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

Good morning, everyone, and welcome to Minor International Analyst Meeting for the results that we released -- the third quarter results of this year that we released earlier last week, pretty much the agenda similar to what we reported in the previous quarter. We'll start off with third quarter and 9 months in review, and then we'll deep dive into each of our key businesses, starting from Minor Hotels and then Minor Food then we will talk about corporate information like financial and balance sheet, and we will wrap up with the business outlook and our strategy recap at the very end. So let me start with the third quarter '23 in review and recent developments that we made during the quarter. I'll start with Minor Hotels. We continue to expand and implement our cross-brand expansion strategy via organic hotel opening and acquisitions. In this quarter, we have 3 new hotels opening. One is Anantara Koh Yao Yai Resort, which is the managed contract hotels, which was opened in Thailand. The second is the NH Collection Maldives Havodda Resort. We reported to you last quarter that we acquired this property in conjunction with our partner, ADFD, Abu Dhabi Fund Development. And we already rebrand this property into NH Collection, and is officially open in this quarter as well. Third is Oaks Perth, another MLR contract that we obtain and open the property in Australia during the quarter as well. Apart from the new opening of hotels, we're still going to do -- we still did a cross-brand uplift or brand upgrades, repositioning exercise that I told you earlier that we will continue to see any property that suitable to be rebranded and command higher room rates. In this quarter, we rebrand for example, NH in Italy was rebranded into Avani Rio Novo Venice Hotel. And in Mexico, we rebrand NH into another Avani Cancun Airport. This also the testament of our effort to reposition our hotel portfolio as well as the uplift our effective ADR overall. Just to give you some color, NH brand in general compared with Avani brand that we opened in Europe, the rate can be -- the gap of the rate can be as high as 40% to 50%. So that's just to give you some color on how our ADR has a potential to go up once the rebranded happened. For Minor Food, we continue to expand across geographies. In this past quarter, The Pizza Company signed master franchise agreements with the company in Singapore called Palms Food International Singapore, and we are going to introduce The Pizza Company in Singapore. The first outlet will be in March or first quarter of next year in 2024, and we plan to roll out The Pizza Company more in Singapore, but we just want to make sure that the brand is received well by the market. Next is Sizzler. We reported to you earlier in the previous quarter that we acquired master franchise of Sizzler, that will help us obtain additional 10 outlets in Japan -- 10 franchise outlets in Japan after we acquired this brand franchise or worldwide, excluding U.S.A., Puerto Rico and Guatemala. And we also signed a first franchise branch of Sizzler to be opened in Vietnam as part of our aspiration to roll out Sizzler outside Thailand and existing franchise store Japan. So we target CLMV and then Vietnam will be the very first one that we signed, and we're going to open first branch probably in the beginning of next year. Elsewhere, for Minor Food, we still continue to do product innovation, and we have been successful in doing so with one particular brand in this quarter. Dairy Queen, we create excitement in the market, and we have a new revenue stream with the new product innovation and Dairy Queen. We'll deep dive into that in the insight presentation later on. We used the strategy in what we call Premiumized strategy, highlight premium category of the sundae and beverage for. And that also helped us enhance average spend per customer for Dairy Queen. We also come up with exciting campaign products like, for example, you probably -- some of you probably are well aware of our limited time offer Thai Tea Blizzard or Bamboo Style Sticky Rice or column style of Dairy Queen Blizzard or Ovaltine Volcano Blizzard. These are some of the excitements that we create and create not only a bus, but the sales and average spending for our products for Dairy Queen this past quarter as well. For Minor Lifestyle, we enter into very popular products category, which is the toys, Pop Mart. Flagship store was opened in Thailand at Central World, through a joint venture with the brand principle in China. It has been well received by the market, and we are about to open the new -- another store in Thailand as well. So that's also help add to growth of our portfolio of this quarter as well. Elsewhere at the corporate front, we announced or declared interim cash dividend of THB 0.25 per share to our shareholders out of operating performance of first half 2023, just to -- as a way to give back to our shareholders. And we also completed the Thailand first syndicated sustainability-linked loans, which is the very first of Thailand leisure and hospitality sector. We did it in euro. And that's probably something that we report to the market early. Some of you have probably have seen it already. Next slide, just to recap our performance. The core revenue grew by 12% year-on-year as a result of performance of hotel restaurants improvement. Core profit was THB 2.3 billion in the third quarter, and that's registered another record high third quarter for us and representing 13% year-on-year increase from the previous year. And this already surpassed pre-pandemic level in the third quarter of 2019 as well. All business, all 3 businesses have positive profits, particularly Minor Food and Minor Hotels see bottom line growth. For Minor Food, the benefit from lower raw material costs and effective promotional spending, as I mentioned to you earlier, for some examples. And hotels continue to benefit from strong world tourist flow, particularly in Europe. Next is 9 months performance recap. We also see good recovery in terms of core revenue, which grew by 27% year-on-year. Core profit of THB 4.6 billion is also a record high 9 months for us, representing a robust turnaround from core loss of THB 360 million in the first 9 months of '22. This is because of the strong performance of hotels, restaurants and corporate offices overall, as I mentioned to you earlier. So next slide, just to give you an update that we operate in more than 60 countries around the globe across our hospitality and restaurant business. So from here on, I will hand the floor to Namida to deep dive into East business operating statistics and recent developments.

Starting off with Minor Hotels. In the third quarter, you would see that Minor Hotels revenue grew about 15%. And then this was driven by almost of the business parameters we have, including own and lease and also managed hotels as well as mixed-use business, except for the MLR the reported revenue decrease, but this was mainly due to the foreign exchange translation as Thai baht appreciated against Australian dollars by about 7% in the third quarter. In terms of net profit, despite of higher operating costs in labor and leases, our net profit continued to grow, increasing by about 8% year-on-year to THB 1.7 billion. And for the 9 months of the year, revenue grew about 32% year-on-year, while EBITDA grew at a much faster rate than revenue increases from effective cost management and also higher operating leverage from revenue flow through. And as a result, net profit was a turnaround from call-off of THB 1 billion in the 9 months of last year to before net profit positive at THB 3 billion this year. Drilling down into each business model. First is owned and leased. In terms of number of rooms, number of rooms was flat year-on-year but increased slightly by about 2% in the same quarter compared to 2019. And RevPAR-wise, RevPAR increased about 17% year-on-year in the third quarter, and this was driven by both occupancy and also higher room rates. The occupancy rate was driven by strong travel demand and especially in Europe, Latin America and also in Thailand. Compared to 2019 level on RevPAR of owned and leased hotels surpassed 2019 level by 30%. Looking to more details in each region, first, Europe and Latin America. RevPAR of hotels in Europe and Latin America increased about 11% year-on-year. Again, driven by both occupancy and room rate. The occupancy rate was increased from 69% in the third quarter of last year to 71%, while the room rate was very strong at EUR 145 per room per night, representing 8% year-on-year. And this -- all of this was driven by both leisure demand and also accelerated business travels, which were driven by a strong lineup of trade fairs and also corporate conferences. If you look into each region, all the regions showed good results. For example, Spain, all of the performance have reported very strong results, including in key and secondary cities. And also Italy as well, strong performance we're seeing in all cities, especially in Rome. For Benelux, secondary cities posted better performance related to -- I'm sorry, the key cities that Amsterdam, Brussles and conference cities post better performance compared to secondary cities, but vice versa for Central Europe that the secondaries were doing better because of the business travelers and trade fairs. And lastly, the countries of Argentina and Mexico led the good performance of the Latin America region. And compared to 2019, our RevPAR was above prepandemic level by 20% in terms of RevPAR. And this was mainly driven by higher room rates. Next is our owned hotels in Thailand. Owned hotels in Thailand continue to recover continuously. RevPAR grew about nearly 40%, and this was due to surge in demand from international tourism and also higher room rates. And our Minor Hotel strategy is to penetrate further into nontraditional feeder markets such as UAE, Saudi Arabia and also India. And in particularly, Bangkok outperformed other markets in which it's RevPAR surpass 2019 horizon by 5%. Meanwhile, other provinces in Thailand, like key destinations, in particular Pukhet, Chiangrai, Chiangmai, and Samui also saw a strong business recovery, posting RevPAR growth of 41% year-on-year. Our next destination is the Maldives. For the Maldives, the country continue to be in a re-base period. If you remember, last year, the Maldives saw a consistent influx of international tourists without any seasonality and have very -- and have very limited competition. Compared to this year, that seasonality is back to normalcy, and that's why we have seen RevPAR decline of about 26% year-on-year. But having said that, average room rate held it's around matching the pre-COVID level. Despite the Maldives reputation as the honeymoon destination, our strategy is to expand our customer base into family segment as well. So we have offered like family-friendly activities to share adventures, activities and also water sports at our key properties in the Maldives. And in the long term, we still believe that Maldives still stand out as a destination place for substantial growth. Next business model is under asset-light. So under asset-light, we have 2 businesses. First one is management letting rights or MLR, mainly in Australia and New Zealand and also hotels under management contract. For the MLR business, RevPAR continue to post impressive performance, with RevPAR surpassing pre-pandemic horizon by 40% in Australian dollars, and this was driven by both occupancy and also room rates as well. And despite the high -- very high base in the previous year, our RevPAR in the third quarter still demonstrated year-on-year stability. And for our hotels under management contract, RevPAR grew 5% and mainly because of the recovery of our hotels in Europe, Middle East and also in Thailand. While compared to 2019 level, it was aligned with our pre-pandemic level. And because of the newly added more management number of management contracts set by management income increased at a faster rate than RevPAR. The management income increased by 18% year-on-year in the third quarter. Next is our hotel expansion pipeline. In this hotel list includes only the management contracts that were already signed. And there will be additional hotels. We included this pipeline going forward, as now we are having more management contracts under negotiation. So right now, until the end of 2025, we are adding another 75 hotels or about nearly 12,000 rooms until 2025. And then of the total, 11 hotels will be under owned and leased business models and then the rest of 64 hotels will be under asset-light. And of all the expansion that you have seen, we are expanding across all geographies, including Europe, Asia, Middle East and also Latin America and Oceania. In terms of brands as well, we have very diverse spending in all brands that we have, including Anantara, Avani, Tivoli, NH, NH collection and also Oaks. And our last business unit under Minor Hotels is mixed-use business. Revenue in mixed-use business surged about 22% year-on-year in the third quarter, and this was driven by the Anantara Vacation Club business, plaza & entertainment business and [indiscernible] our restaurants in the U.K. Our current projects remain the same. We have 2 current residential projects, which are Anantara Chiang Mai Service Suites and also Anantara Desaru Residences in Malaysia. And also, we have Park Silom that were open in the second quarter. It is a mixed-use project with office and retail space. And in the pipeline, we are building another 3 projects, 2 residential -- I am sorry, 1 residential project in Indonesia and then 2 residential projects in Thailand. Moving forward to Minor Food. For Minor Food in the third quarter, our revenue grew about 4% year-on-year, and this was driven by food operation of the restaurants in Thailand, Australia and also in Singapore, as well as the increase in profit contribution from the joint ventures as well. Looking at the operational stats on your right. Total system sales grew almost 5% year-on-year, and this was driven by the outlet expansion and also strong operations of our restaurants in Thailand. For same-store sales, the higher store trading activities and also price increase at our restaurants in Thailand helped partially mitigate the softer performances in China. And at the EBITDA and net profit level, they have been growing at a faster rate than revenue growth. Net profit grew very high, surge to THB 584 million in the third quarter, and this was attributable to lower raw material costs and also our cost-saving initiatives in promotional and expenses. Drilling down into each shop. First is our Thailand hub. For Thailand, our total system sales, including our operations in CLMV increased about nearly 9% year-on-year. And the same-store sales decreased slightly by 1%. The positive same-store sales of restaurant in Thailand partially compensated for the softer performance of the franchise business in CLMV. But if we exclude the international franchise in CLMV, actually, the same-store sales growth was positive, growing about 2% year-on-year, mainly from the increase in dine-in sales. In the quarter, we have many brands to highlight. For example, as Khun Chaiyapat mentioned earlier, Dairy Queen hit the highest sales record ever, as it has come back into a new growth trajectory by adding new product categories like sundaes and also beverages on top of its original sauce of ice cream. Burger King and The Coffee Club also enjoys significant sales and profit growth from rising tourism. And also, Swensen’'s continue to do well, as it has launched a new coconut variety series and the Coconut series has achieved remarkable success. Third best-selling seasonal menu after our Durian and Mango sundaes. Next is our China hub. Net profit of China and profitability has improved year-on-year. And this was a result of lower fish price, lower discount offerings to the customer and also our strategy of store rationalization. Despite the same-store sales and total system sales decline of about 9% to 10%, amidst an economic slowdown. Although the sales declined, but as we mentioned, net profit improved from the implementation of cost management. For Australia hub, despite decline in same-store sales and total system sales about 3% to 4%, Australia reported revenue growth because of the increase in roasted bean sales, following the addition of the roasting capacity. And in the quarter, we continue to implement many sales initiatives in terms of branding and also in terms of new menus to boost customer traffic as well. In other markets of our Minor Food. Beyond the three main hubs that we mentioned earlier, we also operate restaurants in other regions including Singapore and the Maldives. For example, on Singapore, the restaurant business experienced a very rapid growth. Right now, Singapore has 19 brands, and the outlets stood at 85 outlets in the third quarter of this year compared to 71 outlets in the same quarter of last year. And recently, we just opened the new Benihana format in Singapore and also opened the second [indiscernible] hub in Singapore as well. So yes, on top of expansion -- outlet expansion in Singapore itself, Singapore also being expanded to other countries through franchise model, including in Vietnam, Thailand and also in Malaysia. We have been seeing strong total system sales of about 19% year-on-year in the quarter because of the increase in number of outlets and also addition of new brands as well. In particular Sanook Kitchen was the brand that reported very strong performance in Singapore. Lastly, the Maldives, we have 12 equity-owned outlets in the Maldives under our 5 brands. The Pizza Company, Burger King, Coffee Club, Dairy Queen and also Thai Express. And then we saw total system sales growth of 10% year-on-year, driven by rising customers, successful limited time offer products and also the price increase. And now I would like to hand over to Khun Chaiyapat for more corporate information.

Okay. For other corporate information, I would like to start with our capital expenditure, which didn't really change much from the previous quarter that we reported. The CapEx now get back to normalcy after COVID. So the range of CapEx this year will hold around THB 10 billion to THB 15 billion. So will be the subsequent year as well, '24 and '25. And the source of funding for this projected CapEx will be pretty much operating cash flow and from debt financings. But we have been [ shift ] our focus to do more deleverage. We prepare a lot of loans or debts that we have ahead of the schedule, just to alleviate the impact from interest burden in the mid of the high interest rate environment. And if you look at the -- our balance sheet, net leverage ratio has come down to about 1.05, which is well under our internal policy level of 1.3 and also way below the covenant level of 1.75. And at the end of September '23, we have a combined cash on hand and unutilized facilities of THB 20 billion and THB 41 billion, respectively. For the cash that we have in hand right now, we're going to reduce this cash to the deleverage, and that will help alleviate interest burden, improve our earnings, and that will also propel growth for the upcoming year for us as well as a result of this deleverage. So next slide, just to give you some color about our debt profile. If you look at our debts, euro still account for the majority at 64% and 29% by Thai baht. The fixed and float split currently at 57:43 at the end of the third quarter. We continue to maintain roughly about -- this roughly 60:40 fixed float in the rising rate environment. But now we believe that the rate approach begin of the rate hike cycle, but it's probably going to stay high for a little while. So that's why we emphasize to repay or prepay high rate debts and debts that we have, as well as implementing some hedging strategies to alleviate the impact of high rate environment and contain our cost of funds. I wouldn't go into detail of each currency because we have explained to you in the previous quarter as well. But basically, we have adjust fix higher that float in the rate rise environment, and we also implement a few hedging strategies for various loans that we have as well. So I'll move on to business outlook and our strategy. As I said, on the whole, we will continue to deleverage, but we don't rule out the possibility that we will continue to expand both organically, and if opportunity arise, inorganically. We're willing to look at it as long as the return, the ROIC and the investment feature, meet with our criteria. So -- but overall, the outlook for us still remain right for both Minor Hotels and Minor Food. For Minor Hotels, we will continue to do cross brand expansion strategies in all geographies. So each brand will expand their franchise and network beyond the original market or traditional market. In Europe, in October, we see a strong flow benefit from citywide events and corporate conventions and trade fairs. If you -- if we look at the stats in Europe, occupancy rise to higher than 74%. Also ADR also rise roughly about 13%, 14% year-on-year, which is roughly about 40% higher than pre-COVID level. So October still going strong. But bear in mind that November, December will be a period of winter and we will enter a low season in November and December. But for Thailand, on the contrary, it will be a high season in Thailand as we enter into fourth quarter and festive season. And we all know that the government granted Visa waiver for travelers from China, Russia, Kazakhstan, Taiwan and India, and that will probably help accelerate a recovery in Thailand for us as well. Performance of Thailand portfolios continue to surpass pre-pandemic level, with more diverse tourist source market. If you look at the stats of Thailand. In October, we still see strong stat with higher than 60% occupancy. And now on the book, if you look at December on the book that we have, it's already over 50% on the book, and we believe that we will get to 70% or 80% quite easily in the fourth quarter of the year. For Australia, our fourth quarter performance expected to be strong quarter-on-quarter as we enter into summer period in Australia. We have launched various target campaigns to boost demand in leisure markets. At the same time, we -- our sales force has been implementing target [ mice ] or meeting conference exhibition market quite actively driving revenue across all business segments for Australia as well. Moving on to Minor Food, we will continue to come up with new products, innovation, enhanced experience of consumers and expand base of our customers even more. The focus will be driving revenue and market share through new growth initiatives. We have -- if you follow us closely, we have brought Poulet from our brand in China into Thailand. We have brought Poulet, our brand in Singapore to Thailand. We have brought Riverside, our brand in China into Thailand as well. And we have actively drive -- grow our new product category, like beverage category like GAGA. This is part of our cross-brand expansion strategy that I mentioned to you earlier in the past quarters. We also try to increase average spending per ticket as well for some of our core brands, expanding their product categories and creating new revenue streams. We also tried to resize our stores. Our outlets, some of them with smaller formats to increase market penetration, and we try to enhance productivity per space and shorten the payback period. And we also try to maintain leadership position in our delivery because we have our own delivery platform, apart from doing brand rejuvenization for some of the key brands that we have, and also maximize expansion in Thailand and also some of the key markets that we have franchise capability. In China, the key strategy is to alleviate the impact of macro slowdown, just to safeguard profitability. As Namida mentioned to you, even though we see revenue or top line a little soft than we anticipated originally, what we managed to get our profit to meet our budget and target number on the back of the significantly lower raw material price like fish prices of Riverside. And also, we try to be disciplined in terms of offering less discounts, optimized labor costs and improve operational efficiency just to maintain margins and the bottom line. For Australia, we have a few sales initiatives to boost customer traffic. We have incremental coffee bean roasting capacity in Australia that expect to drive higher coffee sales for us. And Coffee Club, new full-flavored, full-bodied coffee blend has been welcomed by the market in a big way since we pilot the project. And this could pave way for nationwide launch next year, strengthen the reputation of coffee authority for us, and eventually leading to higher sales as well. So in general, we will see strong outlook in the year ahead. We're going to have our long-term plan, a 3-year plan submitted to the Board at the end of this month. And after that, we hope to have more colors of outlook and guidance to you in the presentation next quarter. In this last slide, just to recap you with the key strategies based on our current 3-year plan. We try to have a winning brand portfolio. We try to improve productivity and improve our margin and product profitability. We continue to look for good investments, even though we're in the high rate environment. But given our opportunistic nature, we -- anything that comes by with a high return, high ROIC, we will consider it. If it helps compensate for the high cost and high rate environment that we're in. We'll look at it. We continue to look for partners as well. And we continue to streamline our digital and innovation platform on the back of people capacity and capability that we have, which is quite strong. As a result of our strong employee branding that can attract talent to our organization, and we always continue to have ESG at heart for our sustainability strategy, more in conjunction with our business strategy and that bodes well with the successful sustainability-linked loans that we completed in the last quarter that I mentioned to you at the very beginning. So I guess that's it for our presentation for this quarter. I believe -- I say we will open the floor for questions. You can send it online or you can raise your hands virtually, and we would follow up for your questions.

First question is on restaurant situation in China. How much traffic have been lowered compared to pre-COVID, and should we expect loss contribution in the fourth quarter?

I think the sales has been soft in like key cities like Shanghai, Beijing, but we're still doing well in the, say, some of the outside key cities like Hangzhou. We continue to see sales coming in, as I said, but not as strong as we anticipated. Compared with pre-COVID, we gradually recover from COVID level, but almost there to match with pre-COVID. But at the bottom line level, because of the fish price that has come down dramatically, and fish is our core raw material for our Riverside chain in China. That helps a lot for us to meet our profit target for the year this year. And we hope that next year, when we have the macro backdrop improve, maybe on the back of the government's [indiscernible] measures or on the back of our own effort to strengthen our brand in a more efficient way that will help us to continue to see profit growth.

Next question will be on debt. We have mentioned that there will be further debt repayment by using cash on balance sheet. How much debt is expected to be repaid by the end of 2023 and as well as in 2024?

Well, at the end of third quarter, we have cash roughly about THB 20 billion, right? But before COVID, we hold cash of over THB 20 billion. But no, before COVID, we held cash about THB 13 billion, THB 14 billion. And during COVID, we held cash over THB 20 billion, just to maintain or retain liquidity, just to make sure we weather through the crisis. Right now, cash over around THB 19 billion or THB 20 billion. We're going to use that cash to pay down more debt, and cash balance at the end of the year probably going to come down to the level like before COVID, say, THB 13 billion, THB 14 billion. So another, I'll say, THB 6 billion will be paid -- used to repay or prepaid debt towards year-end. But note that over the past 6 or 9 months, we have been very active in terms of paying down debt ahead of the schedule and ahead of the plan, with the earning recovery that's coming stronger than we expected, and that will help alleviate the interest burden that we're going to have in the mid of the rate rise environment that I mentioned to you earlier.

We have 2 people raising hands. First Tidarat from KGI.

Tidarat from KGI. My first question is about hotel in Europe. You give us about the picture in October, how about the overall fourth quarter? What do you expect about the occupancy let and the [ RevPAR ]?

Well, fourth quarter will be low season in Europe as we all know, especially in November and December. But in October, as I said, occupancy is peace through higher than 70%, i.e., 74%. And if you compare with fourth quarter 2019, occupancy hover around 70%. So in October, now higher than fourth quarter of 2019 level. But November and December it's -- we're going to low season in winter. But on the whole, I'll say, we still continue to see not only high occupancy in October, but also high ADR, it's 40% higher than pre-COVID level. So I'll say, occupancy probably going to hover around 70% level, similar to pre-COVID level and ADR is probably going to be higher than pre-COVID level.

And the next question is about the cost side of next year. I think that around this time, you negotiate about the cost for the next year for hotel, maybe the utility cost. Can you update us about utility cost of the hotel uses next year compared to this year? And for the food business, about the raw material costs?

Well, for utility, our energy, particularly in Europe. As I mentioned earlier in the previous quarter, we have implemented hedging strategies and that help us contain energy cost or utility costs dramatically. Because originally, we thought our energy costs will hover around 5% or over 5% to 6% of total revenue. But with that hedging strategies, we managed to contain that cost at around 4.5%, 4.6% of total revenue, only compared with our anticipation originally. And now we continue to implement with the volatility of the world situation and energy situation, we also still implement the energy hedging strategy. Currently, our electricity, it's more than what -- it's roughly about 1/3 hedged for the following year. But we target to hedge up to 80% to 100% going forward. We are in the dialogue in negotiation with our electricity suppliers. As for natural gas, currently, we have already hedged 70% of our portfolio. So -- and then we also target about 80% up to 100% hedged as well going forward. So that's something that will continue to help us contain this cost. Elsewhere, other costs, definitely in the inflationary environment, we see costs rising as we started to see it rising since last year. But we have implemented a mitigation strategy like ADR maximization strategy to help compensate for such cost increase, and we even see margin expansion in the first half, and that also helped us to see the whole year profitability safeguarded as well.

For the amount that you already hedged, how about the cost compelling to this year?

Do you mean the price? Whilst some of the contracts price that lock in, it's lower. Some of the contract price that we lock in is higher. It's a mixed bag now. But we believe that we better hedge at the lock-in in price, because there's possibility that energy costs might rise again on the back of many people's view in the mid of the geopolitical situation that we're in. So I think at the end of the day, we're better off with this hedging strategy. But right now, it's a mixed bag between the price of the contract and the spot price in certain -- in different jurisdictions.

My last question is about minimum wage increase in Thailand. Do you have a valuation of that impact to Minor Group?

Yes. Well, we pay higher than minimum wage anyway. But we don't stay complacent and not doing anything about it. What we're doing here is -- we try to elevate employer branding. We strengthen our employee proposition. We scout the best talents in the market. We -- with our brand portfolio, consumer portfolio and the hotel portfolio, we continue to strengthen these brands. And these brands will help elevate employee branding in return, and that helped attract more talents and to stay competitive in the market. So that's your question about cost of labor?

Yes. Yes.

So I'll say we have everything under control. But the only thing that we have to face is the contracted labor agreement in Europe, which rise alongside CPI or inflation that we have -- that we see, because of not only the shortage of labor, the shortage of labor situations become -- has evolved better compared with the previous year. But it -- but the labor cost is still -- were a little bit higher in Europe compared with elsewhere that we operate. But like I said, we compensate that with the ADR maximization strategy that we did since last year. Up until this year, we still have room to absorb such increase in those costs, and we still see ourselves profitable.

Next will be on Xuan from Goldman Sachs.

So the presentation. My first question is on fourth quarter. Can I confirm that you still expect RevPAR to hold about 30% above pre-COVID level?

Well, in -- for the overall portfolio this quarter, we have RevPAR, if you see our RevPAR, it's roughly about 38% higher than pre-COVID level. And we continue to see the same trend, but the magnitude, I wouldn't have like a view on the magnitude as yet, but it should be like in the double-digit range.

Okay. Or maybe can you share sequentially, are you lowering ADR on a like-for-like basis?

No. We at least will -- in certain properties, we try to even increase ADR or at least maintain, but we have strategy. I know that ADR couldn't be raised organically forever, excessively like what we did last year and this year. But going forward, we will continue to put our effort to increase ADR even more through our repositioning exercise, our rebranding strategy and our effort to ship our channel -- sales channel more from wholesale to luxury retail and that will also help us to command -- still command higher room rates and ADR. That's the strategy.

All right. And my second question is on margins. I think last quarter, you guided that 2023 margins should go back to 2019 level. Can you give us a sense, how are you thinking about 2024 EBITDA margins? Where do you see savings? And where are the cost pressure?

Well, I'll say, I will have more color to share with you after our Board meeting, the 3-year plan that we're going to talk to the Board at the end of the month. But I'll say, the margin this year will very -- it's much better than our original anticipation, as I told you earlier last quarter, and we're probably going to be -- get to very close to 2019 level already. And 2024, we'll try to get -- try to see margin expansion year-on-year still. So with the rising, we bear in mind that's rising costs at all fronts, especially in Europe with the labor cost and interest rates. But as I said, our effort to heighten revenue growth to obtain operating leverage and also our effort to increase ADR further to repositioning and rebranding exercise and cross-brand expansion strategy. And also the synergy that we can get out of NH and Minor Hotels that we will get even more in the upcoming quarters in the upcoming years, will help us see some of the operating leverage and flow through and see margin expansion in '24 compared with '23.

Got it. My last question is on payment for hotel leases over the longer term. Can you give us some visibility on any upcoming renegotiation, especially with RevPAR, about 30% above pre-COVID level. Do we expect the payment for hotel leases to increase going forward in EBS by what percent over what term?

Well, of course, the lease will go up on the back of the high inflation -- high CPI, right? But in the past, we have restructured our lease. We try to balance between fixed and variables. So in terms of leads, like I said, it's part of the cost that rising, as I mentioned to you earlier. That cost has risen at all fronts, lease is included with the upcoming lease negotiation and with the expected CPI. And that I already made in my explanation to you earlier about profitability and margin. We believe that ADR that has been raised so high in the past -- this past year or 2, as well as our further effort to heighten ADR even more, that will still help compensate for such rise in cost included leases.

Would you be able to give us a breakdown of leases that have already been renegotiated and also upcoming? How many percent are we left to go?

Well, with that detail, I'm not sure whether we can disclose at the moment. But we'll get back to you on that front with that question. I have the number in my head, but I would -- I have to double check, and then I'll get back to you.

Talked about the performance of Europe in the fourth quarter, and [indiscernible] what are the expectation of occupancy in RevPAR trend of Europe in [indiscernible] ?

Well, like I said, we will continue to see occupancy improving. Because if you look at the portfolio in Europe compared with 2019 level, the occupancy gap is still lag behind by about 3 to 4 percentage points. So we still have room to get occupancy back to pre-COVID level. In terms of ADR, as I said, we will continue to do more ADR increase, but the magnitude is probably not going to be as substantial as what we saw in 2023 and '22, because we are in the mid of the revenge travel, but things will normalize more. So ADR increase will probably going to be by lesser magnitude. So that will give our RevPAR growth anyway. But in terms of specific guidance, let's wait for next quarter. We're going to have official guidance for you guys after we have our Board endorse our long-term plan.

[indiscernible] hear about the outlook of the hotels in the Maldives. Do you expect RevPAR of the Maldives to grow year-on-year?

Well, this year, it's a challenging year for the Maldives because we have such a super high base effect last year. Last year, Maldives is a high season all year round. And this year, when we -- everybody else opened their border, so the seasonality of Maldives has become normal this year. So it's a re-base period for the Maldives. In terms of ADR, even though we see a soft ADR compared with last year, but we still see that ADR still high above the pre-COVID level. And occupancy, during, I'll say, November and December, it's probably going to hover around 56% to 64% compared with 70% in 2022. So it's a little softer because of the seasonality rebate that I just explained to you earlier.

How many -- how many Pop Mart stores you are opening? And what's your outlook on this field?

We already had one store debuted earlier at Central World. We're going to open another store in Terminal 21 this month. And next year, hopefully, in the first half, we're probably going to open another 2 stores. I would let you know where later on.

What's the occupancy ratio for the Park Silom office? And for the office area, that this building also rent to other companies which are not minor subsidiaries.

Yes. Of course. Park Silom, it's -- now occupancy is higher than 60% and it's growing in the office, and roughly about almost 40% have already moved in. We have other brands, of course, apart from our own brands. We have [ Food Land, ] we have [ Pamu ] , we have [ Boots, Arabica Cafe. ] We have co-working space. We have lots. And the offices that moved there a few -- to name a few, Hitachi, of [ Gunite ] is there -- are there. So it's -- the occupancy is it meet our expectation is still growing strong.

The reason of a decrease in EBITDA margin for Hotels in the third quarter?

Well, of course, the cost that I mentioned to you earlier, and also especially contracted labor and CPI that's rising. But still, as I said, ADR is partially compensate for such a cost increase. But rise in ADR in the second half of the year, probably not going to be as strong as what we saw in the first half, because the country evolved out of COVID in the previous year. But on the whole, for the full year, we're confident that we will continue to see margin rising quite meaningfully from the previous year for the whole year for EBITDA margins. As I said, you will probably get approached or close to 2019 level.

At the beginning of the presentation, we mentioned that we are going to expand The Pizza Company and Sizzler under franchise agreement in Singapore and in Vietnam. How many franchise companies are you expecting per year?

Well, TPC in Singapore is still a pilot concept with unconventional offerings to test the market first, and we take it from there. But overall, a high-level strategy for The Pizza Company and Sizzler franchising in new countries, we hopefully to get to about 10 to 20 outlets per annum after proof of concepts or the test of the market has been well received. This is combined both brands. So this is -- we have to do it step by step. But the feedback or the feasibility, the study so far tell us that the branch should be well received by both Singapore for Pizza Company and Vietnam for Sizzler and probably other destination in subsequent quarters.

Next question will be on the margin of Food business. The Food business net margin was high in third quarter. Will it be sustained in the following quarters?

Yes. We hope to contain costs as much as we can in the cost -- high cost environment, and then we come up with new products innovation to create excitement without active promotion campaigns. We hope to see top line improve for Minor Food, and that will provide operating leverage and allow us to see margin expansion. And we're not talking about just fourth quarter of the year, we hope that in the subsequent year, having 5 -- 3-year plan model by top management and the Board now, but we hope to expand our margins for Food NPAT margin from, I'll say, 6%, 7% currently to about like more than 8% or 9% in the next 3 to 4 years. Yes. Some -- a few questions here that are coming through. We already answered it. And okay. There is a question about CapEx plan. What's the budget for M&A each year? Well, I would have to say, we have a lot of earnings recovery and the cash flow from operating activities will primarily use to fund normal CapEx or maintenance CapEx and deleverage to reduce interest burden and improve earnings because of the deleveraging exercise. But for M&A, we would try to look at it on a case by case, and we can use cash flow from operating activity or debt financing, but we didn't set aside the fixed amount of CapEx to dedicate to M&A. As of now, our base case projection that we look at is based on minimal M&A growth at the moment, just to make sure that our leverage ratio comes down even more. But we don't say -- we never say never, because we are opportunistic in nature. As I said, if M&A comes in, with a high convincing stories with a high ROIC, high IRR, meet with our investment criteria and enough to compensate for a high rate interest rate burden, we're willing to look at it, too, but it's opportunistic. Okay. Well, there's a question I think I already addressed, is at how much debt do you expect to prepay? As I said, this year, we have prepaid substantially in the first time. And this last quarter, we will probably get a net prepay about [ THB ] 6 billion to [ THB ] 7 billion. Next year, we will try to see how much earning recovery that we get. And when we use that cash to prepay our debts more. But we have to strike the right balance of how much we can use it to repay, and how much we're going to use to expand either organically or inorganically, depending on the opportunity that arises to us at that moment. So it's quite hard to set the number in stone, but our intention is to deleverage and our leverage ratio should come down even further from the current level.

Is the same-store sales growth for each market in October?

In October, in Thailand, same-store sales is still over a negative 1.6%, 1.7% and total system sales growth was roughly about positive 1% to 2%. There's a question that do we still see further room for ADR to increase organically without repositioning and with our rebranding? I'll say, yes, because demand that we continue to see demand coming in not only the leisure demand, but also business-related travel at the moment and as well as the flights, we see more flights coming in more flights or air connectivity has been restored more and more. And also the synergy that we bank on to mobilize say, Asian travelers to Europe, European travelers to Asia. This synergy that we model even before COVID, that we're going to get out of NH acquisitions now starting to kick in. And now we have a loyalty member combined between [ us ] and NH, and we now currently have 25 loyalty members, which make us the largest hospitality loyalty program in the world. That will also help drive growth demand and also, we hope to drive ADR -- organic ADR from that as a result as well. There is a question on -- there's a question on leverage ratio, whether we can share target debt to equity in year 2024 and also cost of funds. We'll share with the guidance again next quarter, but what I can say now is we try to get it below 1 in '24. Now it's like 1.05, but we'll get it below 1 -- certainly below 1 in 2024. Cost of funds definitely is going to rise as a result of high reference rate or rate in the market. Our cost of funds last year 2022, hover around 3.7%. But in '23, cost of fund probably going to hover around 4.9% up to 5%. And in '24, it's probably going to be a little higher than 5%, in the range of 5% to 5.5% -- early 5% to 5.3% or 5.4% something like that. But as I said, we have to see how we can accelerate the deleverage and using hedging strategy. So there's some downside to our cost of fund or upside to our earnings still going forward.

I think we have covered all the questions now. But if you have any other questions, please feel free to contact our IR team, and we will be more than happy to take them any time after this. Thank you very much for your time today.

Thank you. [Foreign Language]