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

[Foreign Language] Good morning [Foreign Language] Analyst and Investor Meeting of Central Retail Corporation. [Foreign Language] strategy of our business development or financial results [Foreign Language] Before we begin, sorry, I forgot to say that we also have the real-time translation. So for you who would like to have the English translation -- Thai to English translation, please click to the English room at your top right at the [ Zoom ]. [Operator Instructions] For the first part, 40 to 45, we'll have the English translation and the Q&A will begin in the second half. So I'll pass on to Kun-Yol.

[Foreign Language]

[Foreign Language] Good morning, everyone. I was asked today to speak in English, because we have several overseas analysts and fund managers joining today. So I hope our Thai colleagues do not mind. I will first start with the financial highlights and then dive deeper into 2022 results, then I'll end with the '23 guideline. For 2022, it was a strong turnaround performance for our company amidst strong headwinds from geopolitical events such as Russia/Ukraine war impacting the supply chain, increasing energy prices, increasing inflation and also our funding costs. However, the economies in Thailand and Vietnam recovered very well after [ tumult ] in 2021 affected by COVID. And by Q3 '22, Thailand's tourists recovery started to take shape once this country started to open with limited restrictions. Given the economic turnaround in tandem with our execution of business strategies, as Kun-Yol mentioned, store expansion and renovation, also prudent cost controls, CRC delivered a very strong top line and bottom line for this year. We reached THB 236 billion in revenue, an increase of 21% over last year and 6% over 2019. Core NPAT, which excludes one-offs such as FX gains or divestments of assets, recorded a big growth to THB 7.4 billion, 1,700% over THB 400 million of last year, driven by, again, strong sales, margin expansion and cost controls. All segments and all countries achieved double-digit growth. If you can see on the slide, Fashion grew the fastest, with 30% followed with Food by 20%, Hardline at 15%. Vietnam expanded most rapidly at 34%, Italy at 27% and Thailand at 16%. Our rental and service income generated from the malls in Thailand and Vietnam grew 37% year-on-year. Profitability also expanded very well. EBITDA margin expanded 230 basis points, EBIT margin expanded 370 basis points and NPAT margin expanded 290 basis points. This is full year over 2019. ROA and ROE is also moving closer to our target of 5% for ROA and 15% for ROE. And lastly, we invested about THB 19 billion, mainly on proven format expansions and land acquisitions, which will help deliver future growth for 2023. Next slide. For our revenue at EBITDA and NPAT, again, this slide shows Q4 and also full year on the bottom. Q4 increased 11%, mainly from our Food in Thailand and Vietnam and the continuous rebound of the Fashion segment. Hardline, however, saw a challenging quarter, I'll dive a little deeper later on. For full year, we grew 21% higher than Q4, maybe from Q2 and Q3 saw significant growth because the base in 2021 in Thailand and Vietnam was smaller due to COVID impact. EBITDA, core EBITDA grew 11% in Q4 and to THB 8,700 million. Again, this excludes one-off. If you include the one-off, it will be THB 9.5 billion or about 18% increase. Full year saw an increase of 48% to THB 29.7 billion, and NPAT, core NPAT for Q4 grew 21% to THB 2.8 billion. Again, this has been significant growth considering that OpEx increased mainly from utility and A&P due to seasonality and also high interest rates. Full year grew THB 7.4 billion, as I mentioned before -- up to THB 7.4 billion. Now a few slides before I go into deeper on the quarterly of the 2022. This one compares year-by-year -- actually, this one compares versus 2019 first. You can see that on the top line, every quarter in 2022. For sales, we have exceeded 2019 for this year. Even for EBIT, starting in Q2 to Q4, we have exceeded 2019 as well. If you go to the next slide, you can see this slide is the Food, Hardline and Fashion. It shows 4 years from 2019 to 2022. There is some TFRS impact. So you can't really compare it in the chart between 2019 and the other 3 years. But I'll just say that both Food and Hardline for sales and EBITDA margin, we already exceeded 2019 levels. For Fashion, however, we are still below 2019 levels, both in sales and also EBITDA margin. As I mentioned, if you include the TFRS impact, the margins will be slightly lower than 2019. Again, this is coming from lower sales and also slightly increased SG&A due to more tech expenses in the online segment. This slide shows the contribution for our 3 segments between '21 and '22. The inner circle, the less shaded, is 2021, while the more colorful outer circle is 2022. All business segments grew double digits, but Fashion grew most rapidly at 30%, hence the contribution increased from 24% to 26%. Food grew 20%, but also -- but declined -- but stayed stable at 40% same year. Hardline grew 15%. So they are a decline of 36% to 34% this year. If you look at EBITDA Again, similar reason. Fashion EBITDA grew the fastest at 88% and largely the mix from 35% to 44% in the red. Food grew 48% and so mix grew from 27% to 28%. Hardline grew 11%, so the mix declined from 35% -- sorry, from 38% to 28%. Next slide shows the comparison of the gross profit margin of the full year's GP, SG&A and profitability. In our gross profit margin, through our various strategies of pricing, discount management and also inventory productivity management, our gross profit margin from COVID era increased continuously to 27.4% at the moment. It is still below the 2019 level, but this is mainly because our portfolio mix has shifted, as I mentioned just now. Previously, there was more Fashion, but the last 2 years, we have expanded Food and Hardline rapidly, [indiscernible] Hardline, while Fashion was still hit mainly from the tourists. But if you look at per segment, each of the business segment has improved our gross profit margin. Hardline actually increased about 200 basis points, Fashion grew by 50 basis points and 50 -- and Food about 10 to 20 basis points for gross profit. So we have exceeded 2019 levels on the business segment level. SG&A also has seen significant improvement from the last 2 years, down to 27.3% if you compare to total revenue. This also exceeded level in 2019. Again, this was mainly driven by better sales and also good cost controls in the 3C projects, which I will elaborate further in my presentation later. In terms of profitability, you can see that in terms of EBITDA, EBIT and NPAT margin, we have seen steady growth -- steady improvement from the COVID period. However, if you compare again to 2019 levels, this chart may not show the right comparable. So I would just mention it to you. If you include the TFRS impact, for EBITDA, we will still be about 1% less than 2019, EBIT be comparable to 2019, and NPAT will be about 0.6% below 2019. But going forward, in 2023, with enhanced sales, enhanced cost controls from 3C, I think we'll be able to see even better margins going forward. Well, the gross profit margin -- again, a few slides now will be mainly on 2022 quarter-by-quarter. As I mentioned before, we have seen significant improvement on the gross profit margin due to many initiatives we have done. One, we have reduced discounts in various categories, optimizing the margins. Two, we improved assortments, selling higher-priced products, better margin products. We improved stock sell-throughs with better inventory management. We pushed up private label penetration. And in some cases, we're able to increase overall prices of our products, especially in the Fashion category. You can see on the left-hand side, the red line signifies 2022. You can see that every quarter continues to enhance going all the way up to 27.6% in Q4. And in the full year, we have reached 25.7%, an increase of last year about 200 basis points. Again, this significantly -- significant portion of this came from Fashion. If you look at Fashion itself, it improved 400 basis points over last year, while Hardline and Food have slight improvement. If you go on to the right side, it's the gross profit margin from our rental and service business. Again, we have also seen good improvement quarter-by-quarter versus last year. The full year improvement is about 350 basis points, mainly from lowering discounts in both Thailand and Vietnam, but also significant improvement from our malls in Vietnam because 2022 saw a significant impact in the malls there. Next slide. Now to SG&A. Again, this is also a critical factor enhancing our bottom line. During COVID, we learned to live with a much leaner way of operating our business, so streamlining a lot of our costs, including our people management. And with this new culture, we're able to increase our productivity much more in the normal state of business in 2022. If you look at the column of '22, our SG&A increased 13% overall for the year, while our total revenue increased 21%. If you look at SG&A ratio, we met 27.3% better than the last 3 years. However, in Q4, there is a slight uptick in cost and also in ratio. This is mainly due to utility rising for the energy prices in Thailand mainly, and also seasonal effects in all countries that increase A&P and P, and also due to acceleration of expansion of -- store expansions in Thailand, so there are further costs. On the right-hand side shows the details of the different expenses. You can see that the 3 main ones, PE increased 16% in Q4 and also year-on-year. Marketing expense -- marketing and promotion expanded quite rapidly in Q4 primarily because of the seasonal impact and the full year mainly because in the first half of '22, there is a low base there. And utility will continue to rise again because of -- mainly from Thailand and -- actually in all 3 countries at the moment for this year in '23. So this is one of the key risk factors that we will have to try to control as much as we can going forward. The next few slides talk about the different segments. Firstly, on the Food. Food has performed very good, very well, top line and bottom line EBITDA and margin. For Thailand, we grew 7% on the left-hand side. Again, this is including a lot of store closures in the FamilyMart segment because of the turnaround strategy. Vietnam, however, grew 37% in this market. If you look at the bottom left, you will see same-store sales growth on a quarterly basis, which has been on a positive note throughout the year. On the right-hand side, you will see the margin of our business continue to be strong at above 8% -- 8% to 9% every single quarter. And at the end of the year is 8.7%, which is also higher than 2019, as I mentioned before. On the bottom gives you some information about our store expansion, mainly again from our Tops format, 17, and also in Vietnam, a Big format plus 1 and also Lanchi mini formats plus 5. Hardline performed okay with an increase about 15%. Again, it was good for the first 3 quarters, but the last quarter were very challenging, mainly due to there are supply issues on Apple products and also computer products, which impacted our businesses in Thailand and also in Vietnam. Thaiwatsadu also had a small blip because of flooding incidents in the northeast of Thailand. But you can see that Thailand grew 14%, while Vietnam grew 21% year-on-year. And then the bottom again, shows same-store sales growth. As I mentioned, the 4Q was challenging, but Q1 for this year saw a better light. On the right-hand side, you can see that our margin is about 10%, 11%; for the full year, 10.8%, and we are slightly above 2019 levels as well. Fashion business was the star of the year, strongest top line and great EBITDA growth. You can see that our Fashion business in Thailand grew 30%, Italy grew 27%, good Q-on-Q growth for same-store sales growth on the bottom left. On the right-hand side, you can see that EBITDA grew 88%, margin grew a lot, reaching a full year of 20.4%. However, this is the only segment, again, both top line and EBITDA that has not gone back to 2019. So this is the opportunity actually for 2023 as tourists comes back into Thailand. So we should see a good strong growth, again, in Fashion, both in top line and also in EBITDA margin. Property also was very strong due to recovery in Thailand and also in Vietnam. If you look at the left-hand side, Thailand grew 31% in total income , Vietnam grew 68%. Gross profit margin grew 3.2% year-on-year. Occupancy rate, great improvement -- all right. It's not there anymore. On the right-hand side, the occupancy, total occupancy slightly dipped through 88% down to 87%, mainly because of the drop in Thailand. I was going to say that Thailand dropped a little bit, about 1%, mainly from the expanding of 3 new malls with a lower occupancy in all 3, but it continued to improve as -- this year in Q1 with more tenants expanding. But in terms of Vietnam, we expanded about 16% from about mid-60 to about early 80% at the moment. So recovery of Vietnam malls are intact. And in terms of net leasable area, we grew about 12%, 16% in Thailand and 4% in Vietnam. That comes to our -- next slide comes to our financial health. At the end of the year, we still remain very strong and very stable. If you look at the left-hand side, our net debt to equity, it's still 1x. Net debt to EBITDA continued to strong growth -- to grow stronger at 2.2x, and our interest-bearing debt increased slightly from THB 78 billion to THB 81 billion of about THB 4 billion. Now if you look at the middle side, in the interest-bearing debt, 80% of that is from the loans in Thailand, while 20% of the THB 80 billion is from -- in foreign currency. Total cost, funding cost to us is about 2% for the full year. However, from the rising inflation, which causes rising in interest rate in every country. On the right-hand side, again, it shows the improvement in ROE up to 12%, but still slightly below our target of 15%, and ROA up to 2.8%, but still below our target of 5x. Now the next section. This is my last section about the guidance. In overall, the global environment, we are a little bit more cautious, mainly due to the slowdown in the global economies, the never-ending Russian/Ukraine war, the possible trade rip between the major economies, lingering inflation, which will lead to higher cost of fund. However, for Thailand, we are much more optimistic, driven by the continuous recovery, though the export may slow down a bit, but our business signs are all looking very good. Consumer confidence in Thailand is improving, private consumption is growing, tourist recovery is coming back faster than anticipated, government election in Thailand will complete by end of Q2. All of these factors will support our growth engines. However, the key risks, as I mentioned, are the energy prices and interest rate increases. Hence, our revenue, we plan to speed up investments in our large and proven formats in Thailand and Vietnam and new stores, major renovations and also land acquisitions for future years. In 2022, we used THB 19 billion. In 2023, we plan to use THB 25 billion to THB 28 billion. By country, Thailand will be about 75% of that, Vietnam, Italy will be 25%, the remaining, but mainly from Vietnam. By segment, Fashion will take about 28%, mainly from large major renovation projects; Property, 27%; Hardline, 26%, and Food 20%. We believe that these guidance for '23 are achievable. And so far, our quarter-to-date for '23 has been proven that we're in line or actually above our expectations. I would say that if tourists recovers faster than what we expected as we are seeing and energy prices come down in the second half of the year, we should see an upside of the numbers that I'm delivering today. These numbers also does not include M&A. Now quickly on a few more slides. Again, this one, as Kun-Yol mentioned, is the 3C projects that we have embarked on and is critical to get margin expansion and also margin improvement. Simply put, 3C stands for cost, CapEx and cash flow. Cost covers GP, margins and also OpEx. As I mentioned, we have reviewed our pricing strategy, our discount strategy and improved our inventory management, and this will increase our sell-throughs and expand our gross profit margin. For OpEx, we have reviewed line by line on how to maximize every item. And in some cases, we compare against best-in-class, not only in Thailand, but also global retailers. We are also setting stretch targets, having clear action plans and monitoring this process to make sure that we are intact to achieve these targets. For example, for energy, which is the key risk for this year, we have many initiatives that we rolled out last year already with the solar panels, but we'll continue to expedite this, including making sure that every [ M&E ] equipment that we have, we use the best energy saving modules in place. In terms of CapEx, we have -- we are embarking on a large CapEx expansion for the next 3 to 4 years. So it is very prudent to have a more stringent requirement in place to make sure that we optimize our cash and to improve our returns. Firstly, we will focus on investing in our future growth with our internal cash flow. We will prioritize our future -- our projects, making sure that we will expand in proven formats that has lower risks. We will continue to track the new projects and formats to ensure that we meet feasibility targets. And if some are slower, then we may have to halt. We have rolled out synergy projects with our Thaiwatsadu partner to ensure that all projects in Thailand, no matter what segment you're in, you will have to use Thaiwatsadu construction materials, which will lower CapEx per store. And in terms of the IR target, we have in place that all IR projects must meet at least 15% for large formats and over 20% for smaller formats. In terms of cash management, again, as I mentioned, it is important to enhance our cash management because we are using a lot of CapEx. We need to funnel the cash back to expansion. One of the biggest area is improving our net working capital by improving our inventory management. In terms of AR, we will make sure that we will collect our cash even faster than our contract, if possible, so not leaving any of the cash outside our system. We will improve -- we will monitor, sorry, on nonperforming store brands and formats to make sure that we will continue only improving stores. And if there are stores that are not improving, we will have to close them to make sure we put cash where we can increase our returns. Lastly, in terms of CapEx, as I mentioned just now, we will use about THB 25 billion to THB 28 billion this year. This comes to about 70% to 80% of EBITDA or about 10% of our revenue. I mentioned before that our CapEx will be on proven formats, which is about 77% if you look at the right-hand side. So proven format is the new stores in the renovation with the new format at 12%. A 17% of this CapEx is actually for future growth and 11% of this CapEx is actually for support of our IT, DC and our head office. And the last slide is our retail. As I mentioned, 15% for large stores, over 20% was smaller stores, and even nonstore such as IT or A&P projects. These will go through stringent cost benefit analysis to make sure that we do projects that will have returns only. So this will conclude my segments. I hope that I have given you some more details and background on the financials for '22 in our guidance. But if I didn't touch upon any of the details that you want, please, I'll be more than happy to answer them during our Q&A session. Thank you.