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

Good evening. Welcome fund manager and research analysts and bankers back to the CEO Forum 2024 of CRC, Central Retail Corporation's Public Company Limited. Let me introduce myself. My name is Rangsirach Pornsutee, the head of human resource -- I'm sorry head of investor relation. And this is another excellent step for CRC to be the leader of retailing and wholesaling, and driving to the future under the leading excellence and advancing sustainability concept. And as mentioned, we have been very honored from the two executive officers. The first person, the President of CRC and the second person, Khun Panet, the head of the finance. And please welcome Khun Yol Phokasub, the President of CRC on stage.

[Foreign Language] Hello. Thank you once again it's an honor for you sparing your precious time for this important event. Time has passed so fast when year has gone. And there are so many exciting new things to share with you today. I do believe [ enemy ] comes to business or any business that we do. We want to be successful. Central Retail, when it comes to [ celebrate ] our built upon our success. That is why we call it leading excellence. The second point is about how to advance sustainability, how do we do business and make it sustainable, and also finding the balance, the integration of business and people. That's the theme of today. So today, the agenda, there are three main things I want to share. I want to cover the first and the second, our journey and our future. And Mr. Panet, our group CFO will be discussing about guiding financial excellence. So I would like to begin. When it comes to Central Retail, we have a brand purpose we want to be the center of life of everyone. The most important thing that Central Retail was successful in the past to today, is our -- due to our DNA, all of us, we call it CRC, which is the same acronym as the company. C its conviction, we have a dedication and conviction of both of the business sustainability and, of course, the integration of people and planet. The second point, the R, resilience, to be well-known. It's like to build protection of any kind of friction, investment change and agility to adjust oneself. Third acronym, we believe in any business, we have to grow together, we consider about inclusive growth. Together, we can grow further. There's more important collective success. Now if I'm allowed to go back in time of 5 years, as was the time that -- once a lifetime, to put it simple. It's about our livelihood or even doing business. Central Retail, same thing. If you could remember about 5 years back, the major change that disrupted us into retail was the consumers, we call it, customer disruption. The result was their cost was above the technology advancement. From that day on, people often see that all online is going to kill offline. CRC foresaw that off-line and online, if we can blend and mix, it will integrate and build upon a more robust. We believe that customers will be omni customers. There's a choice for the customers of what channel they want to discover the product or purchase products. That is why we have adjusted ourselves tremendously that we launched the Central Retail. And that is why we have made tremendous success as a new standard of the industry in Thailand and in the region that we are the first on the retailer. The second part was the impact of COVID is still remaining. Yes. So here, there was the friction of COVID, and we were able to develop ourselves continuously by applying technology and advance our omnichannel to another level. And finally, I want to inform you on what's the next steps. Well, two things, actually. The group of Central Retail businesses we call CRC, and many of you often think that we are only focusing on retailing. No, we actually sell wholesale as well, too. Many of you also know OFM, office supplies or even Thaiwatsadu, which is construction material. This is why all the business of CRC, and all the business we have retail and wholesale. The second part is about sustainability that we jump started of green transition. And I'm more than proud to make some announcement about this topic. Next, I would like to give you example of Thaiwatsadu, once again, 12 years of this journey from beginning from scratch till now, we are the leader of DIY, home DIY, and we answered the needs of B2C and B2B in all dimension, all aspects. The second part that we have more than 80 branches throughout the country, 40 provinces and even [ peaked ] for omnichannel of all [ metals ]. It has proved that we can start business from 0 to 12 years from 0 to #1. Next, if you look at the platform and our ecosystem, first thing is that Central Retail has in three countries, operations, Thailand, Vietnam and Italy. Second part is that we are a multi-category, it means that we cover Fashion, Food, Hardline, Property, Health and Wellness and we've got many banners, robust brands that you can see on the slide. Thirdly, about expanding of our coverage of the physical platform, online, digital, social media, we cover all channels, and we're able to integrate of the next generation of omnichannel. We are the platform of trust that have many brands, national brands, local brands, regional, international, global brands all support us. And we got partners that has importance to us as well, too. And when it comes to our customers, we have loyal customers, more than 30 million customers. Next, I want to talk about is about how the community of customers, which has been my discussion for next session. This is the ecosystem of the platform ecosystem of Central Retail as of today. Now let's dive deep to Thailand. We offer about 60 provinces; Vietnam, 42 provinces; and Italy in the major cities. If you look at the overview here, we cover about 110 cities, 1,775 stores. In Thailand, Vietnam, combined 72 malls, and we have a coverage of selling space about 3.6 million square meters. And we got a leasable rental space about more than 700,000 square meter, this is the empire of Central Retail. Now I want to touch upon 2023 reflections. Today, I can't tell you much numbers yet, but please stay tuned because we're about to announce to the public in the next two weeks. But what I can share for you now, I want to share by country. Thailand, let's give it Thailand. Hardline. I have informed you already that we're #1 in this group of home DIY. Second point is about -- last year, we have broken the records that we're able to open new stores of about showroom per month. And next is about omnichannel. We're able to span our empire and their fashion and also many brands that also cover of high margin. And many new brands that are under our umbrella and platform for the brands. Thirdly, it's about Property, emphasizing that we're #1 of lifestyle mall that we cover the other provinces too. We are a Property mall, the largest in the country, Thailand. We have 28 malls in 25 provinces. The opportunity is tremendous. And our Property business, besides being #1, we are being to upsize because we have been focusing on optimization of space because of the business units of CRC, we used a significant amount of space. So today, we have changed the format to return the space back to leasing. So that day can expand further. And finally is the Food. Food one, Food two. Food one is Food retail, we're able to unify brands of Tops, under the same brand house brands, Tops Food Hall, Top markets, et cetera, and also Tops Daily too. This is what we say is successful. And I can say that Food retail from last year has been one of the most profitable years. That is one of the key highlights of retail. I mean we're already span mainly branches of stand-alone besides our malls. Second thing is that we are turning focus on B2B businesses and focusing on HoReCa with our new partner called GO Wholesale. Next, now let's talk about -- let's go in Vietnam. We position ourselves clearly. We want to be a family mall and a family market. We have to clear format about three formats. The first format is hypermarket that we built it in a sizable new version of hypermarket that fits with the Vietnamese lifestyle. That's the first point. Point number two is that we expand our supermarket under the Tops brand. Thirdly, we're focused on the other provinces that are smaller size to expand to make it more convenient. We called mini go!, that many of you have seen if you visited Vietnam, [indiscernible] scene around. This is one strategy of expanding Food in Vietnam. When it comes to point number two, we are the king of family mall. And we have many branches that are sizable and optimize on our space. And we are about to open new branches in three new locations that we're ready in next year. Let's go to Italy because last year it was considered one of the best years, too, because we able to celebrate EUR 1 billion, and this has been a proof that luxury never dies. Now I want to inform you that today to you, we can't disclose numbers to you today, but I can tell you that there are three pillars. One has a remarkable year for Central Retail, first thing was to accept that our business performance has been grown successfully and when it comes to business performance, top line, bottom line has outgrown 2019. Second part is about we have clearly diversified our portfolio and investments in more prudent in Cash and CapEx and costs. [indiscernible] controlled well, and we were recognized as one of the highest grade rating when it comes to the retail industry, we got rated by AA-. Same part is about financially strong and stable. We have a very strong balance sheet, and we have potential to grow tremendously, and the debt-to-equity ratio is 1:1, which means the opportunity is there to expand our business Besides being having a strong balance sheet, we have our profitable margin has improved and investment return has been uplifted as well too, and Mr. Panet will expand on what I just said. Thirdly, one of the most important things is about we become a good citizen, focusing on the environment, social and governance. We have recognized by many institutions of many regulators that graded AAA for ESG rating. And now in retailing, we are so proud that we're at top 4 in the DJSI World when it comes to retail industry. This is a testament of what the things that we do is recognized by the regulators worldwide. Next, let's talk about the future aspirations from now on. Well, I think that whatever the world has changed tremendously. The world economy this year is going to grow about 3%. But in the past, China has been driving global economy. This is the reason why China has slowed down in growth. So every country in this world has their own domestic problems like the United States, Thailand or in China because of the Property market is mess. So China profitable growth is going to slow down. But if you dive in deep, China, the GDP is like 16% or 17%, if I remember correctly, but preproduction, they are going to about 25% to 30% of overall production because China is the king of production from small size to high tech, all to date, look at electric vehicles in China has shaken the world into the core. Chinese EVs are #1 in the U.S. when it comes to manufacturing, power of the China is #1. As follows, absolutely is the demand and supply of China is not in harmony. Supply is abundant. So they're flooding their products, exporting overseas, this is why we call it deflated economy, that cheap products has been dispersed throughout the world. Now over for Thailand. Many of you probably know we're going to grow by economy by 3.2%, which is better last year, Vietnam, I expect to be growing better than last year, too, good signs. Now I looked at the numbers and if you asked me 4 things that who keeps you up at night? And why [ you jump at night ]. There are 4 things, what I expect and forecast is not going to happen, but you didn't expect will happen. We are in a world that is highly unpredictable. Second point is about ongoing or never ending, the geopolitics and the contentions worldwide. Third, many people talk about gen AI, generative AI. This is something serious here when it comes to gen AI. Some people say that gen AI, people will lose jobs, move with a little high layovers highly over some people may misunderstand this, but there is an opportunity that human beings, if humans can integrate of the intelligence of humans and artificial intelligence and combined to one, it will be replaced others that do not adapt themselves. So the opportunity when gen AI is tremendous. And finally, it's about climate change because it's getting more serious these days. Many of you know that we have to work together to protect climate change and prevent from climate change that turn into climate crisis, right? So this is one of the 4 topics that will take us to the next chapter. Now if Central Retail was our direction, I see that is our new era of brilliance. Let me expand on that is an opportunity of once-in-a-lifetime that is either you do or you die. By using intelligence with the optimized set this time, there's an opportunity. And we have to reimagine our human capital. So this is why when it comes through our new vision, that CRC we'll be focusing on CRC omni intelligence, would mean that combined intelligence to be one under CRC. This is our new vision. Let's expand on that even further. First thing is about -- we have a very robust and strong platform. We have to upgrade our platform to next generation from strength-to-strength and then to answer the needs of our customers and our partners. Second point, is keep expanding expansive ecosystem to cover all facets, B2C and B2C (sic) [ B2B ]. Thirdly, which I do believe is also important as AI-driven enterprise, it means that anyone can combine forces of human intelligence with AI. Whoever combine these two the best will be the most advanced. These are the most important topics. And fourthly, we can't escape it is doing business, the only focus on the returns, but we have to grow together with people, and planet. This is the core of our new vision. If we want to make this vision to be successful, we're going to have a strategy, which I refer to as the 5R strategy: the first R stands for, we must keep revolving of our core strengths. The second R, is reinforcing of financial discipline and financial resilience; third R, is to reinvent beyond retail; fourth R, we imagine human capital; and fifth, we need to rally on the green effect and green impact. These are the 5R strategy. Let me zoom in each R. Follow me here, our core strength. Our core strength, we have to -- we have our core growth but the challenge is how to continue to grow our core strength. And second is to optimize our digital platform and also our online platform. Thirdly is to synergize in recreation and fourth is to expand reach, both organic and inorganic. Let's talk about financial discipline, I do believe to be focusing on the cost and CapEx more. And Mr. Panet will be covering in detail. Same point is about to expand on business. We have to adjust our CapEx. We prioritize, be smart and use less cash and sustain us as best as we can. And have we talked about even reinvent beyond retail? It means we have to reinforce our multi-category leadership and community. What does the community mean? Supersports, for instance, is the brand of your heart when it comes to sports and performance. And today, people often see that Central Retail is a king of retail. But our next step, we have to cover the community too. Let me expand that our sportsman, athletes, people that like to run, we have to associate and engage and deeper the engagement of the sports communities. It's like doing a business in HoReCa, their community -- I mean, HoReCa is what? it's the [ chef's ], right? So now we are a king of retail, but we must have a role to play in engagement with the community of all the categories that we touch. There's something new. What we mean of going beyond king of retail. Next is about B2B. We have to begin working with HoReCa going wholesale which is fast factory with 5 branches and comes to human capital. I inform you already, this is one of the most important topics do or die. But the point of thing is that how can we have all of us drive higher productivity using the TAM to do something more creative. This is why people often say that is at the fingertips. But today, we must have expertise at the fingertips. These are human resources in our entire enterprise and final R is the green impact. We have to touch upon the green transition. Let's talk about targets briefly. We aim that this kind of economy 2x to 3x of GDP about 9% to 11% growth. But if you ask us in the range of the determination, EBITDA about 2x to 3x, about 15% to 17% growth. When it comes to investment, about between THB 22 billion or THB 24 billion and there's not M&A, it's not included, but Mr. Panet, will dive into details on this number. We have the rooms and a strong robust balance sheet that enable and Hillborough ask loans to expand our business and the return ratio is satisfactory as well too. Now this is our empire at [indiscernible], we got a mini departments store, end of the year, we're going to 88 department store and two more stores, and 4 renovations. And Central Chidlom in a couple of months is about to change its form in a new brand, new luxury department store upgraded to become a world-class store. And just wait and see, this is something that we're proud to present to you. Second part is about Thaiwatsadu, we are able to 0 to success and become #1, and move from strength-to-strength. This year, we have inspired to open about 9 to 10 new stores and maintain our optimization. There's so much opportunity to generate income and profitability. Second part, preparation of new malls to be open next year. Now let's come to Vietnam. When it comes to GO Wholesale, we're about to -- after 5 stores have been opened. There is a cross period in the next 6 weeks. We're about to change all the lessons learned on each store and changed the new format. Yesterday, I went to GO Wholesale into Srinakarin, but this time, you have always seen the first day that I saw today, we have learned from the lessons of all these 5 stores in Bangkok and other provinces, and expand to Chiang Mai. And this year, we have plans to about 7 or 8 new stores. And in Vietnam, they have -- we're opening new malls, about 3 more branches and renovation is two more. And mini go! have new plans about 9 more stores. That's why our Vietnam business of 42 malls and 18 mini go! in Vietnam. Now I want to touch upon with a new update when it comes to green. The green transition, we're focused in two quarters, first quarter is about energy. The challenge is to use less energy. That's point number one. Point number two, is after using energy, to convert to more green energy. We've got good news that today, we have used less energy by 15%. New malls and green [ relations ], we use new technologies, building supermarkets, same thing too. The aim is to use less energy today. We use energy less about 15% -- upon the 85%, well 15% is new, 85% there are still much tremendous room to grow. The second point is about waste. Let me give you an example, food waste. Now the overview that we reduced waste about 6%, about 94% that we need to opportunities to do better. Waste has broken in two parts, good waste and bad waste. Good waste means that our food that we consume, and then we can actually disperse and donate to communities. And when it comes to bad waste, we are able to recycle to make an added value, the Samui project, for instance. And the most important thing, we also consider about the -- to take part in role and participate in development in livelihood of communities. This is a continuing project. And within this year, I do believe that we are determined to accelerate of green transition of operations and transition, and amplifying of green with many partners. And finally, whatever you do, the most important thing is about to care, CRC Care, as you can see in this slide, we have a clear-cut philosophy. We want to care about the environment, social, governance of all dimensional facets. This is the final slide that I want to talk about. And last but not least, I want to pass the floor to Mr. Panet, our group CFO, Chief Financial Officer; and after him, is our Q&A session. Thank you so much.

Thank you much, Khun Yol and now I pass off the two chapters of our journey and future direction. Next on the agenda, I would like to invite Mr. Panet Mahankanurak, CFO on stage to share about our financial targets for this year. Many of us have been -- took photos of the high level. Now you're going to dive deep into details from him. Mr. Panet, the full stage is yours.

Good evening analysts, fund managers and bankers, everybody, and I'm so grateful for giving me this opportunity to join the CEO Forum. Well actually, I'm a little immature here I'm a little excited. Okay. Let's go on to the slide presentation on the financial part. Well, actually, I'm sure you used to see this content before, let me go through the 3Cs actions that we had been through in year 2023. So we're going to be going over into results that happened in previous year. If you take a look at the cost perspective, last year, what do we do with the cost? We actually optimize the commercial margin, both retail and property in terms of human and marketing expense, we try to boost the productivity, try to make some improvement when comparing with the 2022 and on the energy-saving perspective, we installed the solar roof both domestically and in Vietnam. And let's move on to the CapEx. Last year, we're trying to provide funding in terms of CapEx and we focused our store expansion only on successful formats when comparing with the past years. And I would like to focus more on this. We have an exercise on CapEx results and we are serious about this, and I'll give you some more details in the next slide presentations. And also, I'm going to mention the CapEx model. And on the cash flow, last year, we successfully managed the inventory to achieve the maximum efficiency. It's still the ongoing exercise, but we're going to do it better this year. And for the investment payments and some other expenditures. Let me give you an example. For instance, the rent-based transactions from landlord, we try to shift away from lump-sum upfront wherever possible. And whenever we consider it's worth managing the payments in the future. So we prefer to commit the ongoing payments rather than lump-sum upfront. And one of the most important thing I think is important in year 2023, we scaled down the trial formats, which are not worth investment. And the cost of scaling down those ineffective formats, we already did that in year 2023 to ensure that the organization is more lean and efficient. So let's move on to the next slide presentation. Let's have a look at the results according to the results we have achieved last year. Number one, well, some of you might have seen this on the financial performance, before we try to increased profit margin when comparing with 2022. And in comparison to the guidance given last year, we have not had the exact figures right now. And the second result people and marketing spending. If you take a look at the people's perspective, in terms of sales to generate productivity, we have 4% improvement and also marketing spending, same figures. It means THB 1 spent in 2023 it can drive gross profit, around about 4% higher than 2022 and look at the result number three, how we monitor the CapEx per -- the range we can successfully decrease this ratio. That means we rely on external financing less and depend on the internal financing cash flow, and this is the new CapEx model that Mr. Yol just mentioned. As a result, of the reengineering with the new CapEx model, it contributes to several of our business units. We can establish the new stores with less CapEx ratio per square meter. For instance, we have successfully decreased the CapEx per square meter by 3%, as you can see. And on food CapEx per square meter, Tops or in other food business unit, we can create sales for customers, but the CapEx per square meters we can reduce that cost by 20%. Let me give you an example. The department store well, actually, it's quite difficult to compare in terms of department store business unit. However, if we try to compare the stores at the same tier level, department stores, we successfully reduced the CapEx per square meter by 8% to 10%. It has not been reflected in last year's financial performance, but we just launched this comparison from this year on and it will effect on the sales on year 2024 onwards. And result number five is the cash flow for sales has improved from 11% in 2022 to 13% last year. And the last result, I'd like to mention its working capital. Well, let me tell you, the CRC has never had the negative working capital. So we cannot let the working capital to finance the growth. We can monitor the working capital that's tied up in the company, grow any at the faster speed -- we take a look at the change in working capital per revenue. 2022, the percentage remains at 2%. And but we successfully reduced the ratio to 0.3%. Okay. Next slide presentation. This is one of the R that Mr. Yol just mentioned, reinforced financial resilience. What do we do this year 2024? This is one of the key actions. This year, we will focus on the 3C financial schemes. Number one, we're trying to drive the gross profit by [ A&T ] gross profit was actually driven by merchandising mix. That is one of the key factors. But controlling marketing expense is also important. And the second part, in year 2023, we initiated the AI operations with the pricing optimization and how to control temperature in store. This year, we will continue to utilize AI operations. Try to integrate human operations and AI-driven schemes. This is quite new to us, but we will utilize more with those integrated ingredients. Last thing, people, productivity. But this year, we try to continue that action -- a couple of months ago, we started to study and identify rooms to make our organization more lean. Number four, Besides the human expenses and marketing, we need to streamline other operating expenses, for instance. The IT costs in the past year, we spent a lot on the IT investment because we reestablished the online platform, almost all the costs have been put and invested in 2023. And from this year on, the IT costs will be stabilized and more lean. And number five, that we will continue to take action on this. We are serious on exercise performance. We want to identify which one is the higher-yield investment. Let me give the information from the analysis, we found out that return on investment or ROI on the renovated project is higher than the new store investment during the global uncertainty. I'm not saying that it's always true. But imagine during the growth of the economy, the new stores are doing well. This year, the economy is still not very clear. Just like Mr. Yol mentioned. I'm giving you the information a little bit. The ratio between the new stores and renovation is around about 60% but this year, it's going to be like 50%, It will be better for CRC. And the last issue under 3C concept, the working capital model that we will need to continue to take actions. We need to free up more cash. Let me give you an example. The sourcing channel, we are looking to be more aligned with the suppliers who will -- who have no minimum order requirement or less serious about that. So that could have improved the working capital model or the other issue is how to balance account payable and gross profit margin, it's a kind of negotiation. We try to give a betterment on that issue. We're trying to free up the cash flow to do the sale financing. And on the funding perspective, once again, this year, we still continue to use the internal cash flow, bringing that to finance and rely on external financing less in second and the third, it's a debt profile and research analysts, and I might have asked this questions before. We need to optimize the floating fixed and the short term during the time that the interest is low. And during the time of the upscale interest, we prefer to perform the floating fixed to become a better performer in the future. So we would like to do more about a floating-fixed transactions and whether or not it's going to be short or long-term loan, short-term loan usually has the cheaper loan. We need to maximize the return to shareholders. And this year, we try to focus more on short-term loan. The profile will not stay this forever. The CRC's finance team will look for an opportunity to rebalance short-term and long-term loan. So I would like to use a shorter term for short term, but not like forever. That's what we're going to do on the financial plan. And once again, let me recap the financial guidance 2024. The total revenue, we present the growth between 9% to 11%, and that comes from sales and rental, and service income will be between 3% to 4% it's for the future, but not this year because this year, we have not implemented store expansion. Just like Mr. Yol just mentioned, store optimization. GO, we expand more stores in Vietnam. But I strongly believe that this year investment will give us a better opportunity in the future and expense SG&A from what we did in the past, and we will continue to do this year. We try to manage SG&A to achieve the target of 27.5% comparing with last year, 28% and all the efforts that we put to control costs. Capital allocation, we are expecting to drive the EBITDA with a growth of 15% to 17%, expecting the revenue between THB 22 billion to THB 24 billion and the renovation, it provides us lower-risk expansion, and we are going to continue to expand the effective stores, and we will continue to scale up the new engine [ growth ] such as Central Foods. Okay. That will be all that I would like to reflect the financial guidance. Okay. Let us talk about this during Q&A. Thank you very much.