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

Good morning, everybody. Welcome to the company presentation for Minor International, and we welcome analysts and investors today to listen to our recent development, recap of our results. The results have been released earlier, and we had a quick call earlier with some of the analysts, and we saw some of the reports coming out, but we want to go through a little bit more detail in terms of the numbers as well as focus, primarily on the rationale behind the numbers as well as the outlook that we tend to see for the rest of the year or next year as well. This is the agenda. We start with the recap of recent developments and then the numbers in the second quarter as well as the go through business by business and corporate information. At the very end, we will talk about outlook strategies to achieve our goal that we set up at the very beginning of the year. So start with the quick recent development recap for both business, Minor Hotels and Minor Food. Minor Hotels, if you look at this quarter, this past second quarter, we have 9 hotel openings in this quarter. Remember, in the first quarter, we roughly had about 12 hotels opened. So altogether in the first half, we already had 21 hotels opened in the first half. This second quarter, we had an NH collection Helsinki Grand Hansa opened in Finland. We also have Avani Ratchada Bangkok Hotel, which is the managed hotels that opened in Thailand. In terms of NH brand, we have a NH Bangkok Sukhumvit Boulevard, NH Bentota Ceysands Resort and NH Kuda Rah Resort Maldives and NH Johannesburg Sandton, all of them are managed, and they were converted from other brands and rebranded into our brands is happening in Thailand and Sri Lanka, the Maldives and Africa, respectively. NH Collection brand, we also have NH Collection brand open, such as NH Collection Colombo, NH Collection Peace Resort and NH Collection Reethi Beach, all of them are managed as well. And as I said, they were converted and rebranded into our brand echoing our ability to show strength and strong operational and marketing capability to attract hotel owners to continue our brands. And show that we have a lot of potential to amplify our asset-light scalable strategy in the future. And in this collection that I just mentioned, happen in Sri Lanka, Thailand and Maldives as well. Apart from hotel openings, we also have hotel -- the brand upgrade and enhancements. We try to see any brand that in our portfolio can be rebranded into appropriate categories or even higher categories in order for us to capture higher ADR, high room rates and then continue to drive our RevPAR further. This quarter, we have NH Collection, rebranded to Tivoli Palazzo Gaddi Firenze Hotel. And another one is NH, which was rebranded into Avani Museum Quarter Amsterdam Hotel. So the two hotels are the one that we rebrand in the quarter. For Minor Food, we continued to have new product innovations and some of the promotional sales and marketing campaign initiatives launched on an ongoing basis. This quarter as well, we expand market reach and customer engagement. You look at Minor Food leadership in Thailand, we dominate as that #1 food chain, not only in Thailand but recently, we have about 7.6 million loyalty members at the moment. And the Pizza Company, our core brand in the portfolio introduced 20-minute delivery guarantee very first and outstanding in the market, and that helped sustain our leading position, trend center for the market. Dairy Queen as well, we expand this brand into new cities in Indonesia, including Bali and Banten. Indonesia is the high-growth potential market with large populations and a lot of room to grow in this market going forward, not only for Dairy Queen, but maybe for other brands in our portfolio in the future as well. Apart from that, we still have innovative products and store network expansion. The Pizza Company, we introduced value-tier pizza, single-served BiTE, you probably have heard, and opened a flagship store in Phrae province in Thailand in order to retain our leading market awareness. So we get some market by having this flagship and then we cater more towards single-served menu to expand our customer base in innovation of our products to. Sizzler, we reemphasized the combo menus concept, and then we also continue to have new thematic offerings for Sizzler, for example, the Sizzling USA barbecue this quarter. So the best [indiscernible] sales for Sizzler in -- during the quarter and in the following quarter as well. We also tried to have some outstanding and captivating customer experience. Swensen's in this quarter, launched attention-grabbing Durian Town Experiential Concept Store in Thailand for the first time. This is something that I think it's new in the market, excited about it. We offer like a wide variety of Durian products from Swensen's in one location. On the corporate side, we successfully issued THB 8 billion bonds in July, THB 5 billion of which sustainability linked bonds and remaining THB 3 billion is the conventional bond with the tenure. The sustainability link bond THB 5 billion has a tenure of 3.5 year. But the remaining THB 3 billion [indiscernible] bonds, it's all for 10 years tenure. At the favorable rate, I must say, attractive grade to help manage our funding costs as well. Well, moving on to second quarter performance recap. Again, this second quarter, we set up a new record high again for the quarter, with core profit rising to achieve THB 3.2 billion. We achieved 8% percent growth in profit, which was contributed by the success of our hotel business, especially in Europe and Americas during the start of the high season. And also, we saw increased customer traffic at our restaurants in Thailand and Singapore, in particular. And if you look at the results, we have some of the impact from revaluation from ForEx that we mentioned in our brief call earlier in the week. We exclude that impact from exchange rate core earnings are coordinated profit, we've grown by more than 30% year-on-year. Moving on to second half performance. Core revenue rising by 12% year-on-year, again, back up by the performance of hotels and food business. And given higher revenue of ours, combined with the cost optimization, efficiency from our operating platform as well as some tax management, especially when we can utilize that loss carryforward, co-profit increased by 22% year-on-year to THB 2.9 billion. This is just to show you our presence of our business now expand about 65 countries. I wouldn't go into detail, but I just want to say that the majority of the contribution, i.e., 78% still coming from overseas while 22% coming from Thailand. Now I will hand over to Kun Namida to talk about our business in detail.

First, we start out with our Minor Hotels. For Minor Hotels, we reported revenue increased about 11% year-on-year. And then this was supported by higher room rates and also higher travel demand especially from our owned and managed hotels in Europe, Latin America and in Thailand and as well as our managed hotels, particularly in the Middle East and Thailand as well. And also, we have seen the increase in all of our regions. And if you look at our EBITDA and net profit, it has grown at a slower pace compared to revenue, but this is solely because of the unrealized foreign exchange loss that we reported in the quarter, while last year, we reported the unrealized ForEx movement gains in the same period of last year. If we're stripping out this revaluation impact, our core earnings would have grown at a much faster pace than revenue and the EBITDA margin would have expanded as well. And this was driven by high operating leverage that we have it from revenue flow-through and also our efforts to manage our cost. In terms of each business model under Minor Hotels, the first one is owned and leased. In terms of a number of rooms, year-on-year for owned and leased was flat, but increased slightly by about 2% compared to 2019 level. Looking at the RevPAR number, we saw a 14% year-on-year increase in RevPAR, and this was driven by our hotels in Europe, Latin America and Thailand. And this RevPAR was mainly driven by higher ADR and also higher demand as well. And if you compare to pre-pandemic level in 2019, our RevPAR overall increased and outpaced 2019 level by more than 50%. Drilling into each region, Europe and the Americas, which is our biggest contributor. The RevPAR, our owned and leased hotels in Europe and Latin America grew about 8% year-on-year. You can see that the sustained share demand and strong growth in business segment has driven our occupancy rate to about 73% in the quarter. Meanwhile, our brand upgrade initiatives has led to an increase in room rates of 7% year-on-year to EUR 165 per room per night. And if we compare to 2019 level, we saw the RevPAR outperformed pre-pandemic level by about like 44%. If you look into each region, for example, Spain, we continue to see very strong leisure demand, especially in key cities like Madrid. Why Italy, also was driven by the share segment as well, including in values and secondary cities. Meanwhile, Benelux and Lat Am, the key drivers were the business segment for the Benelux. We saw strong business segment in series cities, while in Latin America, the corporate demand was stronger in Mexico and in Colombia. And lastly, Central Europe, we saw a good leisure demand whether it's in key cities and then in secondary cities as well and then starting off from the mid of June, we started to get benefits from the Euro Cup on 2024 football event that happened in many cities across Central Europe and Germany. Next [indiscernible] is Thailand. Thailand RevPAR increased about 14% year-on-year and based we get benefited from rising international tourist arrivals and also our efforts to increase room rates as well. So both Bangkok and other cities, key tourist destinations like Phuket, Samui and Chiang Mai, they were all reporting strong year-on-year RevPAR growth. And if we compare it to 2019 level, RevPAR has outpaced the 2019 level by 28%. Moving on into another business model asset-light. The first one is management letting rights which is particularly our hotels in Australia and New Zealand. If you look at our RevPAR compared to pre-pandemic level, you would see that it has exceeded more than 30% year-on-year. And this was due to our successful pricing strategy while average occupancy rate was very strong more than 70%, which was on par with our 2019 level. But if we look at a year-on-year basis, you would see a slight decrease in terms of RevPAR, about 7%. However, the decrease in RevPAR was in line with our expectations. If you remember, 2022, 2023, they were already high base. So last year, it was a very, very high base our hotels in Australia. And in this quarter, also, we saw growth in corporate segment, but it was only partially offset a softer domestic shift. In terms of our hotels under management contracts, we continue to see strong RevPAR growth both year-on-year and compared to 2019 levels as well. So RevPAR was above -- last year, about 14% and was above 2019 level by about 21%. And the hotels that drove the RevPAR growth was mostly in the Middle East and then in Thailand. Looking at our expansion pipeline, you will see that in the first half of this year, we already opened about 21 hotels with more than 3,400 rooms in the first half of this year. So for the second half of the year, we will be opening more than 20 hotels with more than 3,000 rooms. If you look at the full year, you would see that more than 90% of our new hotels will be under asset-light, which are under management contracts or under management letting rights, and you would see that in terms of geographies, we will be expanding more, half of it moving in Asia and then -- by Europe, Middle East, the Americas and then also Oceania. And in 2024 and in -- 2025 and then 2026, you would see we are going to open more than 40 hotels, but I haven't said that -- when we go along with the year, you would see higher management contracts because there are still more management contracts that we are still under negotiation. So if you see 2024 to 2026, we have nearly 90 management contracts that we already signed and we're already agreed upon. And then we have more than 160 management contracts on hand that are under negotiation. So we want to emphasize that all of our hotel expansion pipeline will be -- mostly will be under asset-light, and then we will be doing -- continue to do cross-brand strategy as well. So as you can see, we try to use Anantara, Tivoli. And Tivoli expanding into Europe and vice versa, like NH Collection moving to Asia and then the Middle East as well. For the mixed-use business, this quarter, you would see that the revenue from mixed-use business was on par with last year. We saw positive growth in all of our sub-business units like, for example, our Anantara Vacation Club, our restaurants in the U.K. under the Wolseley Group, retail trading, including Pop Mart as well as Plaza & Entertainment. But however, because of the mismatch of our settlement of selling of the residential projects. So that's why we saw the mixed-use revenue was flat year-on-year. So last year, we have been selling residential projects that we fully owned compared to this year, we have sold some of the residential projects that we are joint venture with our partner. This is our projects -- our current projects and also projects that are in the pipeline. So we make sure that we will have continuous revenue stream from the residential units, which yield high margin. And for this quarter, Anantara Vacation Club business, we have added another destination for the net inventory. So we had it to buy for our membership so that they can enjoy more hotels in different geographies and different destinations. Moving on to Minor Food. The car restaurant of Minor Food revenue grew about like 5% year-on-year and this was driven by our restaurants in Thailand, of Australia and then Singapore. And as well as we have seen the increase in our profit contribution from the joint ventures. If you look at the graph on the right, in terms of operational stats, you will see that in the quarter, we saw a slight decrease in terms of same-store sales, about 2.8%. Although our restaurants in Thailand and Singapore saw positive growth. It was only partially offset the softer performances in China and Australia. In terms of outlet expansion, we saw about like a 3% increase in terms of number of outlets. And this was mainly driven by outlet expansion in Thailand and Singapore. And in the combination of same-store sales and outlet expansion, we achieved total system sales growth of about like 2.5%. And in terms of EBITDA and core profit, you would see that both EBITDA and core profit grew at a much faster rate than revenue for Minor Food, growing about like 36% year-on-year to THB 581 million, and this was driven by cost management and higher revenue flow-through, especially our restaurants in Thailand and Australia hubs. In terms of international presence, you would see that Thailand still being a key contributor for Minor Food and accounted for about like 60% and then the remaining 40% are in China, Australia and [ New Zealand. ] [indiscernible] the first one is Thailand. So if you look at restaurants in Thailand, you would see that same-store sales increase about [ 1%. ] And with the network expansion, we saw higher growth in terms of total system sales growing up about 7.4% year-on-year. So the growth in same-store sales and total systems sales were driven by all of our distribution channels, including dine-in, takeaway and also delivery business as well. So in terms of dine-in traffic, we try to launch new product innovation, so to stimulate people to come in for to dine at our restaurants. For example, TPC has a pizza company has promoted itself as a Western destination concept, not offering only pizza, but also pastas, steak and salad to both din-in. And in terms of takeaway and delivery channels, we have launched new menu and also we try to strengthen our loyalty sales, for example, pizza companies launched the single-serve new menu called BiTE and it was a success with like 13% sales mix for the pizza company. And also the Coffee Club has increased its loyal members for that loyalty -- that loyalty campaigns, especially those [ IT ] soft beverages. And another thing that we want to highlight this quarter is that it's about the profitability margin of Thailand hub. So we have seen an increase in EBITDA margin for Thailand hub though it increased higher margin sales mix. So sales increase from dine-in channel have been increasing. And this time in -- dine-in in China use higher margins. And also, we are benefiting from our own manufacturing units as well as -- has like ice cream, pastry and then we have our own R&D team interest court all of our Minor Food spread. Next is China hub. As everyone would know that China has experienced economic challenges throughout the year. So that's why we saw total system sales and same-store sales to decline of about like 23% and [ 28% ]. So the economic challenges has led to a decrease in this customer accounts and also some of the closures of underperforming stores. But having said that, we want to highlight that despite the challenging economic conditions, our Minor Food operations are still profitable, and we saw a solid margins as well. And for the strategy, in the second quarter, we try to relocate some of our stores into a higher traffic areas, and we are forecasting on the locations with short payback periods and higher returns on our invested capital. And the last strategy of remain focusing on our cost control measures of our restaurants throughout the country as well. Lastly, will be Australia hub. Australia has faced the same thing in China. We saw weak macroeconomic conditions throughout the country and that led to total system sales and same-store sales decline of about 5% and 4%, respectively. So we have seen low domestic consumer confidence and then also the pressure from higher cost of living as well. So at store, we saw lower traffic and then we have to close some of our underperforming stores. But in the second quarter, despite the macro conditions, we still -- we are still proactive in terms of our sales initiatives. We have strengthened our coffee credentials. We have launched the new coffee brand. And with our skillful guys actually achieved higher customer satisfaction as well. And in the quarter, we have done revamp in all menu, whether it's new menu or refreshing the menu and what we want to highlight is that in June, the Coffee Club in Australia, excited customers and coffee enthusiasts with development in iconing Master Chef Australia. So the contestants of the TV program were tasked -- were creating desserts by pairing with our the Coffee Club new flavor, on coffee -- so we expect this marketing campaign initiatives to increase sales in the second half of the year as well. I now hand over to Khun Chaiyapat for corporate information, including our balance sheet, our CapEx and also our business outlook.

Yes. First of all, I would like to touch upon the CapEx or investment as per our 3-year plan, we aim to spend about THB 8 billion to THB 13 billion per year during 2024 and 2026. In particular, in 2024, we aim to spend roughly about THB 13 billion because we have a normal CapEx, maintenance CapEx and also we have repositioning CapEx renovation exercise, the brand upgrade, asset enhancement in order to command high room rates in the rest of the year and also in upcoming years. So we have to make sure we have that -- we get that done, so we have this CapEx spend in the first half. For funding source, where we use operating cash flows and cash on hand. And for our leverage ratio, it's come down further to 0.96x, where we lower our debt covenant level of 1.75 and also below our internal policy level 1.3. As at the end of the second quarter of this year, we still have THB 15 billion cash and THB 33 billion of unutilized credit facilities. Well, next, we would like to talk about the -- our commitment to see growth in place. We continue to come up with strategies to make sure that we have visible growth trajectory despite some uncertain macro backdrop that we saw, but that has already factored into our 3-year plan in terms of risk also potential growth. For Minor Hotels, I would like to start with the overall theme first. If you look at our Minor Hotels thematic strategies for growth, we will strengthen our brand equity. We'll continue to strengthen our brand equity through strategic upgrades. As I mentioned earlier, offering tailor experience and memorable journey for our guests that cater to the unique demands of each hotel, so we want to make sure we have our brand on top of mind of our guests. Secondly, we want to continue expanding our customer base in addition to engaging with our guests staying attuned to the latest trend. The expansion of customer base is quite important for us, particularly in underrepresented markets. We have strengthened our sales network in target market like Israeli markets for Thailand, while we work proactively on markets like UAE, Saudi Arabia and Australia, for our Maldives hotels during the low season. And if you look at the Anantara brand, our homegrown brand, it has expanded its market network to city occasions in addition to original traditional resort type Anantara used to have. And for NH and NH Collection brand, we brought the NH Collection brand and customer base to include the resort categories as well in addition to our Gateway City location. Next is the distribution channel management towards own platforms, as we aim to drive customer acquisition and retention to be retention to integrate all the brand into Minor Hotels own platform -- booking platform. So that's the key 3 strategies for Minor Hotels. In terms of market by market, the key market that we have, say, for example, Europe and Americas, say in Europe, the opportunities, we still see demand coming quite strong there from leisure market, or business segments as well as demand that come along with the entertainment events and sport events as we have seen in the first and second quarter, we're probably going to see more events in upcoming quarters as well. And as for key initiatives for Europe, we like I said, continue to rebrand, repositioning to cater to more premium markets and to command high room rates as well. We are still doing some lease extensions for profitable hotels to get more -- bringing stream into our P&L. For Thailand, we still see the benefits from a macro standpoint. The government tourism scheme has become more visible this past 3 months since the new government took on, we saw visa-free policy. We saw increased flight and air connectivity has been restored. So the macro backdrop and government policy is very conducive for our growth as well. But in terms of our O&G initiatives, we tend to scale our sales network, like I said, in Thailand into unrepresented markets like [ Israeli ] for a number of hotels and also Middle East market as well in addition to other key markets that we used to have already. And we also do some hotel renovation and room upsell strategy for Thailand as well in order to push up our effective ADR room rates. In Australia, we start to see government supporting scheme and also income tax reduction and energy rebates, we see the revenue opportunity enhancements from Corporate and MICE meeting, incentives, segments in addition to the leisure segments, which tend to be a little soft lately, but we have corporate in business segments to come into play to compensate for [indiscernible] leisure. And we also strengthened our cost management initiatives to be able to safeguard and protect our profitability as well. On Minor Food, the high-level demanding strategy, 3 key strategies that we used to maintain our growth trajectory is to introduce new products, especially designed for each channel and occasion. This product innovation has been key for our sales enhancement and to increase customer spending and enhanced our traffic and capture new customers. All the brands adjusting menus and develop new menus to cater to each distribution channel, including that in delivery, takeaway and drive-through. Second strategies, we focus on strengthening customer engagement through loyalty and digital marketing rewards programs. Brand ambassadors, you probably have seen some for some of our brands. Viral communications campaigns still very active to create excitement in the market. These efforts also aim to increase loyalty members and repeat sales from our existing customers as well. And third, thematic strategy for Minor Food as we expand the number of restaurants, our operational excellence remains the backbone of our execution and to make sure that we have high efficiency, higher quality and still maintain consistency in customer experience and profitability. So we're committed to maintain the high standard across process services and products for all the brands. And if you look market by market, of course, the key Thailand market and also other ASEAN markets, we continue to see the ability for us to increase market share and benefit from the government program, especially in Thailand, the upcoming digital wallet will be part of the scheme as well. Our shop will be part of the screen, in the middle of the registration process. So on macro front, we tend to be conducive to our growth. And as for our own key initiatives, in addition to what Namida mentioned earlier for the past quarter. In upcoming quarters, we continue to expand categories to attract a more and broader customer base and customer segments. We try to introduce value layers, so different tiers of menus to offer to various dining occasions for our customers. And also, we try to come up with a new store format -- innovative store formats to cater to different segments and different too for all the brands across our portfolio. And we launched GAGA in Indonesia for the first time. That's on top of the Dairy Queen that we set our footprint initially. We tend to see potential for more brands to put into that market, a large potential market as well. In Australia, we see the opportunity to match with the local preference. We add our fresh pastries. And then we enhanced our store size. We refurbished majority of our stores there just to match with customer attention and preference and lifestyle. And also we reactivate our Sizzler brand in Australia as well and collaborating Sizzler menu at the Coffee Club Australia as well. In China, we explore additional revenue stream benefits from the government stimulus towards domestic consumption in the first half of '24. You probably have seen some of the Chinese government measures that has been announced that gears more towards consumption rather than conventional manufacturing and other segments of the economy, it might be before. That will help try to pop up the spending for our restaurant in China. The key initiatives, we will continue to build capability of the expansion of our brand in China, not only for existing brands and for a new brand, a new business model that we try to cater to franchise models. So we build our own resource capability that try to -- we try to make sure that we're ready for the expansion that can happen in upcoming quarters. We plan to launch new concept, targeting casual dine-in for franchising business model as well. That's the alternative to the original fish brand that we have or Riverside, we have in China. So we see opportunities to scale up under franchise model in the future for money for China. Next slide is the same slide as before, actually just put it here just to reiterate our objective and goal, 8% to 10% revenue growth per annum over the next 3 years. And we see the potential to expand margins and then our profit growth should be higher than revenue growth and we target profit growth at 15% to 20% per annum over the next 3 years with ROIC, return on invested capital higher than 10%. We aim to increase the number of hotels to 780 hotels or more. And I think the number that I showed you earlier, it's shows that we're on track in terms of signed contracts and then potential deals under negotiations, which will help us get there in upcoming years. For food, 2,645, we aim to get to 3,700 outlets in the next 3 years and leverage ratio to get down to a ratio that close to 0.8x for net debt to equity. And to 4.3x our net debt to EBITDA. So we still have a commitment to get there. And now leverage ratios continue declining in the past few quarters and we hope that in the next upcoming quarters, it will come down even further. At the very bottom of the slide, just to show you key strategic pillars that we have as per our long-term plan that has been with us for years, then we do big -- this is still a winning brand portfolio, value capture and productivity just to increase profitability and margin as well. And then investments or partnership portfolio management duty, not only investment in terms of M&A, but also partnership with franchisees, partnership with hotel owners under hotel management is also under this category. And these will enable by innovative digital strategy, our people and workforce that ready to adapt to a changing environment. And also lastly, we still have our sustainability at ESG in mind, and then we still always consider ESG whenever we come up with the new strategy always. So that's the previous strategy. Next slide. I won't go into the details of same as last quarter, at a very high level, drive organic growth, activity leverage and expansion to asset-light business models. So just putting in here just for your reference. Just the end of the presentation, and we'll open the floor to Q&A.

So you can either raise your hands or you can type it in into our chat box or Q&A box.

First question is about -- regarding sustainability bonds, how is the management confident that MINT could achieve the ESG-related KPI as targeting the bond? Well, we're quite confident and we will try our best to stick to our milestone that sit in terms of sustainability targets. We already announced ourselves to be net zero in 2015. And if you look at the sustainability bond, we have 2 KPIs. The first one is GHG, gas emissions intensities. We have to reduce Scope 1 and Scope 2 GHG emission intensity to the level that we set as a milestone before we get to the -- we have the milestone set per year, per timeline and KPI to water withdrawal intensity aim to reduce water intenser -- withdrawal intensity towards the level, I wouldn't go into detail, but we set the level and then we have the commitment to get to that level. So I'm still confident that we will get there.

Next question is on our debt profile, fixed and float for 2024 and end of 2025. So currently, the fixed portion is about 56%, and floating is about 44%. And then...

Well, yes, right now, if you look at fixed, float including -- this is 56% fixed and 55% float. And then we still -- I wouldn't say at the end of the year, it wouldn't change much from here but we try to see, well, in the -- in the declining interest rate trend, we try to increase flowing. But at this point, it's too soon to increase flow in a dramatic way. So we still keep monitoring the situation and we try to remain agile in terms of adjusting out this portion.

The next question is on our target of reducing net IBD to equity, which is now at 0.96x and I'll be aim at 0.8x at the end of the year. What is the strategy in the second half to achieve this target?

Well, we continue to reduce our debt level even though in the first half, we wouldn't reduce absolute debt level. That was only because we have some CapEx repositioning, rebranding CapEx exercise that we have to do in order to capture higher room rates in the rest of the year. And that's something that we expected to do already anywhere. And also in the first quarter, it was the loss making or cash softness quarter for our low-season European operations. So some of the working cap expenses has been held back in the first quarter, and we have to spend in the second quarter. And most of the repayment schedule more concentrated in the second quarter as well. So we hope that our earnings recovery and our earnings go to repay debt in the second half as well. And we also have some other alternative strategies like asset sales, asset rotation in place to see we have to use it to reduce our debt level. And in terms of equity, we still have profit contribution that continue to strengthen our equity base. And then in this past second quarter, we have the fair value of land uplift in some of the our assets in our portfolio to help strengthen net debt to equity base. And we try to see if there's any room to see our equity strengthen further in the rest of the year as well. So we still -- we want just to get close to the committed 0.8 net debt to equity target as much as possible by year-end.

A new update in the key regions, this is momentum for hotel and food business in the third quarter of the year.

Well, if you look at the business potential in the each region, we stuck with Europe and Americas. I can give you some color on the third quarter to date, maybe for Europe and America hotels, we still see RevPAR growth in July, roughly about 14%. ADR still rising more than 10% double-digit growth in terms of ADR in July. And in August, we see on the book, total revenues up by like 18% so far compared with the same time last year. So that Europe sees strong trend in terms of, as I said before, leisure demand and also business demand coming strong and with more events that will help drive more business to us and also our effort to drive ADR further. But even if ADR in terms of demand, we not only bank on demand strengthen in the upcoming quarters, but we also, like I said, try to uplift the value of our supply out to capture high room rates at the same time. For Thailand, third quarter-to-date in July, we see RevPAR growth of more than 20% year-on-year in July for Thailand hotels. And then if you look at room revenue in August, overall, it's showed double-digit growth for us in China. Yes. If you look at room revenue, still -- both in July and August still show very strong double-digit growth. And like I said, the government policy as well as the more air connectivity, the number of tourist arrivals and I'll campaign to attract our travelers, our loyalty programs that all of that will help bring in more business throughout the rest of the year and beyond.

Okay. [indiscernible] please go ahead. You have raised your hand..

Can you hear me okay?

Yes.

Yes. Please.

May I ask some follow-up questions regarding the debt repayment? So we expect most of the debt repayment scheduled to happen in the second half and would that also mean your interest expense would also start to lower in third quarter onwards?

Well, we'll see some of the debt repayment schedule coming in, in the second half. And as I said, also in the first half, we probably have more CapEx to spend because of the repositioning and renovation, rebranding exercise that we have already scheduled during the beginning of the year. And also, like I said, we have more CapEx in the first half because we hold back some of the CapEx that we have to spend early on the -- during the low season because we want to make sure we have enough liquidity and we'll spend when we go into high season. But that has been back in the second quarter. So we would expect maybe less spending and also more repayment in upcoming months. That's on that side. And then we try to see if there is any strategies like assets -- we've been modeling some strategy of asset sales, asset rotation to see if we can do that to bring more proceeds to reduce that level. And also at the same time, equity will be strengthened as well, as I said earlier. But yes, repayment, we'll see -- continue to -- we will tend to see more repayment and absolute debt level come down maybe in the second half or fourth quarter.

And can we also assume then that your interest rate -- or interest payment will also lower up third quarter onwards?

Well, it wouldn't be lower that substantially, but we try our best to work against the dramatic rising interest rate that happened in the past. We have been enjoying lower interest rates because we lock in low rates for a long time. But some of the refinancing activities that happen make our cost of funds went up in the past year in the -- if you look at cost of funds in 2023 was 4.9%, but in 2024, it has increased to about 5.4%. But if you any proactive refinancing at the favorable rate, it could have gone up much higher than this, what we achieve it 5.4%. And then we think that in like -- maybe likely in the fourth quarter rather than third quarter that we'll see it come down. I'll say, if you look at our cost of funds in the second quarter, it hold 5.4%, which has not much changed from the first quarter. In the third quarter, I would expect it reduced -- it's not going to reduce that much. But in the fourth quarter, we're probably going to start to see lower cost of funds overall. Third quarter will come down but only slightly, but in the fourth quarter, we'll probably see a little bit more. That's our forecast based on our expectation on rates trend and market consensus on rate as well.

Okay. And then another question I have is with regards to outlook, I understand that for the hotel business in the second half, at least for the past month and a little bit so far, things have continued to be quite strong. Do you have any forward data into the remaining of the year in fourth quarter? And also maybe if you can provide some expectations for next year in 2025? There's been some concern with demand slowing down in some parts of the world, mainly the U.S., but I'm wondering if that could also lead to a softer demand outlook in Europe as well next year.

Well, I already -- we've talked briefly about the trend that we've seen in third quarter so far, right? It still deliver higher RevPAR growth and ADR growth than our original budget assumptions and fourth quarter probably going to be follow the same trend. If you remember at the very beginning of the year, we keep our guidance, our earnings guidance and operating stats guidance, say, for example, Europe, ADR increased by low to mid-single digit. But if you look at the real number, it already far exceed our original assumptions. So to answer your question, we will continue to see stronger than our original guidance and expectation in the rest of the year. But the number that we can give out, an actual number on the book, already told you both in key markets like Europe and Thailand, we see double-digit growth in terms of RevPAR and ADR, which has far exceeded our guidance and our expectations at the beginning of the year.

[indiscernible] raised your hand.

So I have a couple of questions. Let's start from the hotel side first. So you talked about expanding the customer base through cross-selling, new sales team and loyalty program. But if I may ask for the feedback from customers or loyalty member programs, how is your loyalty program right now doing compared to the global hotel chains. This has been a push from the global hotel chains and a key driver of their RevPAR in several markets. So for you guys, how is it looking right now after we've added in each loyalty program into yours? And how is it growing? Can you share more on that, please?

Yes. I think the growth in terms of percentage will be substantially higher than other hotel chains because we just started combining our global hotel alliance platform originally from this part of the world with Minor Hotel Europe and America, loyalty platform just last year. We just combined loyalty program last year and make us one of the largest hospitality loyalty program in the world. So the benefit of that just start to show this year, but it should show more in upcoming years, especially when we have cross-brand expense expand strategy in place and people see our brands all over the world. And that will -- and then when the loyalty programs combine become more stabilized and more brands of ours, get put in several more locations in the world, we would likely see more cross redemption, cross usage of points. So the benefit will be much, much more in upcoming years. But to compare with the global player, as I said, we just start having all of a sudden big large loyalty member programs just last year. So coming from that base, we see more of the percentage growth potential this year and next year.

That's fair. The second question is on something you also just recently done is bring NH over to Asia side, right? So how has that been the feedback either in terms of management contract or on a leased hotel, but how is the NH brand being received in Asia?

Well, putting NH brand in Asia doesn't mean that we have to cater to all the Asian travelers. We cater to world travelers and world travelers, a lot of them are already familiar with the NH brands. So when they trust the NH brands where they used to travel in Europe or elsewhere, when they see NH in Asia, they tend to come to the brand that they're already familiar with. So it has been well received by world traveler and all the feeder markets because even though in NH is new to Asia, but now we try to promote NH to Asian market feeder but at the same time, market feeder that are not familiar with certain brands that we have in our portfolio, we try to become more proactive to those brands do, not only for NH, like say, we work on Asia market feeder for NH, but we maybe work hard on European market feeder or U.S. market leader for our Anantara in Europe, say, for example.

Understood. So is it fair for me to say that NH that has been opened in Asia, generally where we see like occupancy and RevPAR comparable as to other hotel chains that you have here. Just a ballpark, it doesn't need to be an exact number, but just want to get a sense.

Well, some of the new hotels need time to ramp up, and that's pretty normal too, not just only NH brand, but for other brands as well. In terms of locations, in terms of the market that we have to do marketing campaigns. I'll say, most of the NH brand, most of the NH hotels that we have in the front door is just new. Sorry, this time to ramp up as per our hotel -- as per natural course of hotel opening anyway. But so far, we received good feedback. As I said, world travelers are not hesitant to move to NH brand because they know the brand standard, brand criteria and they experience used to have with NH somewhere else. And then we have our agent around the world, so the agent can talk to a potential customer about NH brand in Asia even more.

Two more questions for me. So the first one is on the renovating and rebranding of the hotels, right? You've been very successful in that, and congratulate for that. But my question is, what is limiting to only 30 to 40 hotels that we have on plan? Like is it just the location or the cash flow? Or there will be more down the line? Just right now, it's the near-term target of 30 hotels.

Well, there'll be more down the line as we identified, but we like -- like you said, we have to strike the right balance in terms of CapEx growth and then also the potential ADR that we can capture. So there's various factors coming into play. So -- but we try to identify more to see we can do not only in Europe, but elsewhere across our world portfolio as well. Like I said earlier, Thailand also did some renovations to capture higher room rates. But we will only do it during low seasons. So yes, that could be more. We will not overly spend, especially with interest rates not coming down, so we have to be very selective.

Okay. And last question is for the Australia operational Oaks. So if I look at it, you have -- okay, a couple of new hotels coming up in next year. But the idea is that the market has been stagnant for a while for us, it hasn't really been growing. And so the question is -- what is the strategy here going forward as it still contributes quite a big portion to our top line and bottom line in that sense?

Well, we continue to, like I said, now we -- Australia has a very strong base in 2022, '23, right? And then the staff that's just coming from low base and coming mainly from leisure demand. So now we try to beef up the corporate market segment as well or business segments to make up for shortfall. And also, we try to bring more international travelers to Australia. So that's probably our strategy. Occupancy is very high already over likely late '70 or early '80s all year round, but we tried to see how we can attract more travelers in terms of room -- in terms of a higher RevPAR in terms of room rates. Just to add from the team in Australia, if you look at Minor Hotels, our occupancy, as I said, is high, like late '70 or early '80s. And we have to say that we beat competition in the market. We hire our occupancy higher than our peers, our peers' occupancy stands at 72%, while ours 80%. Even though our ADRs on par with peers at around AUD 136.37. So despite drop in RevPAR, we still maintain market-leading position. And I guess that's what the whole market experienced the softness or year-on-year. But as I said, we come up with unique and differentiate our strategies to focus on segments that can have potentially come in to compensate for soft leisure segment. So what was it -- MICE, we focus on [indiscernible] time as well. The question, what was the CapEx in the first half of the year? I think it hover around THB 4 billion to THB 5 billion in the first half, roughly about THB 2 billion in the first quarter and probably about up to THB 2.5 billion to THB 3 billion in the second quarter. As I said, a lot of CapEx has been slipped from the first quarter to the second quarter of the year.

Is CapEx captured in cash flow from operations? The answer is no. The CapEx would capture in from investing activities or it can be captured in financing activities. For example, last year that can be captured in the net cash paid to noncontrolling interest from change in trusted subsidies. For example, last year, we have increased our stakes of NH from 94% to nearly 96%. So that CapEx will be embedded in tax levels from finance, not cash flow from investing... The next question would be what should we expect the ADR percentage rate lift up from your maximization strategy? How many hotels can be uplifted in this year and next year?

Well, as I answered to Tajik question earlier, ADR uplift we have seen, let's say, for example, in Europe, still up like a single-digit point, high single basis points year-on-year. That was a result of demand and also our own effort to drive room rates as a result of repositioning and rebranding exercise. The brand upgrade in the past, I just -- I think I used to give you some examples that we have seen. We -- let's say, we upgrade or rebrand our NH to NH Collection, we can uplift our ADR by more than 40%. If we upgrade NH to Avani, the one that we did in the past ADR go up by more than 50%. And in certain cases, when we operate NH collection to Anantara, the ADR more than double. But having said that, it also depends on location, the timing and then the seasonality. But that's the benchmark that we've seen in the past.

I see Brian raise your hand.

Can you hear me?

Yes, we can hear you.

Great. Just 2 quick questions on the restaurant F&B side. I'm struggling to see any bright spots in the China space and it's effective on the whole market, not so much in your businesses as well. So do you mind sharing where you see the bright spots there if any? And how do you plan on spending there? And the second point is a longer-term question. If you look back at your 3-year aspirations, you are looking at 3,700 outlets plus for the F&B side, but it's -- in our current case, we're not really getting towards that. So does it imply there's some sort of M&A you're looking at? And how should we think about that number?

Well, for China, we try to -- well, the economy positions across the board, right? But we slowed down our expansion in terms of outlet opening. The opening outlets is slower than our original plan. But we try to see selectively with the location that we can expand with short payback periods and high return on invested capital, as Namida mentioned to you earlier. What we have to do here is not just -- if we can expand sales, what we can do is just to implement cost control and cost optimization to maintain our profitability. So I'll say that's probably our priority at this point. But in terms of expansion more outlets, we'll see the economic conditions to show some sign of improvement and we only selective locations in, like I said, with the appropriate IRR and return. And your second question is? Sorry.

As related to your long-term goals of 3,700 outlets, we're not really at a pace to get there. So does it imply M&A to get there? Could you just give us some thoughts on that?

Well, we would try to do both organic growth and inorganic growth, nobody knows because it's -- we are very opportunistic in nature. So that 3,700 outlets are the goal that also include franchise stores as well. As I said, we'll continue to expand using asset-light business model, and we tend to do so on both hotels sides and restaurant sides. And on the restaurant side, we try to focus more on franchise expansion going forward. So that I would say that target includes organic growth, which should come around by about 5% to 8% per year or the asset-light business expansion via franchise and M&A can come into play in the future, but that's -- we wouldn't bet much on it because we try to be conservative. And I have to say, we slow down and decelerate M&A not only during COVID, but post-COVID. During COVID, we have to preserve liquidity but post-COVID, since we're entering -- since we have been in high interest rate environment. So we have to be very selective in M&A anywhere post COVID just to make sure that we don't spend too much and we don't have enough proceeds to reduce our debt level in the high rate environment. But when we can control our cost of funds and when rates start to come down, we already show the sign of coming down. We probably look at M&A. But as I said, we remain optimistic. And we have to make sure that M&A deal bring in high and enough return IRR that can compensate for the high cost, high inflation cost environment that we're in and also high rate environment. Otherwise, we continue to be very selective and conservative. Well, the question is can we talk about QSR restaurant business in the second half. I think I provided some outlook that we try to come up with the new product innovation, marketing buyer campaigns, engage customers more focused on our operational efficiency. Well, in the third quarter -- third quarter to date, so far, we still see strong sales from some of the brands that we have, especially core brands like the [ Vita ] company that as we revitalize the brands as we add more new concepts to the brand, the offering -- such offering has allowed us to see higher or positive and successful in the core brand in the third quarter so far. And Sizzler as well has seen some of the higher and strong positive same-store sales in third quarter to date as well as the Coffee Club that has seen positive same-store sales growth. But some of the brands probably experienced slight decline or negative same-store sales. But you can look at just 1 month or 2 months. You have to look at the whole year, a whole quarter because each month, different brand taking churn to be a star performer. And then when you -- even now throughout the rest of the year, we should see a pretty more decent same-store sales growth number -- operating stats number. But for third quarter to date, we still see good performance, good same-store sales growth from core brand like Pizza Company, Sizzler, Coffee Club... That's a question. Why do we say CapEx was higher in the first half and it's being front-loaded. If we look at your guidance, we still have a lot remaining in the second half. Well, we don't -- we don't lower CapEx guidance for the full year. The CapEx plan that I put in -- we put in the slide is from the plan that we have as a guidance and includes some buffer just to make sure that we have room for cash flow in the future to reduce our debt. So we make some buffer for our CapEx in case there's some overrun of costs, some overrun some of the CapEx in the first half or some of the extra CapEx that we have to spend just to be conservative. But at this point, if you look at normal CapEx and repositioning CapEx, it should be a little bit more in the first half. In the second half, as I said, the guidance also includes some buffer.

I don't think we have -- I think we have other questions. [indiscernible] just raised hand again.

Just one follow-up question for me again. Regarding the FX loss that we saw in the second quarter coming from mostly, as you mentioned, Brazilian real and Sri Lankan currency fluctuations. Can you provide some outlook in third quarter and second half on the impact from these currency swings? Have you seen these currencies starting to stabilize? Or have we already entered into -- have been -- have you already been able to hedge with its further fluctuations for the second half?

Well, it depends on direction of exchange rate between U.S. dollars and Brazilian [ lira, ] right, and the U.S. dollar and Sri Lankan rupee. So it depends on your assumptions. But now that the -- if you look at the strength of U.S. dollars, it has softened a little bit. So up to your ForEx assumptions, you will never know. But if you look at the spring and on the whole year basis, I don't think this gain and loss would have material impact because the only impact that we saw in the second quarter was -- it's the volatility that we see in the exchange rate. And we see the strengthening of U.S. dollars so much in the second quarter. But if you look at the previous year, for example, it's the other way around. So it depends on your view on exchange rate in the rest of the year. But at this point, I think we're probably going to see U.S. dollars come back to probably lower level considering rates coming down and the market condition, potential recession that people talk about that -- yes, that's probably the assumption that we see. And then I think most of the FX strategies in the market that we consult with also as well.

I think that there is no more question. But if you have follow-up questions, please feel free to contact our IR team. We are more than happy to answer any questions any time after this. Thank you for the participation, and hope to see you next quarter.

Thank you all. See you next quarter.