Minor International Public Company Limited (MINT) Earnings Call Transcript & Summary

[Foreign Language] Good morning, and welcome to Minor International Second Quarter 2022 Analyst Meeting. It's a pleasure of introducing our presentation, and as you will hear from Mr. Chaiyapat Paitoon, our Chief Financial Officer; and Ms. Namida Artispong, Investor Relations Director. [Operator Instructions] And now I would like to hand over to Mr. Chaiyapat and Ms. Namida for the presentation.

Thank you. Good morning, everyone. Welcome to Minor International Analyst Meeting. Let me start off by telling you what the agenda of today is, as usual, we'll start off with second quarter results in review. We will deep dive into business units of ours, Minor Hotels, Minor Food and Minor Lifestyle. And then we would follow by strong foundation position for recovery in terms of our balance sheet strength, liquidity management and wrap up by our key strategies for this year. Let's start off with the highlights of the second quarter results. We report core profit of THB 1.2 billion, a strong turnaround from losses we made in the previous quarter and also losses that we made in the same quarter of last year. So it has been a remarkable improvement as we see all geography or all operations across the board showing improving trends. Minor Hotels, in particular, recorded a significant improvement in their financial performance, turning around from losses to profit in this quarter. And this is generally due to stronger business operation across all key geographies, particularly Europe portfolio, which was a standout performer in its group, reported record high second quarter results, and that has surpassed pre-pandemic performance for the first time since the start of COVID. Hotels in Australia also continued to perform well as well with occupancies hovering above 80% with room rate also soaring by double-digit percentage growth resulting in RevPar surpassing pre-COVID level as well. In the Maldives, also saw strong growth trajectory, outperforming pre-COVID level for fourth consecutive quarter already. In terms of our restaurant business or Minor Food, we still report core profit at the bottom line level, and this has been positive for the 8 consecutive quarters already since 2020. So profitability of Thailand and Australia were quite strong, and that has compensated for a shortfall that happened in China amid the full lockdowns that happened in China during the quarter. So if you look at the long-term outlook going forward, we start to see tourism back to a recovery path with restriction has been eased. Country has started to open their border, international travels and also domestic travel start to travel more and more with the revenge travel that we saw everywhere, hotel in Europe will continue to see the recovery of not only leisure travelers, but also from business-related travelers as well, be it individual travelers that go on their business trip or even travel that related to MICE, meetings, events, Congress or trade events. And if you look beyond Europe, elsewhere. Thailand also catching up with the acceleration of the recovery following the abolishment of Thailand Pass that took place in July of this year. So we start to see more and more number of travelers coming to the country. So that will -- we believe that Thailand will follow the footpath of what we've seen in Europe and elsewhere. In Australia also, like I said before, their performance has been above pre-COVID level already, and we start going to continue to see the rebound in the rest of the year as well. So Maldives, they will continue to reap the benefit of no quarantine policy as before. And performance already surpassed pre-COVID level for the fourth consecutive quarter, as I said before. In terms of balance sheet and liquidity management, we will continue to be cautious in terms of spending and control our costs still for -- until we see a more and more firmer recovery across the board. We just want to be conservative. And then we have successfully executed the sales of 2 owned assets in Netherlands and Germany, that part of the world by NH. And if you look at the leverage ratio, the net debt to equity ratio has come down to 1.3x at the end of second quarter. This is well below our debt covenant ratio of 1.75x and already touched our internal policy level 1.3x, at our manageable level, even though we still have that covenant waiver in place until the end of the year. In terms of liquidity, we have a strong liquidity position with cash on hand of more than THB 26 billion and unutilized credit facility of more than THB 30 billion at the end of the second quarter. Our operating cash flow and free cash flow were positive in the quarter and continued to improve. And lastly, TRIS Ratings and Moody's has revised our rating outlook from negative to stable just recently as well. This follow Fitch upgrade of NH Ratings before. In terms of strategy over the long term, I would elaborate it in the -- at the very end of the presentation in terms of how we strengthen our brand equity, how we utilize digital transformation to enhance customers' experience and how we can connect more closely with our customers on both hotel side and on food side. And that will help bringing in a better and stronger performance and stronger recovery that we're going to see in upcoming quarters. Next slide, just to recap the performance. We're showing you here the waterfall chart. Core revenue in the second quarter was up doubling from the second quarter of last year to about THB 32 billion. In terms of core profit, like I said earlier, there was a turnaround from losses that we saw in the second quarter of last year of THB 3.4 billion to core profit of THB 1.2 billion in the second quarter of this year. And if you break it down, the majority of our core profit coming from hotel businesses, particularly the strong recovery at NH. Next slide, just to show you quarter-on-quarter performance. Again, we see a strong recovery, a strong improvement from the previous quarter. This is as a result of the recovery that happened across the board for Minor Hotels and also coming from the low base that we saw in the first quarter because of the low seasonality in Europe in the first quarter, net profit also turnaround from core losses of THB 3.6 billion in the first quarter of this year to about THB 1.2 billion profit in the second quarter of this year. So next section, we will deep dive into operating stats. I will ask Namida to go over these numbers for us.

Moving into our first business, Minor Hotels. In the second quarter, Minor Hotels recorded a significant improvement in the quarter. Core revenue improved both year-on-year and Q-on-Q. Core revenue more than doubled year-on-year, and this was driven by all of our business models, including Owned & Leased, Management Letting Rights, Managed Hotels and also our Mixed-Use business, and also across geographies that we have presence in as well. In terms of Q-on-Q, core revenue increased about 83%. And again, it was driven by all business models and geographies, except for the Managed Hotels in the Maldives. And this is because the hotels in the Maldives entered low seasonality in the second quarter compared to high seasonality in the first quarter. Looking at the EBITDA. EBITDA grew at a faster rate than revenue, and this was because of the stronger business operations, continuous effort and cost control and also our strategy in room rate maximized strategy. And consequently, our core profit returned to strong profitability at THB 1.2 billion compared to core losses in the first quarter of 2022 and also the same quarter of last year. And notably, the European portfolio reported a very record high second quarter results and has surpassed the pre-pandemic performance already. Dig down into each of our business model, first, starting out with Owned & Leased hotels. In terms of number of rooms, number of rooms of Owned & Leased hotels was flat year-on-year, but increased slightly by 2% compared to 2019. Looking at the RevPar. RevPar more than quadrupled year-on-year, and this was attributable to Europe and the Maldives portfolio. And if you compare to 2019 level at the bottom right graph, you would see that our RevPar already exceeded pre-pandemic level 2019 by 5%. Digging down into each region. Our Europe and Americas portfolio, which contributed the highest revenue contributor, the RevPar of hotels in Europe and the Americas increased significantly by fourfold year-on-year with a very high occupancy rate of reaching nearly 70% and the room rate was at EUR 130 per room per night. And this was driven by all of our key gateway cities and regions, including Spain, Italy, Benelux, Central Europe and also Latin America. Compared to 2019, RevPar already exceeded 2019 pre-pandemic level by 9%. And looking at the month of July, occupancy rate hold solid at 69%. And then ADR ramped up continuously to EUR 137 per room per night and this ADR rate has exceeded 2019 level by 29%. So we expect robust operating trend to continue in the second quarter and third quarter and fourth quarter of the year, especially from the good pace of business demand bookings and the return of larger congresses and events during September and October. Moving to Thailand. Thailand, RevPar increased by 4x year-on-year, and this was given by a relaxation of travel rules, which resulted in the return of international markets and then coupled with the stronger demand from domestic tourism as well. Although the RevPar still below 2019 level, but ADR has ramped up to be only 5% below pre-pandemic level in the second quarter, with June figure already surpassed the 2019 horizon. Looking at the month of July, the occupancy rate has ramped up from 31% in the first quarter to 43% in the second quarter and then at 56% in July. And this was followed by the cancellation of Thailand Pass registration on the 1st of July for international tourists. And in terms of ADR, ADR remained above 2019 level by 9%. In the second half, Thailand tourisms will be bolstered by no international travel restrictions and unleashed pent-up demand and also what we thought. For the Maldives, Maldives remain above pre-COVID-19 level for the fourth consecutive quarter, and the RevPar outperformed 2019 level by 7% in the second quarter. And looking at the month of July, although despite of the off-peak season in the third quarter, occupancy rate remained high at 61% compared to 54% in the same month of 2019, while ADR continued to be surpassed 2019 level by 20%. As a result, you would see that our RevPar overall was ahead of 2019 by 37% in July. Our next business model is Asset-Light business versus our Management Letting Rights, or MLR, majority in Australia and New Zealand. The RevPar was ahead of 2019 levels by 49%, and this was due to the strong leisure and also the business travels. And in the month of July, both occupancy rate and ADR accelerated from the second quarter, the occupancy rate was about like 84%. And this resulted in the RevPar outperformed 2019 by 39% in July. And this was because of the strong demand from sport events and also holiday period. In the remainder of the year, we expect exceptional performance with corporate demand on the books exceeding expectations and the strong domestic leisure travels as Australian already relieved out from that lockdown. For Managed Hotels, Managed Hotels continue to improve, RevPar doubled year-on-year, and this was from the improving trend of hotels in all geographies. In terms of hotel expansion pipeline, it's quite similar to the last quarter. We are going to add another 59 hotels in the next 3 to 4 years. 10 hotels will come from our Owned & Leased hotels and then the remaining will be under Asset-Light business model. Our expansion will focus on Asset-Light business model during short to medium term. Our next business is Mixed-Use business. Revenue from the Mixed-Use business increased strongly by 37%. This was from the revenue growth of Anantara Vacation Club, plaza and entertainment business, spa, and also the world-class restaurants in the U.K. despite no residential sales in the quarter. For residential development, we have currently 5 projects in Thailand, Mozambique, and Indonesia that are available for sale. And in addition of that, we have another 2 new projects to be launched this year in Thailand and also in Indonesia to ensure continuous pipeline of MINT's [indiscernible] business in the coming years. And for Anantara Vacation Club, we continue to increase our number of members, increased by 6% year-on-year in the second quarter. And also we continue to add rooms into our pool and [indiscernible] in second quarter, we had about like 276 number of units under our AVC, in New Zealand, in Thailand, in Indonesia and also in China. Moving next to our Minor Food business. For Minor Food business, core revenue increased by 21% year-on-year. Looking at the operational stats, same-store sales increased about like 8%, and this was from the operational recovery and higher store trading activities in Thailand and Australia, coupled with outlet expansion and also the reopening of closed stores last year. The total-system-sales grew at a higher rate, increasing by 13% year-on-year. And in terms of EBITDA and net profit, both core EBITDA and net profit remained positive but decreased year-on-year due to the full lockdowns in Shanghai and Beijing, especially in April and June. Nevertheless, we started to see a recovery in June already and we continue to see continuous recovery in every hub. Moving to each hub, Thailand. Thailand, same-store sales growth was about like 13%. And in addition of network expansion of about 4% and also the reopening of temporarily closed stores of last year. Total-system-sales grew about 26%. And several brands recorded higher average spending per ticket, and this was due to our menu price increases, successful sales and marketing initiatives and also higher contribution of dine-in sales. Looking in the month of July, same-store sales continued to grow, increasing by 17%, and total-system-sales increased at a higher rate at 65% due to the low base of last year. As for strong last year [indiscernible] we're forced to shut their doors temporarily from government stringent restriction to curb COVID-19 cases. And going forward, Minor Food Thailand is strengthening brand relevance by revamping and refreshing core brands with clear customer value proposition. Next is our China hub. China hub same-store sales growth and total-system-sales decreased by 43% and 52%, respectively, and this was due to the strict lockdowns in key cities, including Beijing, Shanghai and Suzhou, which led to dine-in restrictions and temporary store closure. Nevertheless, in July, we started to see clearer recovery. Same-store sales declined at a lower -- at a slower pace, decreasing by 12% year-on-year following the relaxation of COVID measures in the beginning of June for Beijing and at the end of June in Shanghai. And following store reopening, the sales performance has accelerated very strongly. In the meantime, China hub will ensure all of its operational stability and take opportunity to streamline outlets while also securing good locations to cautiously expand the Riverside brand. For Australia, same-store sales grew about 4%. And with the reopening of stores that were temporarily closed last year, total-system-sales increased about like 6% as a result of the removal of COVID restrictions since April, which resulted in an improved operating and trading activities overall. And in July, positive momentum continue. Same-store sales increased by 21% and total-system-sales increased by 25%. The key strategies for Australia in the second half is to focus on bringing back the Coffee Club's coffee credentials to enhance the brand identity and also promote loyalty platform to acquire new customers and drive repeated sales. Next is our last business, Minor Lifestyle. Minor Lifestyle revenue increased by 7% from higher store traffics of all fashion brands. And the EBITDA and also net profit turned to positive territory in the second quarter compared to core loss in the same period of last year. And this was because of the newly rationalized portfolio and also lower discount campaigns as well. And this is the end of our operational stats in the second quarter. And then next, I would hand over to Mr. Chaiyapat for the strategy.

Yes. Thank you. Before we go into strategy, I would like to highlight some of the recent development in terms of our balance sheet management. In terms of balance sheet strength, some good development recently that I would like to call out. First, TRIS Rating revised the rating outlook on MINT to stable from negative. Also on NH side, Moody's revised the rating outlook on NH Hotel Groups to stable from negative as well. Before that, Fitch Ratings has upgraded NH Hotel Groups rating to B with outlook also upgraded to stable and senior secured debenture rating was also upgraded to the BB- as well. I would not go into detail of each individual items because we have gone through these items before in the previous quarter, but another asset rotation transaction is the sale of our 2 owned assets in Europe i.e. Netherlands and Germany, which resulted in the proceeds of EUR 19 million, was also completed in the second quarter as well. Apart from this, after the second quarter, we are now also in the process of redeeming our Thai Baht perps by the end of August, ahead of the ending of grandfather grace period given by the [ FAP ] to count Thai Baht perps as equity until year-end. This is THB 15 billion Thai Baht perps we issued back in 2018. We are also in the process of reissuing a new Thai Baht perps to aiming to issue an offer to retail investor during the 1st to the 6th of September. The issue size is roughly about THB 10 billion with some greenshoe option depending on the market demand and the issuance of the new Thai Baht perps now coordinated through the multiple financial institutions. And with its equity credit, it will continue to help maintain our leverage ratio at a comfortable level over the next 5 years. So that's an add on to the slide, something that we're working on right now. And once we finalize it, we keep you guys posted in the upcoming quarter. Next slide, just to show you our CapEx and leverage ratio. I already talked about it in the previous quarter. CapEx plan hasn't changed. This year, we're going to spend THB 6.4 billion with the CapEx has been curtailed down from our original plan before COVID because we want to make sure that we have ample liquidity in the -- while we're in the path to recovery, and for the recovery, there's still some uncertainty around us. But most of the CapEx that we're going to spend this year will be maintenance CapEx for renovation, for store expansions as well as some of the projects that we already started construction, we will probably have to complete those projects through the end of the year, and subsequent years after this year, we're probably going to spend a little bit more in 2023 and '24, we set aside about THB 10 billion each per year to spend. In terms of leverage ratio, like I mentioned at the very beginning, it has come down to 1.3x. In terms of net debt to equity, it's already touched our internal policy level. and it's way below our debt covenant ratio of 1.75x. In terms of liquidity, we have cash on hand of more than THB 26 billion. We also have additional THB 32 billion in the form of unutilized credit facilities. And we also have warrant 7, warrant 8 and warrant 9 to mature in year 2023 and '24 that will give us another THB 13 billion because part of the warrants has been exercised already. Next slide, just to show you the -- our cash flow position. We continue to report positive operating cash flow and positive free cash flow as well. And we continue -- this is due mainly to improve performance. And then we're probably going to see some more improvement in upcoming quarters for our cash flow. Next slide, just to show you our debt profile. This slide -- we show you debt profile in terms of currencies and fixed versus float. What I want to update is we continue to implement financing strategy that will respond to a rising interest rate environment. We maintain a high-level policy of 50-50 fixed float and we'll adjust the split plus or minus in response to a changing rate environment, say, fixed portion would be adjusted higher than float portion in a rising rate environment. After the second quarter of the year, during July, we managed to execute some of our hedging strategy using CCS and interest rate swap. We also paid out some expensive floating rate debts particularly the ICO loans at NH. With those measures, the fix-float split of our euro debt currently stand at 59%, 41%, a marked improvement from 48%, 52% in the first quarter of the year. This is on euro debts, which account for the bulk of our total debts. So we have adjusted fix higher and higher on the back of those measures that I just mentioned. In terms of Thai Baht, rate increases are likely to be slower and lag behind other currencies. So -- and banks also indicated rates will not rise so fast for the time being, providing room for us to adjust our fix-float split, which is now at 43-57 split. Additionally, Thailand also still has ample liquidity as well. As for U.S. dollars debt, which see the fastest and steepest rise in interest rates, we have already had 93% fix and 7% float. As for AUD Aussie dollars debt, we're in the process of refinancing our loan facility, which we will apply hedging strategy to mitigate interest rate rise after all. Aussie debt only account for 3% of our total debt here. So that's our response, our strategies to cope with the rising rate environment. Another issue that we want to highlight is our response to inflationary pressure and potential cost increase similar to what we reported and highlighted you last quarter, but I just want to recap since we -- we've been asked by a few investor and analysts. We start to see this rising cost trend and inflation since last year. So in terms of raw material, and packaging cost, we have done proactively in terms of our supply chain management functions, reduce stocks, build up our inventory, we lock in rates, we use long-term contracts with multiple suppliers, we create tender process to result in competing bidding prices from multiple suppliers, and we also use our economies of scales that enhance our bargaining power. We also use the menu reengineering and promotion reengineering in addition to price increase on selected menu items. And we also benefit from cost reduction program that we implemented during COVID period in a very disciplined manner over the past 2 years, and this has been paying off quite well in this inflationary environment. In terms of wage, we try to review our labor model and manage and provide more flexibility in terms of how to scale up and down our manning power and working hours of our workforce. We also strengthen our training to improve multiskill of our staff for them to have high productivity. And we also simplify the work process to improve efficiency. And of course, we utilize and we use a lot of digital technology to improve our labor and our productivity in the organization as well, as well as benchmarking our stores, our hotels with the rest in our portfolio to make sure that they have similar -- the one that have similar sales level should have also a similar cost structure as well. All of these has resulted in cost savings and cost avoidance. Let's say some of the key food brands that supply -- our supply chain function work with. If the market price rise by, say, 100%, we managed to have our cost rise by only 50%. Say, we -- the price -- the purchase price increased by half of the market price increase, that's what we have achieved so far. And the rest, of course, we still feel a little bit of a pinch from inflation, from cost increase, but that mitigation factor has helped slashed out that impact by half. And [indiscernible] increase to help us mitigate and safeguard our margin as well. Let me say, for example, Minor Hotels, if we look at their, say, profit that we budget for the year. And we -- that budget has already factored in some cost increase, some inflationary impact already. But if we're going to do some extreme scenario planning, say, we make us extreme assumptions on certain cost items on the back of this inflationary trend. That cost increase will probably eat up our margin from -- on the budget profit number. But the ADR maximization strategy that I told you that we started to implement since late last year and result in our ADR year-to-date, beating budget by double-digit number -- percentage number. That has provided cushion and also safeguard our margin. And the eat up of margin from that cost increase has been well compensated by the ADR maximization strategy. In fact, that ADR maximization strategy help us to see net-net improving in terms of margins, too, on Minor Hotels business. Very last section, I would like to touch on the key strategies that we used to highlight to you before, but some of the additional measures that I want to share with you. In terms of brand equity, we continue to strengthen brand equity for Minor Hotels. This slide shows you Minor Hotels key strategic priorities. I want to update you that NH has joined our GHA Discovery 2.0 loyalty program in June 2022 now making GHA Discovery to be one of the 10 largest loyalty programs in the hospitality sectors. And now we have collective power of the platform's 21 million members. We also continue to strengthen or enhance our customer experience. We developed strategies to adjust and respond to changing consumer expectations and their behavior. We also use more and more digital tools i.e., effective marketing tools, internal booking engine or even digital host application at our hotel. These are just some examples to tell you that we're connected more closely with our consumers and also use this digital to lead to more productivity. In terms of asset portfolio, we would continue to diversify Asset-Light portfolio. The expansion plan that we have been doing during COVID period and now will probably primarily focus on Asset-Light, i.e., expansion that we don't have to put in heavy capital just to make sure that liquidity is ample here when the recovery is still surrounded by uncertain environment, but the asset rotation still on the card and ready to be executed, if needed to, in the future in terms of people and workforce, we have developed our talents. We also use digital to enhance our employees' journey and also increase the productivity as well. In terms of revenue optimizations, we look at the brand sales initiatives and product and service offering, just to make sure that we can convert and then expand our penetration and convert business per market segment geography channel. In terms of efficiency, both on the organization side, on cash flow side, we also implement the strategy similar to what I shared with you in the last quarter, we monitor our CapEx very closely and cash flow very closely and also hotels by hotels just to make sure that they generate sustainable profitability, i.e., at EBITDA level and in PAT level as well. For -- next slide, on Minor Food, key strategic priorities. Of course, this is not much change from what I shared you last quarter because it's still a very -- it's a long-term strategy that we want to strengthen our Minor Food operation. The first one is brand revitalization. We refresh our brand, our products, our store ambience, we have gas up our brand proposition, for example, the BLACKPINK campaign that we have done with Swensen's has been received quite well by consumers. On digital side, similar to hotels, we use digital to get closer to certain consumers, do marketing more via digital. We also utilize data of the big database that we have on our consumers that we serve for several decades, utilizing data analytics to make our customer offering better going forward. And in terms of delivery channels, we scale up our 1112D to become a dominant delivery channel for us. And we've improved our delivery in terms of delivery time. We have 30-minute guarantee for Pizza and also the quality of the delivery, we have electric heated bag for food delivery. And if you look at our delivery sales and digital sales, it has improved quite remarkably from previous year, the digital sales, it's almost like -- almost 40% of our total sales. The app download was touch 4 million downloads. Our total loyalty members almost reached 4 million members. So -- and the loyalty sales has improved more than double year-on-year as well. In terms of asset portfolio, we will continue to strengthen not only same-store sales growth, but in terms of expansion of outlets, we do it in a more, what we call, smart expansion with innovative new store formats be it dine-in, delivery with seats, takeaway points of sales, grab & go, drive-thru, with these variety of store formats, that we will put in the right location, will also improve our productivity and profitability. In terms of cost structure, we streamline our cost structure. We acquire more sourcing alternatives. We improve productivity and we optimize our route in terms of logistics and reduce waste at our stores. In product innovation, like I mentioned earlier and in the previous quarters, we set up Minor Food innovation team to come up with new products to make ourselves -- to create some excitement in the market and make ourselves relevant to the new generation of consumers. And lastly, sustainability. We continue to drive our key sustainability pillars, which are people, partnership, customer -- end-to-end customer experience and environmental impact. So those are the high-level strategies for Minor Food and Minor Hotels, I think that's a wrap for our presentation. Now we'll open the floor for questions.

The first question would be on the occupancy rate. Could you explain the reason behind the weak occupancy rate of the Maldives in the second quarter or in June and an increase in July despite the low season?

Well, it's seasonality, even pre-COVID level, July occupancy is usually -- it's -- June is a peak of monsoon season and rainfall. So that's -- to answer your question, it's the seasonality.

The next question is on interest rate. What is the MINT's strategy to address interest rate upcycle?

Already explained in my slides just now. I think that, in my slide, I explained earlier, probably answered your question already. Yes.

What is the situation with inflation pressure to your food business? Electricity bill, raw material trend? What would be your action to address in the next 6 months?

That's also explained in the presentation that I just showed you earlier. We -- with this raw material price increase, with the cost in terms of wages, we start to build up stocks using multiple suppliers using long-term contracts and streamline our organization, not only manning power but also the process of workflows to save costs and streamline cost structure even more. This is on top of the cost reduction program that we implemented during COVID just to safeguard our profitability earlier. That has lingering effect and long-term effect in terms of helping boosting up our margins, too. So that's somehow provide some cushion to absorb any negative impact from cost increase from inflation. This is just to recap what I already explained to you in the slides that I showed you earlier. Yes.

Next about your European business. What would be your strategy if Europe interest goes into a severe recession in the next 2 years?

We would think that we would continue to see some revenge travel. Right now, a lot of people started to travel. And then like I said, we started to see our operating stats even deep pre-COVID level already in Europe. And going forward, when revenge travel, if it start to taper off, we start to see more demand coming in, even though people talk about recession and all. But with us catering to upscale luxury segments, we -- I think we are less -- we have our customer, which is less price sensitive to -- and more resilient to the economic and operating environment overall. So that also help. So not only demand from leisure travelers that we're going to see in upcoming months, but now we start to see signs of recovery in terms of business-related travelers, we start to see MICE events, meetings, congress, trade fairs, festivals start to come online in terms of our forward bookings. So that together with long-haul travelers that's going to be add on to short-haul domestic intra-European, the long-haul international travelers plus business-related travelers will probably help compensate if revenge travel happen to taper up next year or so.

Next is the question about balance sheet. Do we need to ask for the extension of waiver covenant -- the waiver of covenant testing until next year?

I think it's quite unlikely given -- like I said earlier, our leverage ratio has come down and touched our internal policy level and well below our debt covenant level. Now net interest-bearing debt to equity is 1.3x and debt covenant ratio is 1.75x. And with this earning recovery as well as the warrants, which is in the money going to be exercised in the next year or so, I think we can be comfortable in terms of debt covenant and unlikely that we're probably going to ask for another waiver. And having said that, if you look at the operating environment, let's hope that the recovery will continue to getting stronger and stronger with no more prices on the horizon.

Next question is on food business. About the outlook in the second half of the profitability of Thailand, the food hub in Thailand?

Well, like I said, we have done a lot of brand revitalization exercise. So that will probably help increase or strengthen our organic same-store sales growth. And like I said, we will continue to expand our outlets too with the smart expansion on the back of innovative store formats that will help increase productivities for our expansion. So same-store sales on the back of brand revitalizations and new product innovation and from active promotional campaign together with smart expansion will help both top line, bottom line of Thailand food operations of ours.

Next question is on NH operations. Just did NH RevPar and profit exceeded 2019 level in the second quarter? And how is this possible?

Yes. Well, like I think Namida has already touched on that. ADR NH has surpassed pre-COVID level since April in Europe and RevPar surpassed pre-COVID level in May. And then if you look at RevPar on the -- for the whole quarter, in second quarter, it's -- this second quarter is already 9% higher than second quarter of 2019. Yes. So this is coming from high travel activities, Europe treat COVID as the common disease for everyone else, mobility restriction has been removed for everyone else. And since we cater towards domestic and intra-European travelers even before COVID period, this has paid off quite well when recovery happened. So we see a faster, steeper recovery on that front. On top of that, the revenge travel that we see also helped boost demand and the performance of our European operation as well.

Would this be sustainable? And can this happen to Thailand hotels as well?

I think that possibility that revenge travel will taper off, like I said earlier, but international long-haul and also business-related travels and MICE, anything that's related to big events, festivals, congress, trade fairs, that will probably help more than compensate for the revenge travel that might taper off next year. So I think we'll continue to see a strong recovery in everywhere, Europe to start. For Thailand, it will follow the path of what we see everywhere else or in Europe because the remove of restriction has lagged behind others but it's already happened. [indiscernible] and Thailand Pass has been abolished. And now we see travelers, number of travelers coming in Thailand more and more. So even though occupancy has not reached the pre-COVID level yet, but ADR has surpassed pre-COVID level in June this year by 5%. So -- and second quarter ADR is below 2019 level by only 5%. So we're almost there in terms of ADR. But occupancy, it will climb up gradually following the footpath of Europe.

What is the impact of TFRS 16 in the first quarter and in the second quarter?

In the -- the impact of TFRS 16, I think in the first half of the year is over around THB 300 million to THB 400 million. We estimate at a very high level for the full year. The impact of TFRS probably hover around THB 1 billion to THB 1.5 billion. If you compare the number of pre-TFRS with post-TFRS at the bottom line level, the difference is probably going to hover around THB 1 billion to THB 1.5 billion.

Was Thailand Hotel the only business that recorded core loss in the second quarter?

Well, for the most part because of the lag behind restriction removal of Thailand that happened slower than other regions in the Europe, in the Maldives and Australia, yes. So -- but we hope that this loss will narrow and turn around to profit shortly. Like I said, ADR has already surpassed pre-COVID level in June. And now occupancy is climbing to the level -- I think near pre-COVID level probably by year-end when we start to enter into a high season here.

The next question would be on Chinese tourists. Is there any impact from the absence of Chinese tourists? And what was the contribution of Chinese tourists as feeder market pre-COVID?

Well, before COVID, Chinese travelers accounted for about 13% to 14% of our total customer feeder. But if you look at Thailand, it probably accounts for about 15%, roughly 15% to 18%. In Europe, it's still very small. And then this year, we conservatively assume that there will be no Chinese tourists. Still -- we still see a good recovery in a turnaround now profit number. We don't expect to see Chinese travelers to come in -- to come out of the country anytime soon, maybe next year. If that's the case, it will be bonuses on top of our budget number. But like I said, in terms of budget, in terms of our planning, we conservatively forecast that Chinese would not come back yet this year. But even that, if you look at the -- let's say, for example, the Maldives market used to be one of the top key destinations for Chinese travelers. Chinese used to account -- used to be top 3 clienteles of our Maldives. And now even without Chinese travelers, our Maldives performance already surpassed pre-COVID level. So we have done a lot of strategies in terms of diversifying our customer base, go after other markets like Middle Eastern, other European nations or India or other markets to compensate for shortfall that happened from Chinese travelers.

Next is on Managed Hotels. What is our expectation of the contribution of Managed Hotels given a lot of new openings of Managed Hotels in the next 3 to 4 years?

Well, it's probably going to be a while until we catch up with the contribution from owned in terms of revenue and profit. Right now, if you look at revenue contribution Owned & Leased account for about 85% of our Minor Hotel revenue, while Managed and MLR account for about 9%. So it will take a few opening because the size of the revenue and profit generated from Managed Hotels still relatively small compared with the one Owned hotel. So -- but we will continue to open more and more management hotel, as you can see from our pipeline. And we have made a debut in a lot of new territory, new countries, say, in the Middle East. And also, we signed MOU with Funyard back several months ago, that will pave the way for us to expand in a big way in China which has a strong potential in the future. So longer term, I would say, we will see the proportion of Managed Hotels, we're probably going to gradually expand, even though it's probably going to take time for them to expand to catch up the contribution from Owned & Leased.

What is the typical management fee structure?

Roughly about 2% to 3% of top line and another 6% to 10% of GOP, gross operating profit, but depends on the contract, depends on the location as well.

Will, the ADR in Europe right now, be sustainable throughout the year and over the next few years?

Well, I think so, considering the demand is so strong. And this ADR maximization strategy we have implemented since last year when COVID was still with us. We believe that regardless occupancy, with high ADR when things coming back, when recovery happens, we can reap the benefit of exponential growth in RevPar right away. And this is paying off as expected now that we see recovery in terms of occupancy and as well as the -- this ADR maximization strategy provide cushion and buffer for us to safeguard ourselves from inflationary pressure as well. And like I said earlier, not only revenge travel demand, leisure demand, but business-related demand is coming on the horizon as well. So that -- and also long-haul that will follow suit with more flights added on to the routes. So that will help maintain strong demand for a while.

Coming back to inflationary pressure question again. Would it be enough with our cost strategy, would it be enough to cover the overall rising cost? And what's the expectation of the margin?

I think so with a combination of various strategies that I highlighted to you earlier, not only on the cost side that we try to reduce cost and manage to make our purchase price lower than the market price, using our bargaining power and economy of scale and not using this long-term contract. But again, the price or rate maximization strategy also help absorb this inflationary impact, too. So a combination of strategies on supply chain side or on the cost side and on the pricing that safeguard our margin or even lead to us to see improving in margin even in certain cases, for example, Minor Hotels see a net increase in margin even with this inflationary pressure.

Next question coming up is what's the biggest risk you have monitored for next year?

Well, the risk that we foresaw, I think, we already shared with you the strategy to respond to it, the inflationary pressure, the cost increase, supply chain disruptions, interest rate rise, global recession. All these are the risks that we're closely monitoring. And we think we have a strong mitigation measures and strategies to handle it.

I think this is the end of the questions that we have. Do we have any more questions? You can raise your hands or either like type into our chat box. I think there would be no other questions already. If you have any other follow-up questions, just feel free to contact our IR team, and we will be more than happy to answer any questions that you may have. And thank you so much for your time today, and have a good day.

Thank you.