i-Tail Corporation Public Company Limited (ITC) Earnings Call Transcript & Summary

Good morning, and welcome to the Analyst Meeting for -- to announce the performance for the fourth quarter of 2023 for i-Tail or ITC. Today, we are welcoming our CEO, Pichitchai Wongpiya. Chaiwat Charoenrujitanon our CFO, Nakorn Niruttinanon, our COO, also Pornchai Tatiyachaitaweesuk, our CCO. And I am Neroli Goldman, the Head of IR. Before we begin, does anyone played the game outside and got a Starbucks card. And is there anyone who didn't get the Starbucks card? So if you didn't get the card you can -- after the meeting, you can go and play a second round to get your Starbucks card. And if there's anyone who hasn't played yet, please do try your luck at our game outside the meeting hall. We hope that you had a chance to visit our [indiscernible]. We have a Marvo boost, which is our own brand, it's a Dove rebrand, and we have new products launched, first is Marvo smoothie. This is made from real meat and has vegetables and fruit as well and functional ingredients, this will help to increase and improve the immunity and digestive systems for dogs. We also have plans to place it on the shelves in the beginning of March. So we'd like to invite you to purchase those products from pet shops. We also have [ Gine Fresh ], which is an internal start-up for i-Tail as a nutritious meal mix, and you can see more details on the website and the application. And this has been launched -- just launched at the beginning of January, and you can buy it in the line shop and also from the website. And lastly, I would like to tell you about i-Tail Pet Cinema, this is a partnership with Major Cineplex and i-Tail and the cinema is for pet lovers, is the first in Thailand, and we have three branches, one at Mega Cineplex, one at EastVille Cineplex and one at Robinson Ratchapruek. So please do take the chance to go. And without further ado, I'd like to enlight our executives to present the information and for 45 minutes, and we will also have a Q&A session afterwards. May I ask Khun Pichitchai to take over?

Hello, everyone. Welcome to the first quarter, and we're going to report on the performance for the fourth quarter of 2023 as well as our full year performance for 2023 and this year, we take a look for our outlook for this year as well. First of all, let's take a look at the fourth quarter of last year, 2023, revenue was the best, THB 4.7 billion. It went up 19% quarter-on-quarter and our gross profit is at 22%. The gross profit margin is 22% and quarter-on-quarter, it increased by 36%. And our net profit was the best for the last year as well. The net profit margin was at 16.1% and compared quarter-on-quarter increased by 19%. Our sales volume also went up. So the overall look for quarter 4 is a quarter that picked up and is the best quarter for the last year. And based on the situation we believe that everything is back on track. We had the issue of destocking before, and that impacted us significantly last year, but things are back on track now. And if we look at the entire year, we closed the year with THB 15.57 billion in revenue. This was a special year for us. It went down by 27%. So this is in line with the guidance that we gave out last year. The gross profit was at THB 3 billion compared to 2022, it went down by 43%. But I believe that the gross margin is a number that is acceptable. It's a 20% compared to 2022 where the gross volume margin was at 25%. Our net profit was at THB 2 billion compared to the year before, it went down 48% and our net margin is 15%. And our sales volume went down, as we all know, the volume last year was smaller, especially during the first half of the year. Thanks for our dividend, many of you know that we filed yesterday with the Stock Exchange of Thailand. In the second half of this year, the dividend will be at THB 0.35 per share. I said -- the other day, I said I made a mistake, I said THB 35 per share. That's wrong. It's actually THB 0.35 per share. For the entire year, the dividend for the entire year is at 79% of net profit. And this is a commitment from our executives and from the company to maximize the shareholder value. The record date is March 1, 2024, and our payment date, this is 24th April 2024. [ XT ] rate is the 29th of February 2024 at the end of this month. last year, I'd like to summarize what happened in terms of our commercial side, we set up two new companies, one in Europe, in the Netherlands and the other in Shanghai of China, this is i-Tail Pet Food Shanghai. And this is to access the markets to have closer access to the markets there. What happened last year, we had our pre-IPO, we had a global brand. We had three global brands with us, right? But today, we have 4 global brands. And this -- these are the top 5 biggest in the world. The new one is the top 5 biggest in the world, is now our fourth global customer. We have a business dealing with retailers, a large retailer in the U.S., a leading retailer in the U.S. and the numbers that we had for last year, even though it wasn't a good year for us, but our business with that leading retailer doubled. And that is one of the successes for us for last year. and it follows our strategy that we said we would grow in terms of private label. And our partner with a global brand customer giving us an opportunity to grab a fifth global brand, and this is a work in progress. And in terms of our sales, we have new product launches. We had more than 1,300 new product launches. Let's take a look at our commercial side, our operational slide down. Last year, we kicked off a global brand partnered project. Our customers, we are not allowed to say their name out. So we say global brand. But if you take a look at the top global brands, those are the ones that we're talking about. We kicked off a supplement project with a global brand. This is a shared vision that we have to enter the supplement market and is a nutraceutical, which Mr. Pichitchai will discuss in more detail later. In terms of a factory, we built -- we completed the factory last year and increased our capacity by 18.7%. Right now, we are fixing a few things internally and we expect to be able to operate in the second quarter of this year. Last year, we also registered various patents to protect our innovations, and we have 19 patents that are pending. And last year, in June, we launched our i-Cattery, which many of you probably have a chance to visit. It's located in Mahidol University in Salaya. And this is a resource center for cats and cat food, which goes in line with our concept to be pet centric. We have an ASRS warehouse as well, which we're going to build in the first quarter of this year in Songkhla. And we have approval for this project already. This is a project that uses CapEx, mostly -- most of the CapEx that we have allotted for this year. And we also have a solar roof to provide electricity consumption replacement of 10%, and our aim is to be -- is to achieve 30% in a few years in the future. And Mr. Nakorn will talk more about this as well.

So on this page, you can see that our sales of THB 15.57 billion. If we take a look at the breakdown, it's just like the site as Americas 50% and in the Americas in 2022 when there was destocking it's gone up by 10.7%. And for Europe, it's a 13% has gone down by 18.5%. And these two markets are -- the issue was destocking. And the numbers have caught up in the second half of the year. And the market didn't have the issue of destocking was Asia and Oceania. So it was -- Asia and Oceania was not a big share. It went up from 28% to 37%. So it's gone up by 32%. And on the next page, you'll see -- these are our main products. We have mostly -- the most -- the biggest portion is our cat food, and we're increasing the size of the Dog food segment as well and our pet treats as well. In these three main businesses of ours, they continue to grow. We are taking a look at the numbers from Euromonitor for last year. If we take a look at the CAGR for 2026 -- up to 2026, whether it's wet cat, wet dog or treats for both cats and dogs, the growth will be not less than 5%. And what is most significant is the pet treats. We have a 7% and 5% and there is a chance for growth, a big chance for growth in this area. And currently, we have bought more data to do deeper research in the SKU lines where we are experts. We plan to expand in other areas as well. And we plan to focus on our outstanding features and abilities. And so these are our targets. We will continue to grow in all of these segments. On the next page, you'll see our product mix, according to the chart that you can see, if it's year-on-year, it's gone down because last year, don't forget that last year, at the first half of the year, the premium products, especially the pouch line. A lot of the share disappeared. For example, our global brand line, they bought pouches for us, premium pouches they bought 12 to 13 containers per year. But for the first half of the year, it was only 12 containers for only half of the year. So -- but right now, things have returned to normal. In 2023, things were only able to catch up in the first half of the year and the premium products dropped, as you can see. In 2024, we are bold enough to say that we have forecasted their premium items. We see the forecast for the global brand premium demand. The numbers have come back up for the first quarter of 2020 and for the first quarter every year. This is the softest quarter. So you can see that in the first quarter of this year, it's soft, demand is soft, but we see the forecast of the global brands. We saw their forecast all the way to the end of the year, but their PO, the trend is normalizing. And in terms of the new product pipeline, we have 15 projects -- 15 projects does not 15 products. So we will see a greater trend in premium products as well. And our contribution in each segment, our global brands has gone down by about 4% points because of destocking and our own brand, our importer brand, these have gone up by 2% points. Our private label has gone -- we're focusing more private label. This year, we have a goal. It was a goal before we had our IPO in the past year. As Mr. Pichitchai said one of the private label brands that is a retailer, the billing sales that we have with them have doubled in size. And so we see that we can continue on with the private label effort, especially in Europe and America where we still have much more area to cover. There are many more big players that we can chase after, we can go after. We have our American team that will have to work harder so that they can bring in new retailers. And over in Europe, we have recruited more people. So we have our team that are stationed in brands in Italy and we will continue to build our team there because there is a big market share for the taking. So this will cover our global brands, which are already strong and the private label, this will guarantee that if we have any problems in terms of the economy, if we face any economic problems, the global economy drops, then when people will shop, they will go to retailers, so we have to secure this segment.

And on the next page, in terms of our performance for the last year, we uploaded, and we have told the stock exchange of Thailand already of our financial results and the information is available through the public channels. But today, I would like to point out some important factors to help our analysts and anyone joining us today to understand. First of all, as you know, i-Tail our performance for last year has begun to normalize since the third quarter, and things have picked up in the fourth quarter. And as for the slide that you can see, if we compare quarter-on-quarter, ours is green in each item, whether it's sales, gross profit margin, operating profit margin and net profit as well. For the gross profit, we've grown up by 18.7% quarter-on-quarter and our gross profit is at 36.2% and our operating profit is at 44.8%. This has gone up from the third quarter. And lastly, our net profit has gone up by 19% from the third quarter. Nevertheless, you know that in 2023, that was a special year for us. 2022 is a special year. For 2023, year-on-year comparison, we are still lower than compared to 2022. But what is important to note is that we are seeing our sales normalize. And this is evident in the fourth quarter where our net benefit was more than the fourth quarter of 2022. And as about the numbers for the fourth quarter of 2023. It's 13.4%. That's our net profit for 2023 in the fourth quarter. And so our sales cost from the last year, whether it's the price of fish, the price of chicken, the trend for the prices is going down, and this will support bigger sales, higher sales for us. On this slide, you can see, but one which I mentioned a second ago, normally in the first quarter for each year, that will be a soft quarter for that year. Soft for that year, what does that mean? It means that if we compare the first quarter of this year to the fourth quarter of last year, first quarter of this year is smaller than the fourth quarter of last year. But the first quarter of this year compared year-on-year with the first quarter of last year, we expect the first quarter of this year to be better than the first quarter of last year. For 2024, we have forecast a better results than the first quarter of 2023. Nevertheless, in the first quarter for our forecast, this is the softest and you can see the trend in each year, this is the trend. And as you can see, as I mentioned, the fourth quarter for 2023, we adjusted the sales, gross profit margin, net profit margin. And on this page, you can see this is a summary of what we talked about earlier in previous sessions in terms of our raw material prices then our investment cost. For tuna prices, the market prices are starting to drop. And in the first quarter, the prices have gone down again. And the fourth quarter -- and the numbers you can see on the page are up to the fourth quarter of last year. But for the first quarter of this year, the prices continue to go down. The average for this year well the tuna price average for this year will be less than the average for last year. And for the first quarter, we can see that the prices are going down compared to the fourth quarter of last year. And the second quarter and third quarter, tuna prices normally increase, and they will go down again in the fourth quarter. So the trend -- this is the normal trend for tuna prices. But for i-Tail, when we determine our prices, we use the cost plus method. So for the fixed prices for the last -- for the end of last year -- for this year, we still have the fixed price that we have already set with our customers. The raw material of chicken -- raw material price for chicken, the price is also on a downward trend. The average cost for chicken this year will be cheaper than the price of chicken last year as well. And everything I've told you all of these factors they all depend on the normal economic situation, which is what we expect for this year. But if there are any uncontrollable factors that affect the global economy that are quite intense and will lead to a swing in the prices then we'll have to revisit this issue. But we expect -- we don't expect any major impacts on the economy -- weather market at this time. And this is -- to look at our financial ratios, which reflect that in the first half of the year where many people have said, why have many of our financial ratios. Why our -- why have they dropped from the year 2022. I'd like to explain that for 2022, that was a very special year and especially in terms of our sales and also in terms of our cost -- or operating costs. In the third quarter, in terms of turnover for receivables, you can see that it's at a level that we have been able to maintain at about 83 days. Many of you may ask why in 2022, the fourth quarter was 48 days. I'd like to explain that for 2023, and 78% in the first quarter, it's -- normally it's 80 days first for 2022, we did factoring. Why do we do factoring? We compare things. We compare the cost and the factoring costs were cheaper than the interest that we were able to gain. So the benefit will be better. The benefit was higher. So in 2022, we did factoring. In 2023, we took a look at it again factoring the gains from factoring less, so we didn't continue with factoring. So many of you may ask why the turnover days have increased for receivables, and this is the explanation. Next, let's take a look at the payable turnover days. This is also normal for us. What's important is that our inventory turnover days in the fourth quarter, you can see that they have returned to 118 days. Our average inventory turnover days is 100 days. If we have improved volume, improved sales that we use small materials that were -- we have better use of our raw materials that were brought in and the inventory turnover days improve or have been improving and normalizing. And this also has an effect on our cash cycle days that have gone down to 166 days for the fourth quarter of 2023. As for the other ratios, return on asset have improved to 9% in the fourth quarter. Return on equity is 10% and the D/E ratio is still -- we have still been able to maintain it. We don't have any debt with -- interest-bearing debt. So that's why the interest-bearing debt to equity ratio is 0. And our performance continues to improve, and that is why our profit has improved and our ability to -- our interest coverage ratio because we have little interest to begin with, and we have improved profit. Our interest coverage ratio has improved to 269 for the fourth quarter of 2023. And this is the overall picture in terms of the fourth quarter. But one thing that I would like to share with you is this slide. I'd like you to take a look at the difference, the impact compared -- the comparison between 2022 and 2023. If you have any questions, let's discuss it later. This slide -- this is the breakdown for you to see, and I will provide explanation on this later.

Let's have a look at the outlook for this year, what is it going to be like and what are our forecasts for the industry. On the next slide, you can see that the graph on the left-hand side, this is the 10-year outlook for the industry. In the past 4 years, we can see that the industry for pet food has grown by 7% each year. And this is after destocking. And the forecast for 6 years in the future, we see a slowing growth rate, but not much different. It's at about 6.2%. And if we take a look at that 6.2%. Why are we seeing growth even though there are a lot of headwinds for us, whether it's inflation and such -- it's because of the humanization or premiumization for pet food, which is encouraging people to spend in this area. The spending numbers pet in America, the numbers continue to grow each year. So we can see that even though there are trade downs for consumers, or pet lovers are buying things that are cheaper, but humanization or premium products still have a big opportunity for growth. In addition to this -- also in addition to the premium products, pet owners of cats and dogs, they want to give their pets better nutrition. So that's why we're focusing more on the supplement market. The forecast for the supplement market is also expected to grow by 6.3% each year average growth rate per year. And this will also impact our growth as this is the forecast for the industry. And if we take a look back on the next page. What about the global brands? What are their results? Again, we did not see with the names of our clients. But if you could Google them, you will know who these top companies are. And we have the second to the fifth or the first largest in Asia in the past 9 months, we don't have their full year results. But in the 9 months for last year, their business has continued to grow. So that means that their sales are still growing, still increasing and that's the blue bar. If we take a look at the yellow bar, you can see that has increased -- an increase in the price and change in the mix -- increase in the mix that they're selling -- their sales mix. It's growing faster than their volume. And this is an adjustment on the brand owners. They have to figure out what they're going to do to maintain their sales, they're going to adjust the prices. And this is why pet food is one of the many commodities or consumer products that have an inflation rate that is quite high, one of the top -- one of the highest inflation rates of 15%. This is the overall look at the major players in the world. And for ITL, on the next slide, you can see a summary for 2023. As I mentioned earlier, we are focusing on private label expansion. And we're also looking at our i-Cattery R&D center. And we have adopted and announced the SeaChange program which has a vision for all the way up to 2030. And for this year, what's going to happen, and these are new things that are very significant. That includes our new factory that will be commercialized to -- with a higher level of automation to produce our products. And we're going to launch or focus in the supplement market, we're going to -- we're going to have a trial in the supplements market this year, and we will accelerate our private label expansion, whether it's in the U.S. or Europe. And the wet dog food, I discussed with one of the analysts before we began our meeting today. We want to grow in one segment where our market share is small. Also M&A? Is this something that we are giving more importance to this year. We're becoming more serious about this year. Next year, what we have -- we will start to build this year is ASRS. This is the automated warehouse in Songkhla, and we expect to be able to start using this facility next year. This should improve our efficiency, reduce any inefficiencies and also improve and save costs. And as we mentioned earlier about the supplements, after our trial, we will move into -- more into nutraceuticals. We will expand in our private labels with innovative products.

And as for the factory operations, we have our new factory, as we mentioned earlier, our plan for this year, we expect to be able to commercialize commercial operations will steam ahead, whether it's wet pet food, pouches and sachets and plastic cups. These are products that we already have that we are relocating them to this new factory and the completion -- the construction completion has just been completed. It's improved our capacity by 18.7% and the depreciation is about THB 247 million per year, and the payback is about 8.5 years. And this is the numbers that we had for the project, but the actual number should be lower. And this project will help reduce the labor dependency and that means that the payback should improve. So we are controlling this. The CapEx at THB 2.1 billion, in the fourth quarter, the machinery automation installations, [ Rauland ]. We're fine-tuning right now in the first quarter. And we believe that in the second quarter of this year, we will be able to be commercially operational. And we have requested all the various permits. We have invited customers for the commissioning to visit the line. This is all in progress, and it's all according to our set time line. Another interesting project for us for next -- for this year, that has been approved is our new ASRS warehouse. We are going to build this Songkhla and it has been capacity of 47,000 pallets. This covers our need into the future as well. The project is at about TBH 1.3 billion. And of course, we have savings in terms of the rental cost and the labor cost. And at this moment, we still have rental. So once this warehouse is available, we will be saving on those costs. We have already started piling in terms of construction, and we expect everything to be ready by 2025. And what else -- another thing that is important is our sustainable SeaChange strategy. This ITL is implementing this in line with Thai Union. And what's important here is responsible sourcing, whether it's the fish. We follow the same requirements as Thai Union. What's different is we have chicken as well. We have -- we use a lot of chicken. And if we work with our suppliers in the country that are large suppliers and we have a project for other sourcing as well. And for labor as well, we work very closely with our suppliers. Net zero emissions, we have our solar roof that have already been installed. We also have boilers at both of our sites. We have adjusted the boilers so that we don't need to use coal. We'll be using biomass now. Right now, we're balancing zero emissions with costs. At the moment, alternative fuels are still quite pricing. So we're -- it's a balancing act for us right now. And that's the best-in-class manufacturing. This is about reducing waste and reducing waste water that is released from our factory. Our project this year, we -- what sustainable is not recycled, but reducing the use -- if we use less than recycling also lowers as well. So this is one of the keys to reducing their wastewater. Our target is to zero waste water released from our factory. So first of all, we're going to reduce our water use. And this will also reduce -- lower our treatment costs and our utility costs. Sustainable packaging is something that we continue to work on with our suppliers. We also have our own research team right here in the country and abroad. We haven't achieved our target 100% yet, but it's a work in progress, and we are well on our way. And the last is safety and how we take care of our workers. We're also taking care of the cost for workers. We are one of the first countries in Thailand that has implemented such a commitment, and we will continue on with this.

And on the next page, you can see the -- let's take a look at our products. In the past year, we had more than 1,300 SKUs that were launched. And what we have brought for you on this slide is a few that we can -- that we are able to share with you today. We have launched these products for our global brands and also for imported brands and brand owners. These are big brands in the various countries as well as private labels in America -- mostly in America and what we focus on, whether it's high energy booster, these products focus on providing more energy in terms -- from protein -- and the next focus is on most of functional ingredients. This is also very important because it has to do with functionality. And we are doing research on functional ingredients, and we will continue to improve our formulas jelly power ball as well. This is like the drinks that people have their own -- on their own these days, drinks people buy with the little power ball and then when you go and have sushi and there are the fish eggs, that's what the jelly power ball looks like. This has been launched as well. We have split cup products, the two cups that are connected together and you can choose -- you can have two different formulas in one part -- because of the split plastic cup packaging. And this is leading to our ability to gain more customers due to this packaging. We have dry mixed powder. We have examples outside the meeting room today for you to see as well. This is our own brand. And this is something that we are continuing to push. If we want to sell the dry mixed powder, customers can top up the dry mix powder or wet pet food as well. This is to improve the functionality and nutrition for your dogs and cats. And lastly, if you take a look at the drinks this year. In the past year, we had drinks in Europe already. And we have -- we want to increase our drink segment or drink sales. We are working with Jaikla. TU has invested in this and ITL is incubating this and nurturing this business. We had the Jaikla dog drinks because we want this to be something that we can showcase. They wanted to boom in Asia and Oceania and in the Americas as well. If we take a look on the right-hand side, this is the Marvo Dog Booster Smoothies that Lina mentioned earlier. We're going to launch this very soon. This is another functional product, but with functional benefits. It's immune booster and provides blood care and dogs themselves have issues with blood pressure and -- we also have a fit and diet formula and a fiber boost formula because dogs also have health issues that need to be taken care of. So we're looking at how we can also improve urinary health for cats and dogs, especially dogs. We do not expect sales, major sales from this, but we're doing this because it's something that we want to showcase. We want customers to have a reference, something they can -- something that is credible, something that can improve exports in -- if we look at the entire market for us in the year -- in the past year, in the America -- in America, last year, we sustained -- we secured a fourth global brand. We also have new retailers in Canada. And if we take a look at the fourth quarter for last year in America, we grew in the fourth quarter from the third quarter, quarter-on-quarter, we grew by 6.4%. And this is as it should be. And we have good signs. We are seeing PO improving. We have 2-month visibility in bigger clients. And as for retailers, we're going to focus more on the retailers. We're going to have large retailers that we are pursuing, whether it's the biggest one for supermarkets, the biggest one for other kinds of sales, these are things that we are pursuing right now, and we expect to see results this year and be able to share them with you later. In terms of private label, things are very positive. Let's take a look at Europe now. Over in Europe, their restocking has improved. So everything improved in the fourth quarter. The quarter-on-quarter for the first quarter, we went up by 69% quarter-on-quarter or 70% even. So our big customers in Europe are increasing their orders, more repeat orders as well, and we have to say thank you to the Red Sea issue. Others have been impacted badly by the Red Sea situation, but the Red Sea situation has been positive for us. It's led to increased demand, increased orders. The lead time has increased to 14 days. They've had to place orders more quickly because of that. And customers who have good planning, they won't have much impact. And our customers -- our customers that are very large, very big brands in Europe. So again, this has been a positive development for us. In terms of the retailers for last year, we're able to acquire the top retailer in France as our customer, and we're still talking with other retailers. We expect that in this month, we will be able to share good news with you that we will have newer customers. And these new customers that we expect to welcome for the first order we might -- will probably -- we expect to get millions in U.S. dollar, at least USD 1 million. We're keeping our fingers-crossed for two big retailers. We expect the shipment to begin from June onwards. And this business size is also millions in U.S. dollars. This is something that we are putting a lot of effort into. We are approaching the new lines. This is a guarantee that in the future, if the economy doesn't improve, that we still have the private labels that will improve our sales. And these private labels, we have chosen only the best. It's not just that they are mid-priced, they also have premium products under their belt. And again, we're not focusing just premium products. We have. We expect to increase the new products in the premium segment with these retailers. And in terms of our AOA zone. Our AOA Zone continues to grow. But if we take a look at the fourth quarter for the last year their quarter-on-quarter growth went down. But if you look at the overall year, our AUA went up. Our AOA in terms of China has gone down. The fourth quarter normally -- in the fourth quarter, in terms of AOA, it's normally the global brands that grow. If it's China or Japan, the global brands focus on promotions in the third quarter. So after they've already done their promotions in the third quarter, then the fourth quarter, you see a drop. As normal, why am I taking -- why am I speaking about the global brands in AOA. The global brands are -- have a big market share in AOA. Our global brand customers, they also have penetrated Japan and China. And in the fourth quarter, the pace is normal. It's not spectacular or anything even though the sales have dropped a bit compared to the third quarter, it's still at a high level. If we take a look in Thailand now in the last year, we have two new customers, two new big customers whether it's Mr. DIY, which we acquired in the fourth quarter. If I remember correctly, Mr. DIY has 127 branches nationwide and they want exclusive products from us, and we have Marvo that we're launching as well.

The program for cost savings for last year. Normally, we -- this is something we do continuously. We have initiatives and strategies for many areas, for our factories and also on the commercial side. But for last year, we were able to have cost savings of about 0.6%. And this began in the second half of the year. But in this year, we're continuing with this initiative. Whether it's increasing efficiency, working efficiency, using automation and monitoring our use of raw materials, our ordering, our sourcing of raw materials, all this is part of our program. What is important is that we're going to top this up. We're going to improve our performance for this year. And this is an area where we will tighten things, improve things. We are confident that our management in terms of overall costs, we have the ability to compete -- mix able to compete with our competitors better. Let's take a look at CapEx. In terms of our CapEx plan for this year, the outlook for this year, we're going to invest at about THB 1.4 billion, and most of this as Mr. Nakorn mentioned, will be an investment in our ASRS warehouse at about THB 1.3 billion. It's for 2024 and 2025. So the expenditure for 2024 will be at about THB 200 million. And the rest of our CapEx will be at about THB 700 million to THB 800 million. This is to replace -- this is for replacement and for new opportunities, specific new opportunities with our clients and also to ensure that we comply with the law and with the customers' regulations as well. And in terms of compliance regulations, this is important for us. We are not going to invest -- have any special investment that is -- what we're doing is to invest to maintain our ability and also lower our cost. There is only the investment in the ASRS automating warehouse. That is a new fresh expenditure.

So I'd like to summarize everything for 2023. What are the key takeaways? And then we'll take a look at 2024, what we expect and what we're going to do. For 2023, this was a year that was quite tough for us. It was a year where we adjusted ourselves and we learned so many things -- so many things happened, whether it's the fact that we had to be more active. And speaking with our customers to better understand their situation, what their inventory level was, for instance. And these are things that have taught us much in the past year. Nonetheless, the challenge for the last year, the challenges for the last year also told us that we -- Let's look at the inventory level in the U.S. or in Europe, we had to adjust our own operations, our own pricing strategy and we had to continue to support our cost to be able to be -- to continue to support our customers. This learning and the self adjustment in the second half of the year led to a gross margin that improved in the third quarter at about 19%, and the fourth quarter, 22%. And this is a comeback for us in the second half of the year of 2023. And the current savings, Chaiwat already mentioned about that, began last year already, and this has led to positive impacts on our profit margin. And we are focusing on businesses that have strong fundamentals so that we can return shareholder value, so we can provide a good shareholder value. This year, let's look at the guidance for this year. We expect to see sales growth of 15%. And in the slides before this, the forecast for the industry showed us an annual average growth of 6.2%, we expect to grow 2.5x the industry. I'll explain in the next slide, what we're going to do to achieve that. Our gross profit margin target is at 21% to 22%. This has increased compared to last year. Our SG&A is at 7% to 8%. We know this might be a conservative estimate. Our CapEx is at THB 1.4 billion and we explained already where that comes from. And our dividend policy continues to be at least 50% of our net profit. And in the past year, as I mentioned in the first few slides, we already paid out 79% from our net profit as dividends. So what are we going to do to achieve -- this is not a play. I'm not making a joke about Republicans, we are making ITL great again. In our customer portfolio, we're going to focus on our private label initiatives in America and in Europe. We might be repeating ourselves, but this is a strategy that we have to think about at all times. Portfolio management is important. How can we manage our portfolio, balance our portfolio so that we see growth in every segment and reduce our risk at the same time with our global brands. In the event that something happens with the global brands and have to build our private label business, we have to accelerate our growth in China and also in Europe. In terms of innovation, we also mentioned earlier about our functional claims, our clinical tests, our expansion into supplements. And lastly, our dog food expansion of our dog food portfolio. And as for cost efficiency and improving our performance, this is something we continue to pursue ASRS warehouse will help improve our efficiency significantly. And lastly, when it comes to our customers, the speed to market, we plan to improve our lead time between ourselves and our customers, and we expect to continue everything that we are already doing, whether it's our SeaChange program, this is part of our commitment as part of the Thai Union Group. And these are the things that we're going to do to achieve our sales growth target of 15%.

Thank you to the executives. We're sharing the information. And now we're going to open the floor to questions. [Operator Instructions].

I'd like to ask three questions. The first question is, let's go back to the fourth quarter of last year. In terms of sales because your sales volume grew 8% quarter-on-quarter after sales, but your sales went up 19%. I'd like to understand a little bit, is this from the price increase or from the product mix that has changed. And if we take a look at only the fourth quarter, the premium products, what percent do they account for?

They mostly come from the pricing. The pricing is the major factor because we increased the price in the last quarter and also the volume because the volume -- in the fourth quarter, we mentioned that our customers in the U.S. and in Europe, their volume has begun to go up. So there's a mixture of both. And in terms of the product mix, the product mix, the premium in the fourth quarter went up a little bit, it is quarter-on-quarter went up. But if we combine for the entire year, we look at the entire year, but it is less than what it was before. We are not happy with these numbers yet. In the first half of the year, we were not able to do anything about because of the destocking situation. But if it's quarter-on-quarter for the product mix, the numbers went up for premium products. And if we take a look at the forecast for this year, the forecast for this year, we expect that they will be better than the last year because we now that the last year, we lost half a year for the premium products, especially the pouch products. If we take a look at the past, this -- the half year -- the past half year, again, we lost that, but we expect those numbers to return to come back. We're being conservative, so we don't expect more than 50%. If we get about 48% that will be something that we're very happy about. We must not forget that there are other factors like the economic factors we expect negative. If there's inflation, for instance, nothing improves, then the price point, even though this is the premium products, we have to adjust for the price point, too.

And if we take a look at the first quarter of this year compared year-on-year, we expect sales growth at what percent? And if we look at the breakdown from the different regions, Europe, America, AOA, where will the growth come from mostly?

The growth is the same. America is the biggest contributor. So most of the growth comes from the Americas. If we take a look year-on-year, we believe that it will be better than the year before the first quarter of last year of 2023. But what we hope -- we need to take a look at the numbers first. We have seen the numbers for the entire quarter. We expect the numbers to be better but we're not sure how much better. We are FOB, however our business is an FOB business, 70% or so. So we have no control over the shipping. And if the customers themselves, they don't -- if the things don't match in terms of shipping, we can't issue an invoice. We have to entertain these possibilities and account for these possibilities as well. Year-on-year, we are seeing growth though.

And have we secured orders for the first quarter? How many percent have we secured right now, the orders that we have secured, can we given the exact numbers?

Well, more than 95% of what we need.

And the last question I have is about the warehouse, the new warehouse in Songkhla. I'm a bit curious, this link with your main production in Samut Sakhon and how will that happen? And how much will you -- what will you see in terms of cost savings?

Well, there's no link. It will serve Songkhla mostly and we have 18,000 pallets -- internal pallets and another half we're renting. And ASRS, all of our pallets will be there. We won't need to rent anymore. So this will reduce our cost in terms of renting and shipping, and also reduce the labor costs needed to oversee everything. It will reduce the delay time, the shipping time. And so overall, we expect that we will have much greater efficiency and much lower costs. And our cost savings if you look at payback, it's about 8.5 years.

And right now, your production is at Songkhla -- what percentage at Songkhla and how much percent is at Samut Sakhon?

We have Samut Sakhon at two portions and Songkhla is one. And so we're looking at Songkhla is 40%, Samut Sakhon is 60%.

I'd like to ask three questions as well. In the fourth quarter, your margin improved, but there's still the issue of the premium products. If, for instance, you -- it returns to 50% like the last year and the gross margin goes to 25%, will there be other factors that you're still lacking or still having issues with.

I was looking at a question from online. Could you repeat your question, please?

If your premium products returned to 50 and 50%, 50-50 and your upside to your gross margin returns to 25% like in 2022?

I believe that even if our costs have normalized, is there an upside? Yes, there is but we don't expect things to be like in 2022. Our gross margin has been forecasted average at an average of 21% to 22%, increasing from 2023.

And what about your margin of -- your margin?

We're looking at a tuna price of USD 1,680 and the tax rate has increased significantly in the fourth quarter.

And what about the sales in the U.S. Is that the reason? And in 2024, what will your tax rate be like? Will it increase?

The tax rate -- there are two parts to the tax rate. The first is -- let's talk about Thailand first. In Thailand, we have BOI privileges. And in Thailand, the rate -- the effective tax rate in Thailand is at about at the end of the year, it's about 2.3%. The effective tax rate. And for the companies abroad, like in the U.S. or in China and Europe and Japan, they have to pay the tax rate in their countries, which is on average at about 25% for each country who did look at their tax rates. And the question is, in terms of 2023, it's a 5% effective tax rate. This is non-BOI in Thailand. We have revenue from non-BOI, this is from interest gains, and this has led to our effective tax rate in Thailand to increase from 1% has gone up to 2% in Thailand. And abroad, it's also gone up because the U.S. in the end they have better revenue and that has caused their taxes to increase as well. In 2024, we have forecasted that if the economic situation is as we expect it to be, and no major impacts, then the tax rate. We'll take a look at the calculation, the dividers, the revenue, the profit. If our profit is as we expect it to be, then the tax rate will be lower -- will be lower than 2023 from 5%, it would be go down to 4%.

Thank you. So I'd like to take three questions from the Zoom. The question is about Asia. The market there, the sales growth for Asia. If we -- 2022 was our high base. And if we compare 2021, we can see that the volume has been very high. The question is, I'd like to ask you about the overall market in Asia. What is your -- are you lowering the prices to increase demand? Or do you see demand in Asia already at a good level?

If we look at the Asian market, Japan is the biggest -- Japan. They focus on Red made, which is mid-price and Japan's economic situation, whether it's the currency deflation. They have new products, but they have not recovered much to this point where they can start to see more sales in the premium segment. So because of the market there, the prices are between mid price and premium. There are still premium sales, but the premium products did not grow because of the economic situation in Japan. And as for the sales price, their prices have not increased significantly. We have increased our prices with our customers. They increased prices in Japan, the shop prices went up 2x in Japan. And in Asia, we believe that in the long term, outside of Japan, what can we do to increase sales in China. China is different from Japan. Japan has their own problems, and it's difficult for them to move to a more premium product. But in China, we focus on the premium products. In Taiwan, in new markets like Indonesia, we are -- we're going to have a shipment into Indonesia, serious shipments. We're going to see serious business results there. And we're going to test the market there to see the potential. Overall, for Asia, the past year, the numbers went up because there was a drop in America and Europe. That's why the share in Asia went up.

And what about if we look at from the slide on Page 19, where you show the Global Brands revenue the price increase is something -- is the major factor that improved numbers for the global brands. So my question is in the U.S. right now, we're seeing pet food inflation going down and customer demand isn't as good as before. There's -- people are trading down to buy tuber products. What's going to happen next? Can you still increase the price? Can your clients continue to increase their shelf prices? And if they can't, will that pressure you and make you unable to increase your prices for your clients as well.

The learning that we gained last year was things were like this last year. What we did was we adjusted our formula. If our margin -- and our margin comes from our product is based on our product. If the margin is at 20%, then we can maintain the 20%, but the price point we felt we based that on the formula. We readjust the formula so that the shelf -- so that we can achieve a shelf price that is acceptable to the client and so that we can push revenue as well. If we can get the price volume increase as well, right? But how do we increase our volume? That is if it's a bottom line, an absolute number. If we're looking at profit, we want to maintain our target, and we want to continue to grow in terms of our margin, especially when it comes to absolute numbers, our margin for next year or for this year, we're going to look at both parts, the percentage, and we are also taking a look at our flexibility. If we are flexible and our absolute number can increase, that's our absolute goal. If we don't show the percent today, we have to show percent to you, right? That's necessary.

And my last question is your strategy for this year when they focus on the private label, right? And I understand that the products for the private labels, their price point is lower. If we increase the weight here, will this impact your margin for this year?

First of all, the private labels, we have already chosen private labels that are not only in the mid-price range. Our profit margin policy is based on the product. So the customers that we choose to work with if they're not just mid-priced, they're also premium product sellers as well. Then it's not going to be 100% premium or 100% mid-price, there is a combination. And then we increased our private label, our profit is based on the product and the private labels that we continue to increase in our portfolio if they are working, if they have business in a good economic situation, then absolute numbers for us in terms of our bottom line will improve. We're not going to focus on the profit margins for the ratio or the proportion. We're looking at the overall picture if we take a look at the economy, and we say there's not going to be good and we push the premium products segment, we want to exceed 50%. I mean, that would be right. We need to have a balance.

I have many questions as well. I'd like to ask about the cost for your new warehouse -- factory. If we combine this with other things like not depreciation, the overhead costs, for instance, this is for Mr. Chaiwat. Will there be other expenditures that you expect to see or other expenses?

No. There's only depreciation. We have the expenses and the cost in normal situation. We're looking at things based on a normal situation.

And if we take a look at the assumption that your top line is going to grow by 15%, with the new factory and the old factory together, if we combine then the utilization will increase from 2023, about 50%, right? And in 2024, how much will it be? Or will it be the same because of the new capacity?

In terms of capacity, it will increase because this is one of our long-term plans, something that we began in 2022. It's in line with our increased sales from that year. It doesn't make sense if our CapEx, our utilization is at 50%. And then we increased our CapEx. That's not logical. So it has to do with timing. Our CapEx began 2,000 years ago next year, with increased CapEx and the commercial sales that we updated to 18%. This is in the same utilization range. We know that this will lead to increased depreciation for operations and the utilization rate may not be increased, but we have plans to utilize what we have -- we plan to optimize what we have to reduce our production costs.

And what about the first quarter of this year, if in the fourth quarter, we see more shipments faster shipments because of the Red Sea impact. For the first quarter, the situation is that your customers -- they'll start to normalize, they will increase or make their orders faster?

In the first quarter, the pace is a normal pace, and the upside is that our customers in Europe -- the impact is most and it is biggest in Europe. In Europe, they are growing faster instead of the end of the quarter, there it's increased to 14 days, so leadtime is now 14 days.

And for the first quarter, it's still low season, right, so we don't see extra demand from the Red Sea just yet?

That's right. There's no extra demand yet. If they're just rushing the lead time.

And what about the cost for the fourth quarter, we have the benefits from that. What about the costs? And we have freight costs? How much more freight cost do you have because of the Red Sea impact? Is this sizable?

In terms of Europe, and the shipments in Europe, we are doing FOB sales. So the freight costs don't impact us.

Just -- and I'd like to add to that. Our customers are FOB customers. And in Europe, it's FOB and our customers they are prepared in terms to accept the increased costs. So that doesn't impact us directly. But if we take a look at the costs for the customers increasing, can they increase their prices? We are also questioning our customers on this as well. But what we see and what we ask is if their freight costs increase, what are the orders going to be like. But what we're seeing today is that the orders have not dropped and the prices that we have with them. We have so many different customers, we have fixed prices and we have nonfixed price customers. Everything is normal. There is no sign that our customers are going to buy less. It's actually the opposite because destocking has ended. So sales have normalized. And I'd like to emphasize that there is no impact from the Red Sea.

And one more question about the earnings catalyst. You said that your revenue will go up from quarter one to the fourth quarter. The gross margin because of the tuna prices seasonality, will there be the same trend or the tuna price, if it's lower in the first quarter, will your gross margin be also bigger. The question is, what is your gross margin? What's pattern? Will your gross margin, will it be the same as your sales pattern.

As we mentioned in many meetings that we've had before, we have our cost-plus model, and we have fixed terms of 6 to 12 months with our customers. This is more revolving. So it is possible that in the first half of the year where we did not fixed our prices like last year for the first 6 months, if the raw material prices are on a downward trend for the first and second quarter, then our gross profit margin could increase. However, what we want you to focus on is that there are some portions, some parts where we have fixed it for 1 year. We have the average for the entire year. And this -- this will affect the entire year. So we want you to look at the entire year picture.

And I'd like to add to this, this is about cost, right? There's another question from our Zoom participants, so I'd just like to combine the questions and answer them all together. Let's take a look at the raw materials that are dropping in price. Chaiwat already told you that this year, the average price is at USD 1,680 for tuna. And I looked at the records for June last year, it was USD 1,800 or so. And this drop in the raw materials, this is 7% to 8%. If we take a look at the raw materials, as 1/3 of the cost of the products and 7% to 8% that will be divided by 3 then. So 1/3 of the raw materials is half of that is tuna. So we divide it by 2. And then we have the pricing mechanism from our customers there that they adjust. And the question is, do we have to adjust prices for our customers? If we divide everything, the impact is less than 0.5% -- than half. So there's really no need for us to adjust the prices for our customers. If it's 0.5%. This is the look -- what it should be like for our customers who have this mechanism. So the impact for our -- the raw material impact -- this is how it impacts our sales prices.

So the utilization should have a bigger impact for the -- on the gross margin, even though the raw material swing, the percentage is not that big compared to the utilization will increase in each quarter? Can I summarize it like that?

That's a very good question, but very difficult to answer. In terms of the utilization rate, there is an important impact. But when it comes to factors arising from -- factors arising from the customer side, there are many factors, especially in terms of the economic situation and our portfolio as well. I believe that what I'd like to answer is that in terms of the utilization rate, there is an impact at a level -- a high level. But if it's -- everything is according to our -- if everything goes according to our forecast, then it will all work out. Utilization rate, the sales, everything will be able to build up the volume better compared to the last year, everything will go line in line with one another.

And you have the FX assumption. What is your FX assumption for this year?

[ TBH 34 ] -- but FX, we have 100% hedging. Don't forget that.

Can I ask about 2024, your plan for the premium products. I understand that in the last year, it was -- we closed down at [ TBH 34 ]but this year, you want to go to [TBH 38 ], right? And the economic situation overall doesn't seem to be improving. So where will this increase come from?

It will come from two portions, two things. There is the price adjustment and then there is the cost management. And then we also have new customers. We have new customers whether it's private labels -- and next year, we're going to focus on leading brands in each country. So that will lead to the increase.

And what about your current customers the premium and the mid price, will it be like -- will it be the same from 2023 and 2024? Will there be a shift -- downward shift?

No, there will not be a downward shift. Our current customers, their existing products in the past year we had cost-saving programs for them. And the global brands this year, they have big surprises since the third quarter.

And I'd also like to ask about the progress in China. It seems that in the beginning, you highlighted things. It was an area that would be up and coming, but later on the progress in the U.S. and Europe seem to be stronger?

Yes, that's correct. In America, the volume is already quite significant, and when they finished destocking things seem to be faster than in China. And in China, we have three groups of customers, whether it's global brands in China, international brands that want to enter China and the last is the local. And we don't have to worry about the global brands. The global brand, one of the couple brands we're working with achieve their target, they exceeded the target more than we expected. Local brands that are slower, but we have measures in dealing with the local brands, whether it's the speed to the market or small batches, we have small batches and ready for the local brands, they want small ones -- small portions of the small batches. They might even order just 100-or-so boxes just to test the market, but there are so many local brands in China. This is one of the biggest shares of China, like 70% of the market share in China is local brands. So we need to adjust ourselves. Today, we have a team -- R&D team in China doing a kitchen lab, improving our speed to the market. And I want to tell you, but I can't tell you just yet. We are adjusting things so that we can provide small batches to those local brands and so that the price point is also one that is acceptable. And we'll tell you more in the future. But don't worry, we are making adjustments. We're going to speed things up for the local brands.

And one last question I have for you is for the fourth quarter, the gross profit margin improved, and it looks like it exceeded the guidance. Could you explain the breakdown? Was it because of the price adjustment raw material effect? Or what was the upside, the surprising upside for you.

Our IR team will send you the numbers later. We do have the breakdown in numbers. We'll send that to you later.

If we take a look at the target for this year, the top line, you expect 15% growth. I'm just curious about the breakdown. Could you explain in terms of volume and the sales price because the tuna price cost is going down, so the volume should have grown more than 15%?

Like I explained earlier for another question, with this sort of current economic situation for this year, the volume is something that we will focus on more. And the margin, the percent of the margin is already fixed. So the volume is something that we have to grow, we need the percent margin and the absolute margin. This year we will do based on percent margin. We cannot only focus on the percent margi,n, we look at the absolute margin as well. So yes, the volume -- yes. Our new customers, we're focused on this year, they're going to increase the volume for them. And as for the products that we're focusing on margin, it depends on whether it's mid-price or premium, I can't answer exactly where each customer, what they're going to focus on. But in the end, there will always be the premium products in our product mix. If we get to 50% for the premium, that would be good.

So I'd like to ask about the gross margin as well. If we take a look at this year, I understand that your factory, the depreciation will become part of cost of goods sold TBH 200 million. This will impact your gross margin 1% to 2%. You have a 22% target if you don't have the new facility, then your margin will be better. Is that correct?

If we exclude the depreciation, yes, that's correct. As Mr. Nakorn told you, we have restructured, and there are some areas where we have improved the efficiency. We're moving them to the new factory. We're integrating and combining some things. We have more automation coming in. And so is not just the increased depreciation. We also have -- we'll also have lower costs, and that will lower our costs. For instance, lower labor costs. We have lower cost when it comes to raw material movement on shipping. We have increased in faster efficiency. These will all lead to lower production cost per unit. So yes, in the first 3 years of our investment, the depreciation will increase and the utilization rate may not increase as fast as to match our investment. But in the long term, I believe that if we can maintain this momentum in terms of sales, then we will see long-term benefit.

I'd like to ask -- raise the question from our Zoom participants. We're looking at the net margin in 2024, will it improve? Or are we looking at 16%? Is that a normalized level?

16% for me is the beginning of the normalized level. If we take a look at the past before 2023, where we had many impacts and 2023 was a special year. If we take a look at the normal situation, the range for net profit is about 16% to 18% and in areas of growth from 2019 to 2020, 2021, we even went up to 20%. So right now, our improvements from last year we improved by 2% and our target, we still want to achieve our targets like in 2022. This is our aspiration. This is our intention -- it all has to do -- it all depends on many factors and impacts, of course. But we believe that in a normal economic situation, we are targeting 16% to 18%. So our forecast for the gross margin is going to increase by about 2% between 21% to 22%.

And for 2024, your goal for lowering your cost is by how much?

Our profit protection plan is at 1%. And for 2024, this year, we have a program that's known as our performance improvement program, and this is a top-up to [indiscernible]. We expect that we can save 1x. We can save 1x more that we already have.

And could you also talk about your M&A what businesses are you interested in? And if you're going to do any M&A, what will the investment be? How much will it be?

M&A is also another interesting question because when analysts and investors ask about this, they're referring to M&A about TU or Thai Union, the group like with Red Lobster. This is something that happened in the past. I know you're worried about that. But what we've learned from this and what we're -- the lessons we're taking away is that we have to analyze our targets more. Second thing is that we need to build a funnel and what businesses do we think we would like to invest, and we have to look at it by category, in terms of product or geographically to find a merger or acquisition that makes sense. We don't plan to shift ROE from our core competencies or business. We are looking at a second or third engine. So perhaps not M&A at this time. And our investment, we have to consider whether our investment will lead to synergy and also help us sustain and maintain our business or not. We are very -- we are much more careful than before. We have to be very careful when it comes to M&A. What will the investment amount be? That's something that is too difficult to answer at this moment in time. Whether it's a merger or acquisition or a joint venture, the size of the investment is not something that I can answer at this time. But what I can or what we can say is that if we acquire anything, the target should not be of a size that is much bigger than we are. So that we have that flexibility. I know this may not be a detailed answer, but this is more of a guideline that I'd like to give you.

And we have very limited time, so I would like to ask for one last question. And if you have any other further questions, you're very welcome to ask us through our IR channel, through our e-mail or you're welcome to call to into our mobile phone number. I would like to say thank you to everyone for joining us today. Outside our meeting room, we have the snacks and the food and also the booths for you to visit. If you hadn't played the game, the Dart board game, please do go and try your luck. Thank you again for joining us, and we look forward to seeing you in the next quarter.