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

Good morning, everyone. Welcome to Minor International Analyst Presentation for the second quarter recap. And also, we're going to talk about the outlook for the rest of the year as well. So similar to previous quarters, the same agenda second quarter results recap, and we're going to drill down into operational stats and outlook of Minor Hotels, Minor Food, and as well as other corporate information, and we will wrap up with the business outlook and our back-to-growth strategy. So let me start with the second quarter and quarter-to-date recap recent developments and progress with Minor Hotels, Minor Food and Minor Lifestyle. I start off with Minor Hotels. We still continue with the cross-brand expansion strategies. We try to introduce the brand into a new territory, any territory that still don't have any particular brands that we have. We would try to debut it and then introduce it just to increase brand awareness or our customers around the globe. We expand the brands not only to have them well known in that particular new market territory, but we would also try to command high room rates for such introduction of those brands and also the rebranding strategy as well. So in this past quarter, some examples include Tivoli Portopiccolo Sistiana Resort which was opened in Italy. And also, we also opened AVANI plus Fares Maldives, in the Maldives as well. As well as Oaks Chengdu that was opened in China. We also introduced NH Collection Maldives, Havodda Resort, which was opened right after our acquisitions in the previous quarter. The rebrand -- for the rebranding, we rebrand in each hotel into a NH Collection Heidelberg in Germany, another NH was rebranded into AVANI Palazzo Moscova Milan Hotel in Italy, and also another NH was rebranded to AVANI Alonso Martinez, Madrid hotels in Spain. So those the rebranding and the cross-brand expansion strategies the brand upgrades that we did as part of our effort to heighten or maintain high room rates. Another development within the quarter is the increased our stakeholding in NH, which was is which we increased from 94.1% to 95.9% after we accumulate shares from the market during May and June. And for the first time, this quarter as well Minor Hotels debuted franchise business model for the hotel with initial of 3 properties in Australia. Lastly, for Minor Hotels, the global hotel alliance, which we are a shareholder, and we are part of the loyalty program earlier, and now we combine with NH Discovery loyalty program, we have one of the largest loyalty program for hospitality sector in the world. We just add -- the GSA, Global Hotel Alliance, just added Regent Seven Seas cruise line to the portfolio. With growing member database and increased volume for member stays as well. So that's the development on the hotel part. For restaurant or Minor Food, we still continue to increase and expand doing the same cross-brand expansion strategy. We brought some of the brands overseas that we have to Thailand, for example, Poulet, a French roast arose chicken restaurant from Singapore after its success in Singapore, we brought it to Thailand. Cafe Wosleley, which we own in the U.K., famous [ Bass ] free portfolio that we have in the U.K. We brought Cafe Wolseley to Thailand as well at Anantara Siam, probably you have -- some of you have already tried it. And Riverside,, the brand that we have in China for a while. We brought it to Thailand as well. This is a Sichuan grilled fish style restaurants, which was quite successful in China. So we brought them here just to test the market over here as well. Elsewhere, Benihana, where we own and we have up to 19 restaurants around the world. We introduced Benihana, this Japanese teppanyaki steakhouse in Singapore. So that was the one development with Benihana brand in the past quarter. We also continue to do brand building, strengthen our brand equity through brand revitalization program, collaboration and product -- new product development to create excitement in the market. An example of this quarter will be a collaborative partnership, Burger King, create the first Burger King Spider-Verse store in Southeast Asia. And also on promotional and marketing front, Burger King also launched Thailand's talk-of-the-town, the real cheese burger which become which became global bus as well. Elsewhere Minor Food has expanded its businesses through acquisition as well. We acquired 100% stake in sister franchiser worldwide, excluding U.S., Puerto Rico and Guatemala, we have been operating Sizzler in Thailand for a long time, but now there's an opportunity that we took 100% ownership of the master franchise worldwide of Sizzler just this past quarter. And we also acquired the remaining stake 21 stake in Bonchon Thailand as well after we operated the brand for a while. For Minor Lifestyle, we have very active in terms of marketing and promotions. We have announced the first Thailand brand ambassador for two of our brands, Charles & Keith and Anello at Thailand level and also at regional level to further promote brand awareness of these 2 lifestyle brands that we have. On the corporate front, we're probably going to talk a little bit more detail later on. But the one thing to highlight is that we successfully issued THB 4 billion subordinated and unsecured debentures, which provide flexibility for our expansion and also help us refinance the maturing bonds that we have and ensure our long-term financial stability as well. So this transaction is well received by the market and when well successfully. Next slides just to show you the performance recap year-on-year for the second quarter. This quarter, we report a record high quarterly financial results costs. If you look at core revenue, it improved 24% year-on-year as a result of strong performance of our hotel and restaurant businesses. But core profit also was exceptionally strong at THB 3 billion, more than doubling year-on-year and also surpassed pre-pandemic level in second quarter of 2019 as well. This is as a result of revenue increase, our optimization after of key expenses and our effort to enhance productivity across the board. So we saw record high quarterly profit this quarter. If you look at quarter-on-quarter compared with the first quarter of this year, like I told you earlier in the previous quarter, last quarter or first quarter, was the low season in Europe for us. So that's why we show a soft performance in the first quarter. But second quarter, we're entering into a high season in Europe. So that's why we saw a very strong uptick or turnaround in our performance primarily from Europe or NH, and profit grew more than 500% quarter-on-quarter because of the peak travel season in Europe, mainly. So that was the performance recap. I would hand over to Namida to talk about each business in detail in terms of operating stats.

Starting of with Minor Hotels. For Minor Hotels, we've reported revenue growth of 25% year-on-year and also 30% Q-on-Q. For the year-on-year growth was driven by owned on the strong performance of owned, lease and also managed hotels, particularly in Europe and then in Thailand as well as the higher performance of mixes business as well. So these hotels owned experienced demand recovery in both leisure and also the corporate market as well as on successful pricing strategy. For EBITDA and net profit, it grew at a faster rate than revenue due to the effective cost management and also improved higher operating leverage. Therefore, you would see that our net profit more than [inaudible] both year-on-year and also turn to positive sector Q-Q to THB 2.6 billion in the second quarter. Drill down into each hotel business model, starting off with Owned & Lease hotels. In terms of number of rooms, number of hotel rooms for Owned & Lease was flat year-on-year but increased slightly by 2%. And in terms of RevPAR, we increased 28%, driven by strong demand and also higher average food rate. And if we compare to 2019 level, our RevPAR exceeded pre-pandemic level by more than 30%. Drilling down into each region. First one is Europe and the Americas. The RevPAR of Owned & Leased hotels in Europe and Latin America increased when it's 4% year-on-year and also 61% Q-on-Q because of the continued momentum of leisure demand and solid recovery of business segment. The occupancy rate improved from 68% last year to 72% in the quarter, while the ADR posted a record high at EUR 154 per room per night. Our regions experienced exceptional results, for example, Spain and Italy, both the key and secondary cities caused strong performance. For Benelux, the key gateway cities like Amsterdam and Brussels posted better performance compared with the secondary cities, but vice versa for Central Europe, in which the secondary cities like Munich, Hamburg and Dusseldorf in Germany, toward a very strong performance because of many trade fairs and also strong business travel. And lastly, Latin America. Argentina and Mexico led the RevPAR growth of this region. In the month of July, the RevPAR of born hotel in Europe and Latin America continue to do well despite the month-on-month lower seasonality. Occupancy rate hold up at 70% for RevPAR still increased by 7% year-on-year and also exceeded 2019 level by more than 20%. For all hotels in Thailand, RevPAR increased by 62% because of the search in demand of the international tourism and also a rise in average rate as well. Occupancy rate improved from 46% in the second quarter of last year to 60% in this quarter, while ADR continue to rise about 25% year-on-year. Compared to 2019 level, our RevPAR was remain to be on par with pre-pandemic level as a result of higher out rates. Looking into more details on the hotels in CBD area in Bangkok has led the Bangkok RevPAR to increase nearly 90% year-on-year. And for hotels in other provinces in Thailand, on a positive note, RevPAR outperformed by about 2%, mainly driven by the main tourist destinations like Phuket, Chiangrai, Chiangmai, and Samui. And in the month of July, our occupancy rate holder and improved from 60% in the second quarter to 66% in which RevPAR has been exceeding pre-pandemic or by 5% as well. Next region is the Maldives. As expected and in time down with the industry as well our RevPAR increased by about 23% year-on-year and was 18% below 2019, mainly because of the increase in competition and also because of the impact of the revenue -- renovation at Niyama Private Island Resort as well. If you look back to last year, you would see that there was an influx of tourists throughout all year round and with minimal competitive pressure. But having said that, the average rate still outperformed 2019 by a hefty rate at 20%. In the quarter and also going forward, Minor Hotels will remain to be very proactive in our sales tactic. We are forecasting on upscale travelers from selected countries. On top of our current feeder markets. And in medium to long term, we are still confident that Maldives is still a destination that poised for substantial growth Therefore, we have strengthened our presence in the Maldives by opening 2 new hotels, AVANI plus Fares Island and also the NH Collection Havodda, in which was the first NH collection brand about Maldives. Moving into another hotel business model under Asset-Light businesses. Under Asset-Light businesses, we have both the management letting rights of MRR, mainly in Australia and New Zealand and also the hotels under management contract. First, on our business. The RevPAR of MI business decreased slightly by about 4% because of the softer domestic issue demand. But However, average room rate still posted an upward trend. The second quarter probably saw some normalization of the trend because second quarter is generally a softer. But in July, RevPAR have been seeing a positive growth up. from decrease in the second quarter. For management contracts, our RevPAR increased about 15% and outperformed pre-pandemic level by 7% because of the strong performances of Batelco regions, including Europe, Thailand, Middle East and also Africa. In terms of expansion pipeline, we continue to look for expansion opportunities. The numbers haven't changed much from last quarter, but we added about like 4 hotels from the previous quarter, it's because of the additional signed contracts under management contracts. So overall, in the next 3 years, we are adding more 75 hotels with more than 13,000 rooms. And of [ Sator ] in hotels will be under asset heavy, Owned & Lease, and then the remaining of 67 hotels will be under asset-light business for our management contracts MOR. Moving into mixed-use business. The revenue of mixed-use business grew about 55% due to stronger and ontrafication club business. And also, we have some sales of the residential units in Thailand as well as improved business of shopping process and entertainment. Looking into the residential development projects. We have about 2 villa residential projects available for sale Anantara Siam in Thailand and also an Anantara Desaru Residence in Malaysia. And recently, in June of this year, we just opened at [indiscernible] loan, which is our mixed-use project with office and retail space. And for the residential projects in the pipeline, we have other 3 projects to ensure the revenue stream of mixed use going forward. We have an on-track in Indonesia, Kiara Reserve in Phuket and Anantara Siam Residences in Bangkok. And in terms of an Anantara introduction club, in the second quarter, we saw higher price pipe point and also a higher number of pipes sold from our proactive sales initiatives and also from rising number of members as well. Moving into Minor Food. Minor Food revenue grew about 22% from the improved business of operations of all [indiscernible] including Thailand, China and also Australia as well as significant turnaround in profit contribution from joint ventures as well. Looking at the operational stats on the right, you would see that our same-store sales grew about 8% from higher store trading activities. And coupled with outlet expansion mainly in Thailand and Singapore, our total system sales grew 18%. And same as Minor Hotels, our EBITDA and net profit of Minor Food grew in a faster rate than revenue. And actually, the net profit of minus THB 427 million exceeded 2019 level. Due to our stronger revenue flow through our efforts to lower our raw material costs and other cost savings. Moving into each half for Minor Food, first, on Thailand. Same-store sales of Thailand have grew about 8%. But if we exclude the international franchise, our same-store sales growth in Thailand, we have grown about 12% mainly from the rise in customer traffic, especially in taking [Audio Gap] China and also from the higher average spending per ticket as a result from strategic product development and pricing and also our successful sales initiatives to target high ticket items as well. For our second quarter highlights, the new product launches continue to excite the market, including burgers, talk-of-the-town cheese burger and also [ Derek ] instead. Also, Swensen's continue to do very well following successful brand revitalization program, although since 2021 already, but then new products launched has been proven to be a continued success. So in summary, in the quarter, many key brands achieved record high in terms of sales, especially during some grand period. Our next half is China. China saw a remarkable search in both same-store sales and total system sales up about 40% and 19%, respectively. The same-store sales growth was very strong due to the strong rebound of dine-in traffic following the removal of the COVID restrictions. And because of the opening of new restaurants and the reopening of temporary closed doors last year for the system sales outperform up same-store sales. Despite higher competition from more restaurant openings nationwide. And in the second quarter, China has also opened the grilled fish training center on the special curriculum on restaurant management and also dish-related technical skills to promote Riverside by liquidity. So overall for China up, net profit was very strong in the quarter [Audio Gap] so Australia hub, Australia had same-store sales growth grew about 3% due to the brand refresh program and also launch of the new health-oriented menu that helped expand customer base and increased average ticket value. But because of our store rationalization program, total system sales remained flat year-on-year in the second quarter. And next, I will hand over to [indiscernible] Chaiyapat part for our corporate information and business outlook.

Okay. For the corporate information, I would like to start with the CapEx plan, you're probably aware since the last quarter that after COVID passed, we have get back on track in terms of performance recovery as well as our growth strategy. So CapEx, which we have slashed in a big way during COVID back to almost normal now. In 2023, our CapEx around THB 14 billion to THB 15 billion and the year after we'll probably going to be around THB 10 billion to THB 12 billion. The reason in '23, it's -- it was relatively high compared with the subsequent years is because we have some new investments. For example, the remain -- the additional stake in NH also the acquisition of the hotel in the Maldives, which we open under NH Collection brand, which I mentioned to you earlier, and also the remaining state in Bonchon in order to be -- in order to acquire the entire own entire stake in Bonchon, which happened recently. So all of that we're also opportunistic in nature, and this also include the master franchise of Sizzler as well. So those three and four transactions have seen CapEx in '23 relatively higher than '24 and '25, which comprised mainly of normal CapEx, Maintenance and renovation for '24 and '25 for other opportunity that will come into play in the next year or two, this is depend opportunity because we are like we mentioned opportunistic in nature. So -- but our balance sheet, our leverage ratio have come down. And at this level, net interest-bearing debt to equity over around 1 which is well below our debt covenant level 1.75 and also lower than our internal policy level 1.3, that this is provide room for us to see some growth strategy going forward, and we probably have to see the right opportunity, which offer us with good return. And also, we have to bear in mind that we have to keep our leverage ratio at Bay as well. So at this point, we have the cash on hand of more than THB 20 billion an unutilized credit facility of more than THB 30 billion in terms of liquidity, we don't have any issue here. And also in terms of leverage, we're well below, and then we are now back to growth mode. Next slide, just to highlight our debt profile. The euro debt still account for the majority of debt profile here and the exposure in terms of fixed and floating rate. The split still remained 57% fixed and 43% float in the second quarter, not much changed from the previous quarter. Note that we have continued to make early prepayment of higher rate debt to alleviate the impact of high interest rate. We also implemented hedging strategies where possible to alleviate the impact of high interest rate on our house of funds as well. In this past quarter or in the fourth -- in this past first half of the year, we prepaid some of the loans, like I said, some examples include the government guaranteed loan or ICO loans at a NHH level of EUR 50 million. We also set some of the bilateral loans in each level this past July as well, EUR 50 million and another EUR 20 million going to be repaid in the upcoming months as well. In Australia, we also prepaid our see syndication loans as well. And early this year, we already prepaid U.S. dollar syndicated loans. So this amplifies our effort to reduce expensive debts in the middle interest-high interest rate environment. Of course, cost of funds this year, we're probably going to be higher than last year, but we're probably not going to grow by the same magnitude of the policy rate or reference rate because of these efforts that we did the hedging strategies that we use as well as the effort to reduce the debt assets forward. Going into the next slide, I would like to highlight some of the outlook for each business, start with minor hotels. We continue to see robust intra-regional leisure demand in Europe. But on top of that, the ongoing recovery of business-related demand also happening as well in terms of meeting incentives, conference exhibitions, for trade fairs, those start -- we already started to see more forward booking previously, as I reported to you last quarter. And we also see increasing international travel or long-haul travel as well as opposed to just chuck or medium haul, we saw last year. So this will help drive occupancy and help us for the ability to hold up or even increased room rates further. In terms of loyalty program, we reported last quarter that we combine in each loyalty program with our GSA loyalty program made us one of the top largest hospitality loyalty program in the world. On top of that, a NH Hotel Group this past quarter just recently launched in NH plus, a new business program with exclusive benefits for corporates to drive direct bookings or corporates through NH platform. In this past half year or past quarter, we continue to optimize our pricing strategy. and we continue to be proactive in terms of cost control still, which we hope that going to achieve and protect our compatibility in the mid of inflationary pressure and high cost environment that we're in today. On Thailand front, tourism sector still experienced steady recovery with improved or increase in foreign arrivals from various nationalities. We take an effort to not rely on one single nationality while we diversify our customer or feeder markets into new markets and also using different marketing strategy based not only on conventional market calendars, but also the new market local calendars as well. Demand for our hotels in Thailand is meeting our expectation and room rates are now surpassing our initial targets, too. In terms of Australia, we continue to see strong demand from business market. Now we're prepared to get additional focus to -- with the directed efforts towards mice market, even though we see some softness of leisure demand because of the high base we saw in the previous year. But still, occupancy still -- occupancies -- occupancy or Australia still over in late '70 or early '80s, were still quite high. And on top of identifying revenue opportunities. We also focus on cost control still in Australia hubs. And also on a positive note for Australia, China has made the position to reinstate Australia as a pro destination data, and this will provide a boost for travel and in the national tourism for the country as well. In terms of Minor Food outlook, we will continue to enhance or improve customer experience and connect more with customers offering our high-quality products and service. In Thailand, we continue to do the brand revitalization program for some of the brands that we have in order to strengthen the winning brand portfolio. This is done under new product innovation strategy. We also use brand ambassadors for some of the brands that we have. We have collaborated partnership with some of the key partners that have influenced on our customers. We also expand our outlets in different formats, different store formats, but the ultimate goal is to improve productivity per store or improved sales per store profit per store. And each brand also very actively promoting their loyalty program or customer loyalty, just to drive spending and frequency of spending of our customer. So we have grown our membership base for each brand type quite notably as well. Also, we're trying to improve efficiency in terms of cost efficiency and productivity by way of adjusting labor hours and also other cost management to maximize and protect our profitability in the high cost environment. For China, it's definitely going to be much better than last year because of the lockdown we saw last year. Now the stores became operational. So the domestic consumption is better than last year, even though that's still discussion about cautious spending in China, but we believe that the government stimulus measures will take a back and help us see improvement in top line growth. But in any occasion, we will continue to lower our costs or very disciplined in terms of cost control program across the board in China, just to make sure that even if revenue is not going to come in up to our anticipation, but we will continue to maintain our profitability. Australia. Australia will continue to drive national brand campaign just to refresh and revitalized brand awareness of the Coffee Club. Also, we expand our value chain or vertical integration by adding additional coffee roasting facility at the beginning of the year, and it just starts to be operational with this large scale expansion of coffee roaster this would help accommodate growing demand of both retail and specialty coffee around the world as well. Next slide is to recap the 3-year plan back to growth strategy. I wouldn't go into detail because we have reiterated this since we have the plan approved by the Board we already shared this with the analysts last quarter. Core revenue growth, still or around 12% to 15% CAGR over the next 3 years with ROIC no less than 10%. And we want to be our employer of choice that will help us do a way with the shape labor and also contain our payroll cost, and we also continue to have our sustainability or ESG strategy at heart. The growth pillars still comprise winning brand portfolio. We're trying to strengthen our brand portfolio in this multiple brand portfolio allow us to do cross-brand expansion strategy and bring more growth going forward. And we continue to capture value and enhanced productivity to shorten payback period of any investment that we did. Also we streamlined our work process, workflow and we continue to maximize our profitability or margins or productivity per store per outlet or per person as gave some example to you early on, for example, the outlet expansion with various formats that one of the obvious examples that we saw last quarter. Third pillar is the investment partnership and portfolio management. We continue to strike deal with the right partner just to grow together with them strongly. Latest example was the partnership JV in the Maldives property that we have with ADF. And fourth pillar is about digital innovation, which we talk quite a few times in the previous meetings as well. We try to be connected more with consumer and convey personalized message with a more personalized manner instead of blast all the message for promotion and marketing campaigns with a plan under a blanket campaign, but now we do it tailor-made or customized manner and also people management we try to improve working environment and elevate our employer branding just to attract talent. And early this year, we have been served by great place to work by third-party verifier global third-party verifier. So that's also bode well for our effort to improve people development. Lastly, sustainability framework. We continue to focus on people, value chain, planet or environment around us as well as corporate governance and share value. So ESG is still one of our key strategies that we keep in mind whenever we craft our business strategy, we would tack on sustainability strategy in parallel as well. Last slide, just to give you an update on what we want to look like in the next 3 years. We want to have more than 600 hotels, more than 220 residential units more than 320 vacation club units, over 3,400 restaurants and more than 220 retail shop. This is a base case scenario. So as Again, like I said, we are opportunistic in nature. If we see an opportunity to expand more or have more growth, we will go for it as long as we, like I said, maintain our return, meet our return criteria or keep our leverage ratio at the manageable level. So that's the wrap for our presentation this quarter. I think now we're opening the floor for any questions you may have. [Operator Instructions]

The first question, what's the outlook for Europe ADR. Would you say that whether your room rate hikes would be more moderate?

Well, I think this question we answered before in the previous quarter. We still believe that demand is still coming in quite strong, both leisure and business related demand. So the ability to keep room rate at high levels to there. But we have to be conservative and cautious that maybe in the future, the magnitude of ADP is probably not going to be as substantial as what we saw last year or this year. That's why we try not to rely on organic increase in ADR alone. We have to implement other strategies to improve or hold up our ADR. This include the repositioning exercise that we did with our hotels, or the rebrand of some of the hotels that I already exemplified to you early on to hire -- to rebrand it into a higher category with one brand to another brand which can command high room rate. The property has gone through repositioning exercise like renovation and all that. And the multiple brand portfolio that we have helps because we have multiple brands that we can switch and swap and rebrand. So that will be one of the strategies to help us to step up room rate of some of the properties that we have. Also, we will focus -- since we focus on retail luxury, if you look at the composition of our sales to different channels that we have, sales that came through wholesale channel has come down quite notably over the past few years with retail increase quite dramatically and those retail they are willing to pay for a high room category, and they want to spend a higher room category and then they stay longer. So that will help us to still maintain high average effective ADR as well. Also, we try to go after a few new emerging feeder markets instead of going after a conventional market like Europe, U.S., like in the past or certain properties, for example, while we went after different new markets like India, Middle East, particularly Saudi Arabia or UAE or even Israel. And since we have a strong foothold in this region in terms of hotel clusters and that will help amplify our brand awareness there. And also in terms of this distribution office over there help us to gain more customer better from this new emerging leader market as well. And we -- like I said, we try to sell high room category as well. So all of this will be our effort to maintain -- at least maintain, if not seeing higher from here on. So that's -- I think that's something that sets us apart from other players in the market.

I would switch to those who raised their hands. First, on [ transload ].

I have two questions on Minor Hotel. First is on Thailand. Can you walk us through what's your expected Thailand occupancy recovery in second half?

Okay. Well, if you look at Thailand that slide that we show here in the second quarter, it was 60%, right? And this in July, I think we past 65% occupancy in July, 66%. And in August, I think it touched 70% or even higher than 70%. But if you look at -- on the whole, it's still lag behind 2019 by about 10 percentage points. And if you look at the trend in Thailand, let's track back in 2019. In third quarter 2019, we achieved 76% occupancy in Thailand. And fourth quarter, we achieved 73%. But now July was 66%, August was 73%. So we are getting close to what we saw in 2019. And the gap that we saw like 10 or 13 percentage points of 2019 that we saw in the first half, become narrow and narrower. But to get back to 2019 on the whole for the full year, it will take time, probably, if not this year, will be next year.

My second question on hotel in Maldives. How long do you think the current weakness relapse?

Sorry, can you come again? The line is breaking up.

Yes, the weakness in Maldives, how long do you think it will last?

Well, the reason Maldives starts to see some softness is because they're more destination -- competing destinations. And it was quite obvious during the low season, like in the first -- in the second -- during the second quarter of the year. Because if you compare with last year, Maldives, basically, in the first half didn't have any season because everybody only have a handful of destination to go to, including Maldives. So Maldives was like -- everyone went to Maldives high season or low season, regardless. But this year, they have more competing destination to go to. And then when it came to low season in the second quarter, they went somewhere else. But once high season arise for the Maldives, I'd say, in the late third quarter or fourth. You're probably going to see some -- we're hopeful to see some pickup in the Maldives when we get into high season in Maldives this year. So there are some COVID and seasonality effect coming to play when you compare last year and this year.

I have more questions on cost. One is on financing costs. Can you walk us through the effective financing cost in second quarter? And after the debt restructuring, what are you expecting for second half? And also follow-up on EBITDA margin. Is the second quarter EBITDA margin normalized? Or do you expect there to be more room to improve?

Maybe first question first. Our average cost of funds in the second quarter, I think it's around 4.8%, roughly, which rose from previous quarter, of course, because of the reference rate has increased. Previous quarter was like 4.4%. But last year, is what, 3.1%. So you can see that the effect of rate -- interest rate cycle rise has an impact on our average cost of fund. But it wasn't because of our proactive prepayment of debt and hedging strategy that we use. Cost of funds will probably have gone up even more than this level. And this still, we still believe that our pricing strategy that we implemented provide enough crucial buffer for high-cost interest, including high interest costs this quarter as well. So in the second half of the year, like I said, we will continue to reduce or do early debt repayment. We're probably going to see -- probably going to see some slight increase in cost of funds. But I think the room rate that we still [indiscernible] up so high and demand still coming in so strongly will be enough to compensate for such high interest cost, where we'll continue to deliver earnings better than last year. So in terms of margins, probably your second question on margin. In year 2000 -- let's start -- I think I answered this before in the previous quarter. If you look at our margin, break it down to EBITDA margin and net margin, right? EBITDA margin in 2019 was 18%. And this year, when we did our budget, we didn't think that the EBITDA margin went back to 2019 level as yet. But so far with the demand that come in so strongly, revenue that's coming in higher than our forecast and expectation, and our cost reduction program that we've been doing in real life more active than we did during our budget assumptions, help us to believe now that we're probably going to achieve EBITDA margin this year on par with 2019 level. But when you go down EBITDA, below EBITDA line to interest and depreciation and all that, like I said, the interest cost quite high. We are in different rate cycle than we were back in 2019. So interest will probably going to be something that reduce down the effect of EBITDA margin. So NPAT margin will probably not going to be back on par at 2019 as yet. I can give you the number because it's public information anyway. 2019, we achieved NPAT margin of 6%. And this year, we're definitely going to see NPAT margin improving year-on-year, and why our EBITDA margin will get back to 2019 this year, as I mentioned earlier, but NPAT margin is probably going to be not on par to 2019 level as yet, because of the rate environment that we're in. But we hope and we think that next year we have a chance to get our NPAT margin back to 2019 level.

Sukrit, please go ahead.

I have a couple of smaller questions along the way. So first 2 questions from the hotel side. You talked about rebranding in H2 AVANI. When a brand is quite similar in positioning, how big of a ADR increase do you typically see from this type of rebranding versus like an H2 NH collection? That's the first question.

Okay. I think some of the obvious example of the ability to command room rate are different brands, with different category like an H2 NH collection or Tivoli H2 NH collection. But for some of the brands that in similar category like in H2 AVANI, there's a chance that we can step up room rates, of course, but the magnitude is probably not going to be that significant. But what we want from it is to introduce the new brand to the new territory. That's the purpose of the rebranding. And once you introduce a brand like AVANI in Europe, where they were not familiar with it before, when the brand gaining traction among European travelers, they'll go use AVANI elsewhere, not only Europe, but elsewhere in the world. That will help top up or boost demand of AVANI hotels around the world. And that will help us indirectly command high room rates. But in terms of directly command high room rate, it will be like from one lower category to a one high category.

Sure. Second question on hotel was on that slide as well. You talked about the franchise model in Australia. Can you walk us through how this is different from managed contract or the MLR that you have there? What are the scale profitability? And is this a model that we could see in the future around the world?

We just started, and then it's different in the sense that, managed hotel, we will do it -- we operate by using our people. We do it as if we own that hotel. But every -- all the expenses were borne on the owner P&L. But for franchise model, we let them run the show using our brands, but we have to make sure that the -- meet with our brand operational criteria and standards. And then we leave and run the show and collect the franchise brand licensing of using our brands instead. Not that we're going to run the show everything like we own the hotel. That's the difference. So owned and managed, we run the show, we run everything. We pick the key personnel like GM, Marketing Director, Finance Director, HR Director and all that. But owned, we absorbed those expenses; managed hotels, owner will absorb those expenses. But for franchise, the owner will run the show, do their own operational excellence there with our close supervision to make sure that they still meet our brand standard.

Sure. But my point was more on like, so there's no investment cost from our side, right? And we will get just the fee income from the franchise. Yes.

It's similar to management contract business models.

My next question is on the -- similarly, but on food side. You talked about the 100% acquisition of Sizzler, the increased stake in Bonchon. What are the plans for these going forward? Are there going to be -- expect big changes from them? Or is it going to be business as usual as we've seen recently?

No. Of course, there will be change because we've been running Sizzler in Thailand for a long time, but now we acquired master franchise. So we have the right to expand Sizzler outside of Thailand. But first of all, with this franchise, master franchise that we acquired, we get 10 franchise stores from -- in Japan. So first benefit will be we're not -- we don't have to pay a royalty fee to master franchise software outlet in Thailand anymore. That's one. Two, we get more franchise income from outlets in Japan that already exists. Three, we'll have the right to do and expand Sizzler outside of Thailand, with the exception of U.S., Guatemala and Puerto Rico. So those are the benefits of Sizzler. And we see huge potential that we can drive or scale up going forward. So that's Sizzler. For Bonchon, of course, we run the brand successfully, and instead of having to take profit, only like 80% profit, now we get 100% profit from the brand.

Sure. And one last question from my side. It's on capital allocation. So you generate about THB 30 billion in cash now. Your CapEx is around THB 12 billion. I understand you talk about opportunistic M&A. But are there -- what other solid plans that we could see at least for the next couple of years in terms of this capital that you get? Will it be paying down more debt, redeeming the perpetuity bond? Or is it a solid M&A plan you already have in mind that is just not disclosed yet?

Well, cash flow from operating activities as well as the from proceeds from warrants, we'll to refinance -- to pay down the debt, basically. So priority will be pay down debt, which we have -- which we have executed in the past. And going forward, if we have excess cash, we will continue to pay down debt as well. But if there's any opportunity come into play in terms of M&A, like I said, we'll look at it. If they deliver return, if they meet our return criteria and also still keep our leverage ratio at the manageable level, we're willing to consider and look at it. But the priority will be, like I said, pay down debt, alleviate interest burden in the mid of the high interest rate environment. As you can see, the acquisition that we made this past quarter 2, they were quite small -- they were relatively small.

Next, Khun Charti, please go ahead.

Yes, I'd like to ask regarding the trend in the second half, especially on the hotel business. In the past, before COVID, second quarter seasonality-wise is usually better than third quarter. However, last year, in 2022, that was not the case as we saw, I guess, pent-up demand continuing to flow into the third quarter. So last year was a bit unusual in that third quarter was better than the second quarter. This year, I would guess that things would kind of go back to normal, and that third quarter would be a little bit softer than the second quarter. Is that going to be the case? And also, in terms of year-on-year improvement, because last year, we saw demand maybe from pent-up flowing into third quarter, that was stronger than usual. Are we going to continue to see that this year and still expect that the European hotel will still see improvement year-on-year in the third quarter of this year?

Well, we're still -- well, first of all, we still continue to see pent-up demand still from leisure demand and also from business demand. And I think the -- it's not back to normal because the flights gradually been restored, even today, we not get back to with the flights that we saw like before COVID as yet. So I'll say that effect still linger. But anyhow, if you talk about seasonality, for Europe, third quarter will be softer than second quarter. Second quarter will be the very peak. But another peak period for Europe will be end of third quarter and beginning of fourth quarter, i.e. September and October will be another 2 strong month for us and we would likely see a strong 2 months this year as well. So yes. So that's what we project so far for this year. Compared with last year, we still believe that we would see -- we would hope to see -- real try everything we can to make profit growth this year, if not organic, like I said, we expect -- we do cross-brand expansion strategies with more hotel opening in the pipeline. And we do some repositioning exercise of some of the existing hotels that we have, the rebranding and all that. That, we're hopeful, that will help us to see some growth as well.

And to confirm, at the beginning of the presentation, you mentioned that for July and year, RevPAR is still 7% higher compared to July last year. Is that -- did I hear that correctly?

That 7% increase year-on-year, but more than 20% [indiscernible] level.

Okay. So you're still at least seeing a year-on-year growth trend continuing in the third quarter?

Yes, we did.

And then on the food side, I just want to know if you can give more color on operations of Bonchon. The same-store sales have been declining in the first half of this year since first quarter, and then continuing into the second quarter. Is there something that's happening that has resulted in this same-store sales contraction in Bonchon?

In Q1. I think we explained before, even during COVID or before COVID, not only particularly to Bonchon, but different brands with different marketing and promotional rotation, they take turn to be a star farmer. So that's the beauty of having multiple brand portfolio. Some brand performed well in this particular month, some brand probably fell short. But on the whole, we see diversification help the whole portfolio of seeing growth. That's what we want to see. We cannot highlight or having promotional campaign that boost or make every brand to be a star form every single month. We're trying to but the reality is they're taking turns to be our star performer. So with Bonchon, I think maybe some of the promotion has been tapered off during that particular month that you mentioned. But it comes and go. And we're hopeful that in the second half of the year, we will restore Bonchon same-store sales back to a positive level. And I would like to add for Bonchon, the way we're trying to boost or propel that growth, we do -- right now, we're doing a proper store segmentation, so we can have the right menu and promotion with different segmentation. That's one thing. And we're trying to expand more our country as opposed to only focus in Bangkok where they have already had strong footfall, that will provide more growth opportunity. And within Bangkok itself, we're trying to see between CBD and suburb as well. So different store segmentation, and also when we look at upcountry, Bangkok CBD, Bangkok suburb, we will come up with different customized and personalized menu and with different store types. And I think that will help restore Bonchon's growth back to where they were.

Okay. Next will be from Preenapa.

Thank you for the opportunity to ask questions. So let me go one by one. The first question is on the hotel in Europe. Having said that your RevPAR has holding up quite well and still show a 7% increase year-on-year, but in terms of the occupancy rate, it's still short from the [indiscernible]. And given that you have quite a relatively high loan rate compared to 2019, is it possible for us to expect the same occupancy rate once the flight capacity has fully back to the normal level?

For the occupancy rate compared to 2019 for Europe and Latin America, actually we are almost there. For the second quarter, it was only -- for the section -- sorry, for the second quarter, it's actually only 3% below 2019 level. And in July, yes, around that 3, 4 percentage below.

So it's getting there, it's getting closer to a pre-coat level, like I said earlier, not only for Thailand, but for other destination, the gap has been narrow and narrow in terms of occupancy, even though it's not back to pre-COVID. But again, ADRs way past pre-COVID, like more than 30% higher than pre-COVID level. That helps RevPAR stay above pre-COVID. And then when occupancy is back on par, which is going to be very imminent, that will also be another driving force helping RevPAR be even higher.

And going forward, what -- which percentage we should look for sustainable growth of the ADR after this summer?

Well, ADR, like I said, if you look at our ADR, are still higher, almost 40% higher than pre-COVID. We'll try to our best ability to uphold this ADR, if not increase. So it's going to be high -- this 30%, 40% higher than pre-COVID level, hopefully, in the remainder of the year as well. And as I said early on in our presentation, right, not only that we hinge on organic ADR increase, but we have -- implement other strategies to be able to uphold or maintain ADR, like repositioning exercise, the rebranding exercise, our focus on retail luxury segments, the after emerging bigger markets like India, Middle East, Israel, that have strong footfall, and then tend to spend more, and we try to sell high room category. All those efforts point to our effort to uphold our ADR.

And my last question is on the interest expense. So on the second quarter, it's been that quarter-on-quarter increase is quite large or like 19%. So I wonder what are the key reason. Is there any fee for the debt -- early debt repayment? Or it's just like purely from the higher interest rate?

Yes. Well, as I said, the reference rates went up quite notably. But our cost of fund, the magnitude of the rise in our cost of fund is much less than reference rate rises. So that means that, yes, it's coming from rate rise, external rate rise, but we have the ability to contain cost of fund not to rise as much as the reference rate rise. Because the hedging strategies that we implement, the management of fixed float that I just mentioned to you early on, as well as the early debt repayment, prepayment that we did.

Next will be [indiscernible].

My question is on the [ Mice ] business, both NH Hotel and Thailand. Given you said September, October should be another strong month, have you seen any pipeline for NH and perhaps any international [ Mice ] that already booked for the end of this year for Thailand? Any guidance on that?

Yes, there are some. But the -- like I said, the booking window was not as long as before, pre-COVID. So we saw some bookings. That's why we're quite confident that, in addition to leisure demand, we will continue to see business-related demand like [ Mice ]. So we -- I think the -- with the high season in Europe, we'll see more, I think, leisure demand during high season. But going towards -- after summer holiday or after August, when September, October arrive, we're probably going to see more business-related demand. As I said, September and October will be another strong month for us when summer holidays in Europe is over. So that will come also from not only leisure demand but business demand as well.

Okay. Next is on the Maldives hotel. Given other players, not only MINT, that have seen a slowdown in this market, do you think that could be the kind of like structural change for this market? I mean for the demand, for the price, the ADR you can raise or even could be the new base for the Maldives hotels.

No, I think we still believe in long-term potential in the Maldives. That's why we have more hotels in the Maldives. As I explained to you earlier, that the effect of this year probably coming from competing destination when compared with last year low season, where everybody still went into the Maldives even in the mid of low season back then, so it's coming from a high base last year because nowhere else to go. But this year, there are more competing destination. But when high season arrives, I believe that people will still want to go to the Maldives, and we'll see some pickup when high season arrives. And for Maldives, we have been very proactive in terms of using sales tactics, focusing on luxury segments or upscale travelers from countries like India, Middle East. And I think we're quite strong in this market given our cluster of hotel there. People know our brand. And we have distribution channel, distribution network in those regions, in those emerging markets. So that will help gain back new market feeders for Maldives in upcoming high season as well. Not to mention if we're going to see a stronger Chinese rebound, which we'll not bank on at this point, but it will be a bonus or a plus too.

But you have seen the strong demand in Maldives until the end of the year, right? I mean from China.

Yes, early on...

Because right now it's not in the pipeline yet.

No, it's not. Like I said, we go after other markets, select countries like India and certain countries in the Middle East for our Maldives destination. But Maldives used to be a prime location for Chinese travelers. What I'm saying is that, if Chinese outbound happened to be stronger, that will be a bonus and plus for us, too.

Okay. Two more questions for me. Moving on to the food business. Can you guide on the food margin in the second half? Any significant costs that can be lower from, for example, like food raw material or anything?

We are trying to curtail the raw material cost. I think we updated you last year when market price of raw material that we use increased by 14%, 15%, we managed to buy with the cost that increased only 6%, 7%. This year, we expect something similar along the same line. Raw material costs went up by about 9%, but we managed to buy raw material costs that went up by only like 3% to 4%. So proactive supply chain still on the card in terms of strategy. But no doubt, cost has risen, raw materials, utility and also other overhead costs. But we not only implement proactive supply chain but we do this optimal pricing strategy [ or many ] reengineering strategies to protect our margin and profitability as well. So I would say in the second half of the year, we'll hope to see -- we will try our best to expand margin of our food business as well.

Okay. And my last question is on M&A size. Can you guide on the budget that you prepared for the M&A for -- I mean for the rest of this year? And between like Minor Hotel and food, which one is more active in terms of the M&A that we could see in the second half?

M&A, like I said, it depends on the opportunity, and we're opportunistic in nature. So I wouldn't be able to disclose or -- the magnitude of the deal that we're working on. But rest assured that we would keep our leverage ratio at manageable and at the comfortable level. But at this point, it depends on the opportunity. So we -- you can use the level of leverage ratio as a starting point because now we are at 1x net interest-bearing debt to equity, but our internal policy is 1.3. And our covenant is 1.75. So we still have room before we get to 1.3. But we're not going to spend everything all in one go. We will look on a case-by-case basis, and look at the demand -- that return, also look at our leverage ratio, as I said.

Next will be [indiscernible].

My question is about hotels, especially in Europe. I would like to ask about the cost side. You mentioned about cost control strategy in the last quarter. Can you give us more detail about your strategy and about the cost trend in the third quarter? Do you see any surging in the cost price, especially gas price or food price in Europe?

Yes. Well, for gas or utility, we have some hedging strategy that we use. We discussed and negotiated with the utility supplier even 2 years ago, we hedged in 2022 100% of our utility cost, almost 100%. But for '23, we already hedged over 60% of utility costs. So it's already managed and locked in in terms of utility cost. And utility only account for about 4%, 5% of our total revenue. Other than that, the payroll cost, of course, is increasing. But the issue has become less of an issue this year compared with last year because people who fled our sector to other sectors during COVID and when our performance was not up to par, now they saw our earning recovery and performance recovery and guests spend more on our hotel and service charge that they will get. They came back to our sector. And the reskill, upskill process, which takes about at least 6 to 9 months that process, which were hurdle last year, become less a hurdle now because that process has passed. So we have more staff to help us now. And with our multiple brand portfolio, which resonate well among consumers, it helped elevate employee branding for us too. So that set us apart from other company. And then with the big change with the strong brand that we have, it helps attract more talent to work for us. So my point is, it's still an issue and cost is still going up, but it has been alleviated somehow by these strategies that we implemented. So on the whole, like I said, with ADR or pricing strategies that we use, the high pricing strategies that we use and proactive supply chain management and other strategies that I just mentioned to you just now, help us to see margins, like EBITDA margins, back to 2019 level, possibly, for the full year this year, maybe. When we did our budget last year, we didn't think that EBITDA margin was going to go back to 2019 level. But with the momentum of top line and the cost cutting that we have done so far, now we're confident that there high probability that we'll get -- we can protect our margin and get it back to '19 level.

My last question is about food in Thailand. Currently, somehow the domestic consumption is a bit softer. Do you see any sign of the sub-10 same-store sale growth of hotel in Thailand in the third quarter?

Food, right?

Yes, food.

Well, for Thailand in the second quarter, we still see same-store sales rise by 12% year-on-year. And in July -- or third quarter, we still see Thailand in the - same-store sales in the positive territory. So yes, we still see a strong growth right there. And then also not -- we don't hinge on just macro backdrop, but we're also very active in terms of coming up with new product menus to create excitement in the market and customer experience at our store, our outlets as well.

Going back to [ Tanshan ] again.

I think earlier you gave RevPAR trends for July, August for Europe and Thailand. Can you provide just broad colors on RevPAR in the entire portfolio for hotels for July and August?

We have for only in July. For Thailand, occupancy rate improved to about like 66% in July, from 60% in the second quarter. And RevPAR continued to grow about 22% year-on-year and still exceed pre-pandemic level by 5%.

This is for Thailand, right? Do you have it for the entire hotel for owned and leased? Sorry, is this just Thailand? Entire portfolio?

The one that I mentioned, the 66% I mentioned, about Thailand, sorry.

But the whole portfolio in July, right, occupancy is still hover 70% or over, while ADR still 40% higher than 2019 level, and RevPAR more than 30% higher than 2019 level. This is for the owned and leased portfolio.

And if I can follow up on the utility costs in Europe. The 60% hedge in terms of rates, is it higher than what the current spot rate? And as the hedge rolls off, should we expect more savings?

Majority is still lower than the market spot.

And just one last question on investment landscape, right? I guess broadly, most real estate sector is generally not doing too well, hotel has been quite outstanding. Are you seeing more competition for hotel assets? Or maybe on the reverse, are you also getting interesting offers for your assets as well?

Yes. Well, we see deals coming on our table all the time because Minor, even before COVID, we were known as acquisitive in nature. That's why we have grown our portfolio so much. So we have deal coming to our table to consider all the time. But like I said, we are very disciplined. We only deal or look at deals that meet our operational strategic and financial criteria. And we have to keep our leverage ratio at bay as well.

So in terms of the asset value, do you think they have moved since last year? If yes, just maybe ballpark, how much has hotel asset price increased by?

Well, it depends -- well, this is hard to say with a blanket answer across the board because it's different from one location to another and depend on the demand and supply mechanism in different locations as well.

Maybe on the reverse, right, in terms of return hurdle, has things changed or what is a minimum return hurdle?

Absolutely, because if you [indiscernible] your return hurdle with [ WAC ], add on country risk premium, add on development risk premium, for start, [ WACs ] went up, right, because of the interest rate environment. Also for the development risk premium, cost of construction has gone up quite significantly as well. So the hurdle that we have to make sure that we have to get probably going to be higher.

One from Mike.

Yes, 2 follow-up questions for me. So you talked about utility, you hedged 40% of this year already. How about next year as we're starting to see the electricity costs trending up again? Have to have been in the hedge for next year?

No. This year, it's 60, more than 60% has been hedged, 40% unhedged. And I think the utility cost compared with last year, it has come -- spot has come down a little bit from last year.

Sure. So my point is, for next year, what are we looking at? Are we hedging...

We're still working on discussing with the utility suppliers. If we have the updated number, we'll share with you later on. It will happen probably late third quarter and fourth quarter.

Sure. And then my last question is on the feeder market you talked about. So you've talked about bringing in more Indian, more Middle East tourists. I assume this is across your portfolio. But if we have a look at NH, which is a big portion of your portfolio, I understand that these customers are still quite small. So realistically, how much of an impact they could have in terms of driving ADR by going after these markets?

I think India and Middle East will help all across the board, especially our portfolio over here, MH, exclude NH. But for NH in particular, the Asian feeder account for only like 3% -- less than 5% of the total feeder market or room nights sold. So that's -- this is before COVID, and this is before we embarked on our synergy strategy with NH. So it gives us a sense of a room to grow or our ability to mobilize Asian travelers from here to NH. There will be a substantial potential to increase this portion from less than 5% to more with our sales office, with our distribution -- integrated distribution network. So I will say, yes, it gives us plenty and potential room to grow on that front.

Question from the chat. Can you redeem [indiscernible] call date? And do you have a plan to call in the first [ call date ]?

Well, we will redeem only by the first call date. And we redeem before first call date back then because of the special situation of the grandfather we got from the FAP.

Other question is on Chinese tourists. Could we account for all pent-up demand of Chinese tourists in this quarter? Or we still could expect more demand Chinese for us in the following quarters?

Well, it depends on the flight restoration, and we start to see some of the high net worth travelers coming back, but not in a big way yet. We hope for that in the third quarter even -- or fourth quarter when we enter in the high season in Asia or Thailand on the Maldives, where we will see more Chinese travelers coming back. The softness of economy of China probably going to have some impact. But I'll say our customer segments, which in luxury upscale segments, probably going to be more resilient than customer or Chinese travelers in budget segment or a lower category segment. So we might see some more uptick in Chinese -- for Chinese travelers in our luxury segments.

The next question, can we see Thailand performance turnaround in the second half from a loss in the first half? I want to correct, in the first half, Thailand hotels in terms of net profit, it was not making losses. It was a net profit, in the first half. And then we turned to profit from loss last year. And for NH, we saw an increase in lease payment in the second quarter. Is that expected to sustain or even increase for the rest of the year? Or is it partly linked to revenue?

Well, it's increased as we expand our portfolio, and especially right before COVID, we acquired Boscolo portfolio. So a combination of Boscolo and also the lease extension, we see lease in terms of absolute terms go up. But in terms of percentage of total, we don't expect to see drastic increase.

Okay. I think these are all the questions that we have. If you have any follow-up questions, our IR team will be more than happy to take them anytime after this. Thank you very much for your attention in our second quarter analyst meeting. See you next quarter.

Thank you.

Thank you.