall we can see that we have a mix of some good news and better news and also less good news, just candidly, right? The most important is that we have seen much clearly the light at the end of the tunnel, of the COVID tunnel that's been going on. First let me explain you the change in our leadership. Khun Philippe. As you know, he was the CEO of Vietnam for several years, right? And so I did plan for him to come back to Thailand, right? Now he's back and joining our senior leadership team in Thailand to focus in our property in Thailand. At the same time, we can use his long experience to develop new business opportunity for us in Thailand. And also driving synergy between the 2 countries, Thailand and Vietnam. And last time we have also Khun Olivier here, okay, he is therefore our new Vietnam leader, and he is a seasoned retailer and customer-centric leader with a strong track record. Having more than 25 years of experience in multiple format within hypermarket, supermarket and convenience store and also Cash & Carry and working in several countries in East and Central Europe. Before joining the CRC, his last job was as a CEO, Marko in Czech. I'm happy to have him on our retail Vietnam business. I'm sure that he will successfully bring the CRC Vietnam to new heights. Next is Khun David. Actually, he joined us in November last year. It is to ensure that we have a very good transition as our Chief Digital Officer. After spending several years driving the digital transformation and launching the omnichannel business for multiple international brands across the Middle East and Eastern Europe and he made the retail group over there, became one of the largest and the fastest growing omnichannel business in Middle East during his time there. Before that, Khun David also was leading in digital transformation and omnichannel across Europe for private equity backed consumer brands. And before that, let's say, about 10 years ago -- 10 years with Harrods as the first digital pioneer in technology, he was the CFO over there. And he gained recognition for pioneering the omnichannel in departments stores in the U.K. This CDO, Chief Digital Officer is recently repositioned in CRC, which reflects our company commitment, okay, to continue to drive and therefore bring out omnichannel and digital strategy. And we're happy to have him with us. Transition between all these leaders, okay, has been managed for the last 6 months and now are in action. These are the changes what we put in place in order to make sure that actually we are driving our mission of new Central Retail to new height. And I look forward to working closely with the new and extended teams and excited about the future of our companies. Now let me move to the next section. So I want to share with you about -- the next one which is about economy, and this is updated section. Allow me to spend a bit of time to explain why this page, so that we have a better understanding, okay, and then what have we achieved and then what are we facing and then what is our next action plan. As you know, COVID has been with us for more than 2 years, right? It's no longer [ essential ] to anyone. We have to live and do business with it. We have already integrated COVID into our strategy and plan to minimize the risk and capture opportunity at the same time. We say that, okay, this COVID is considered to be one of the key game changer in everything we do. And we can regard COVID as a new chief innovation officer too. Probably and Thailand is no exception leaving in a challenging and uncertain time in managing these 3 crises in a row. Health crisis, economic crisis and to a certain extent of our politics. The two type of recovery shifts that we can expect to see to happen, either U-shape or the K-shape as everyone is talking about. This will be a mix of the two for each country and each industry and each business, okay, that everyone are seeing. Now let's turn to CRC. I think CRC continued to thrive with margin improved to the measure to our pre-COVID levels in terms of revenue, profit and cost. Actually, in some areas, such as Omnichannel and Hardline business are much ahead of pre-COVID already. And our productivity per head also improving much faster than what we have done. This resulting from our focus on strategic priority, our execution with positive and excellent mindset. Our Omnichannel and digital first that we embarked on New Central New Retail customization since 2017 giving us a better position to lessen not only prices, but also better capital growth opportunities in Thailand, Vietnam and in Italy. Our Omnichannel is now contributing 17% of total sales ahead of, let's say, 15% as our target. Our digital platform also continued to move from strength to strength, both in terms of upgrading, expansion as well as big uplift in Omnichannel business and experience that we have created to be our unique and competitive strengths for every -- and it's for ourselves and it's not easily copied. We have launched -- successfully initiated such as [indiscernible] for everyone in department store, in Fashion, in Power Buy and then in Tops supermarket. We are fully leveraging this online to offline, platform to platform creating new business, that's what we call a quick commerce then we can serve the cash flow demands within 1 hour to 3 hours, okay, in several key categories. At the same time, we have strategically chosen to delay some of our initiatives. Such as delay opening Robinson Lifestyle mall in Phuket and Banchang, and we delay upgrading Robinson in Chonburi. As you know, that the economy is not in our favor at the moment. But we have -- everything is ready just waiting to press the button at the right time. On the other hand, okay, with the overall expansion of Thaiwatsadu our success business model and we will expand even faster. This year, we opened about 1 or 2 more than originally planned. At the same time, we secured a very good location into our land bank for office expansion. Talking more about Thaiwatsadu. I'm delighted to report to you that our sales growth and overall sales running ahead of our competitors. Now in terms of driving the synergy, okay, we have strengthened across our category synergies between Thailand and Vietnam. In terms of cost cutting, cost optimizing, promoting new sales within the group, giving a low CapEx for both innovation and expansion. Synergy and COL acquisition is well on time and more upside to come. We have plan, okay. We continue to laser focus on foods and malls leadership as launching our food Omnichannel platform. And results today are encouraging with which we will share with you in a few minutes. Now turning to our Europe business, Italy. Now I'm happy to report that we are fully open again, with much a fresh install, okay, and boosting our Omnichannel services and hence sales got back very strong which is really good news. In terms of our health, okay, let's look at 2 key dimensions. First, look at the financial health. And the second one is now what we call digital health. Now if you look at the financial health, we are much stronger, and we have much more cash on hand, more than THB 50 million with positive operating cash flow more than THB 4 billion. We have a very low gearing and healthy debt to equity ratio. Also, we have a secure committed credit line with low financing costs, both short term and also long term. In terms of our cost cutting and cost optimization, we have done very well and then now start seeing the outcome. Now let me turn to our digital health. Our vision of first and our first mover is Omnichannel focusing on differentiated strength that we have, helping us to sail through these COVID crises, and at the same time, we have fully explored the potential for now and post COVID. When we look ahead, we see our digital platform that we put in place at least a few years ago. It has performed even faster than we thought. And I must admit that our business, okay, on this digital, okay, has been running too fast too soon. This is good news. So basically, they are learning on the gas. So it's time for us to think ahead, how to lead platform, this our Omnichannel platform to the next generation. So we have embarked, okay, on a very salient matter to improve and enhance and uplift our Omnichannel platform, okay, to ensure that we are fully equipped, okay, to serve customers in our needs and aspect. Now if you look at the -- in terms of the COVID, we can see that again in terms of maximizing the revenue, we do whatever we can, okay, to ensure that we can serve the customer in every channel, every touch point the customer needs, okay. We continue to drive the business. We [indiscernible] open or not open. And then you come down to the cost, as I already mentioned, that we have minimized our cost and also at the same time, optimized our cost burden. At the same in terms of the health, okay, we put the health of our committee, including our staff, our customers, our partners and our committees at the highest level. In terms of managing our stocks and cash flow, okay, we are well prepared for that, right? And this time, I would say that we are doing much better than last year. That last year, we were in the position of more defensive, okay? But this time, we can pick and choose, okay, which one we have to do offensive and which one is better for defensive. Now if you turn to our performance, okay, you can see at the bottom, okay. Our performance was at least there was good growth in all aspects in top line, cost and EBITDA. Top line, we grow about 12% and 38% in EBITDA, right. Now looking at the net loss, we have reduced a lot, okay, year-on-year. Due to our investment for growth we need investment and our depreciation also moving up. But this is all a good intention for our business in future. If I look ahead, okay, in the next 12 months, it's going to be definitely a tougher time, and we will discover more surprises, okay, for mainly crisis in health, economy and politics concurrently. And so I believe that we are robust and flexible enough and we have a resilient organization and platform. We continue to drive through this perfect storm and perfect opportunity. Now let me turn to the next page, okay. I just want to give you a quick update, okay, but I don't want to spend much time on this. As you all know the situation in terms of the GDP growth, okay, overall in Thailand and overseas. You can see that at least in a few countries that has been moving to the K-shape, it's the U.S., it's on China and a certain extent in Europe, right? In Southeast Asia, I think we are facing quite a hard time, but I'm sure that we can go through this crisis together well. Italy is on the upside. Now turn to the next page, I give you a quick overview on our operation, that in Q2, we have a small impact in terms of the shorter operating hours in Thailand and partial lockdown in Vietnam, right? Italy, as I mentioned, now fully open. The most important thing for our business as well, the confidence of our consumer, right? At the moment, you can see that in Thailand, okay, everything at the lowest confidence, okay, in terms of investment of the private and also the foreign investment. At the same time, the governments, okay, not invest much enough and fast enough. Q2, as we expected, the GDP growth has recovered very well with a low base of last year. But it's a pity that in terms of private investment, okay, the growth is running about half of the private investment, which we need a lot of investment from government. Now next, I'll turn to next agenda. By allowing me to pass on to Khun Ty, our group Deputy CFO, to update you more details on financial results, okay? Thank you, and then I'll come back later on in the section.

Thank you, Khun Yol. Good morning or good afternoon, all analysts and also fund managers. Let me give you -- shed some light onto the financial performance. Before I start, let me just tell you that there are 2 major impacts into the financials of our Q2 this year. Number one is that this year in February, we acquired COL, so the performance in Q2 will include that in fully. The second one is that last year, as you know, that there is a hard lockdown in Italy and in Thailand. So there will be performance -- quite considerable reduction for about 1.5 months. So there will be a low base effect from Q2 last year as well. So just a quick snapshot. I won't go through all the details. I'll save some more time in the Q&A. I'm sure that you have received our MD&A and also our financials. So you have gone through that already. So I'll quickly go through some of the highlights. In terms of revenue, we're up 12% in terms -- Hello? Can you go back. Yes, in terms of EBITDA, we're up 4x. And in terms of net profit, NPAT, we are still minus, but we're considerably less minus than last quarter. If you look at the sales mix at the bottom, our Hardline is now the same as our Food. There's a drop in our Food. And also there's an increase in the Hardline, but the Fashion has stayed the same in terms of mix. In terms of EBITDA, now the Hardline has grown a lot, one, mainly because of the COL acquisition. And the second part is because of the considerably good performance of Thaiwatsadu. So moving to the revenue slide shown just now. Okay. We have 3 revenue in total. One is -- sorry, 3 components of the revenue. One is our sales, which is about 90%. This is sales of goods. The second one is our rental from our property assets in Thailand and also Vietnam, 3% of our revenue. And also other income, which is generated mainly from items such as promotions, logistics and utilities as well. If you look at the left-hand side, you can see that the year-on-year growth compared to last quarter was very good at 13%. Again, mainly, as I mentioned, from the COL acquisition, the low base, but also because of the Hardline, the performance, the online considerable performance and also Italy recovery. However, if you look at the quarter-on-quarter, there is a slight drop, mainly from two things. One is from the seasonal impact from Vietnam because there is a tech holiday in Q1. The second, because of the impact in terms of fashion for Thailand because the wave 3 has started around April. If you look at the rental, we have done well, 38% year-on-year growth mainly because we had less discount compared to last year, both in Thailand and Vietnam. And also there are more malls opening. There are probably about 4 mall openings compared to Q2 last year. If you look at Q-on-Q, there's a slight drop, mainly because of the discount that we have been giving out in Thailand and Vietnam and a little bit lower occupancy in Vietnam as well with a small -- lower take-up rate in the 4 new malls that we opened. In terms of the other income, both drops in year-on-year and Q-on-Q. The drop in the year-on-year is mainly due to the normalized items. If you see below, there's a $702 million one-off item. If you exclude that, it will be a 15% year-on-year growth. The normalized item came from mainly business restructuring gain and also the foreign exchange gain. If you can move to the next page. A good positive trend is the gross profit margin. If you look at the top left, in terms of the Q2 this year, it has been steadily increasing from a low base last year, 20.7% to 23.3%, and even better than Q1 this year at 22.8%. If you compare year-on-year, it's mainly because of the fashion turnaround, a strong turnaround there. COL being acquired with a higher margin and also the Hardline better margin as well. In terms of Q-on-Q, the increase came mainly from the improvement in the margin in Vietnam. If you look at first half, again, there is an increase of about 800 basis points. And if you look at the bottom part of the gross profit value, it's an increase 28% year-on-year or 3% in the first half compared to last first half. On the right-hand side, you can also see a good improvement in terms of gross profit for the rental and services, mainly coming from, one, better cost management in terms of people, in terms of marketing, in terms of utility this year, and also because of higher base in terms of total income that we're receiving in Q2. If you look at the first half versus last year, we're up about 355 basis points. And if you look at the bottom, we've grown in terms of gross profit value, about 80% year-on-year or 10% first half versus last first half. If you go to the next slide. Another good area in terms of improvement is in terms of our SG&A expenses that we have been maintaining since COVID last year. If you look at the bottom left, you can see that the total value of SG&A has declined by THB 14 billion to THB 13.8 billion. Again, the Q2 this year includes the acquisition of COL. So that is a tremendous cost reduction that we have done across our businesses and from our synergies. In terms of our SG&A to revenue, it has declined from 34.2% last year to 29.8% this year. If you compare the Q-on-Q, there's a slight increase from Q1 to Q2, mainly because Q1, there's 2 months of the COL while in Q2 this year is actually full 3 months. The slight increase in percentage came from the slight drop in sales from Q2 if you compare to Q1. If you compare the first half this year and last year, you can see that we are doing much better by about almost 160 basis points. If you look on the right-hand side, it shows us the details of where these savings are coming from. Again, these numbers year-on-year include COL acquisitions. So if you, for example, remove COL acquisition to be apples-to-apples, the #1, #2 probably increase by 1% or 2%. So it's quite low. The big saving, however, is coming from number three, which is our marketing promotions, big drop, 11%, again, including COL. And number five, number five, other expenses. This one with the better management of our stock, so our shrink and obsolescence has reduced by about 88%. Next page, please. This is our overview of how our segment is performing in Q2 versus last year. Again, leading the way is definitely the Hardline. You can see that a good strong growth coming from COL acquisition, but also the expansion of Thaiwatsadu stores and the same-store sales growth, increasing by 40%. On the bottom line, you can see that it grew by 3.5x to THB 1.8 billion from THB 500 million and the margin has increased as well. Food, the top line has some pressure. Maybe from -- in Q2 this year, we had a decrease in store numbers by about 20% if you compare to last year for the small store format in Thailand. So this one has dropped down our total sales growth. If you look at the bottom part, with the higher margin and cost -- better cost management, our EBITDA has gained by 16%. Fashion saw a very good turnaround in terms of the bottom line. Top line has grown 14%, driven by recovery in Italy and also great growth from the online and Omnichannel, but a little bit more pressure on Thailand Fashion because of the COVID that has started up again in April. If you look at the bottom line, it's a huge turnaround of about THB 1.7 billion to negative in Q2 last year to a positive at THB 900 million this year and the margin has gained to positive as well. Let's just deep dive into the different segments. Next slide, please. Just a quick overview of the difference between Thailand and Vietnam. For Thailand, you can see the strong growth, 63%, again, from COL acquisitions, from Thaiwatsadu, great performance. In Vietnam, the sales was negative 29% primarily due to, number one, there is a drop in number of stores by about 20%. We used to have about 63, now we have about 51 stores. Again, we closed down the nonperforming stores. And second, due to some partial COVID impact as well in Vietnam in Q2. If you look at the bottom part on Q2, same-store sales, you can see that Thailand also, a 41%, still very strong. This is coming from -- mainly from Thaiwatsadu as well, Vietnam is again down. On the right-hand side, the core EBITDA, I mentioned just now the Q2 performance. If you look at the first half, our first half has doubled EBITDA from THB 1.9 billion last year to THB 3.8 billion this year. And in terms of the margin, it has jumped from 7% to 11.4%. If you compare this margin to the pre-COVID time and adjust it to the -- for the TFRS, we would see a 100 basis point improvement from this segment. Coming from -- mainly from 2 things: COL acquisitions, higher margin; and two, with the Thaiwatsadu improvement in margins as well, also with the private label. Can you go to the next slide for the Food. For the Food top line, it's minus 5% overall. In terms of Vietnam, the gray, it's flat. In Thailand is minus 9% for Q2. And if you look at the first half, Thailand is minus 20%. Again, there's 2 things. Number one, there is a closure of about 20% of the store, the small format stores. And also in first half last year, there was an impact of stockpiling in Thailand for bigger format stores. So leading our overall Thailand to be minus 20%. Same-store sales at the bottom, you can see a negative both, again, coming from the COVID impact now. And also in EBITDA, although our top line sales in Q2 was negative, we had good margin improvement in GP and also cost reduction in OpEx, leading to EBITDA growing 16% and EBITDA margin growing to 7.5%. And if you look at the first half, again, the top line has dropped 12%, but our cost reduction has done quite well, leading to a small decline in EBITDA, but still a good margin increase from 7.4% to 8.1%. Next to our Fashion. If you look at the black, again, this is -- Thailand is -- overall, it's plus 14%, but Thailand is minus 3%. And Italy is positive 126%. Italy, huge, tremendous growth, mainly coming from the full opening of the quarter 2. In Thailand, the decline mainly from phase 3, COVID, which started in April, so leading to the decline there. In terms of the bottom, if you look at the same-store sales growth in Q2, primarily we're still very, very good for both Thailand and Italy. On the right-hand side, you can see the EBITDA turnaround both in quarter 2 and also first half. In the first half, it jumped from THB 1.6 billion last year to THB 2.5 billion last year. This is primarily to the turnaround in department store in Thailand, the online omni great growth and also from Italy as well. Margin has also improved from 6.8% first half last year to 11.3% this year as well. But again, still a bit off from where pre-COVID times. And lastly, in terms of our property business, good performance here all over. In terms of the top line, it grew 38%. Thailand grew 45% and Vietnam grew 20%. Thailand grew 45%, mainly because of less discount for this year. Vietnam mainly because of 4 new malls coming in the top line. If you look at the GP, the GP has grown from 55% to 70% basis -- 71% of sales, mainly because of cost reduction and also higher total income as well. If you look at the right-hand side, one lagging issue is the occupancy rate, it dropped from 94% to 87%, primarily coming from Vietnam because we opened 4 new malls there and the take-up rate is a little bit low compared to the occupancy rate before the opening of the new malls. But the total leasable area increased by about 30,000 square meters. Next. Two more slides. The balance sheet. We increased our assets by about 5% or 12,000 -- THB 12 billion, sorry. The main increase is coming from the bottom part. If you look at the other assets increased by 14%. This is mainly from the acquisition of COL in February, so increasing our goodwill by THB 9 billion, intangible assets by THB 2 billion and the PPE increased by THB 2 billion mainly because of the normal business and also because of the COL acquisition as well. But the total liability and equity, again, 5% increase coming from our debt. Debt increased about THB 16 billion. This is from our short-term loan, about THB 13 billion and also long-term loan about THB 3 billion. This is to finance our COL acquisition as well. Key ratio on the right-hand side, became a little bit better. Again, using our 12-month trailing NPAT. So ROE is now 3.4%. Our ROA is about almost 1% in June. And in terms of capital structure, we are despite, again, the COVID in Phase 3 in both Thailand and Vietnam that has impacted our cash flow from operations and also the additional debt that we incur for COL acquisitions. Our net debt to equity or our gearing is still very, very strong. It's at 1.2x, up from about 0.9x. Our net debt is THB 65 billion. Our cash holding at the end of June is still THB 15 billion. And if you look at the ratio on the bottom left, you can see that although it's a little bit worse, it's still very, very strong for the industry. And the right-hand side in terms of debt structure is still about the same, 43% long term. Long term is more than 1 year debt period and short term is less than 1 year, so 57%. Again, the optimal we're looking at right now, it's about 50%, 50% short term, long term. Again, it depends on the interest cost and also the situation, how risky we are. So that will determine the cost structure, but it should be about 50-50. That's about it from my financial, I'll transfer this to Khun David. Thank you.

Good morning, everyone. Good afternoon. Can you hear me okay?