PT Avia Avian Tbk (AVIA) Earnings Call Transcript & Summary

Good afternoon, everyone. Thank you for taking the time to participate in today's PT Avia Avian Tbk or Avia Quarter 2 2023 Earnings Call. For your information, we uploaded the presentation material to our website yesterday. We will begin the session with a 30-minute presentation, followed by question-and-answer. Overall, we plan to complete this earnings call within 1.5 hours. [Operator Instructions] Please note that the webcast of this event will be uploaded to our website no later than tomorrow for investors who cannot join us now. Allow me to start by introducing myself. My name is Andreas Timothy Hadikrisno. I'm the Head of Investor Relations at Avia, and I will be moderating this earnings call today. We are joined today by three other presenters, starting with Mr. Ruslan Tanoko, the Vice President Director of our company; followed by Mr. Robert Tanoko, the Operations and Development Director; and finally, Mr. Kurnia Hadi, the Finance Director. In quarter 2, total revenues reached IDR 1.7 trillion or equivalent of USD 116 million. This quarter, we recorded a gross margin of 45%, an EBITDA margin of 28.7% and a net profit margin of 22.6%. Our operations are supported by more than 8,000 employees. As of the end of quarter 2, we have 151 distribution centers nationwide, consisting of 114 wholly owned DCs and 37 third-party DCs providing high-quality services to more than 56,000 retail outlets in 38 provinces and 99 cities in Indonesia. Consolidated sales in quarter 2 of this year were flat as we are facing a comparison to a strong quarter driven by a last-buy moment across all product categories in the architectural solutions segment. The trading goods segment delivered a better performance in quarter 2, owing to the double-digit sales growth in the PVC pipe category. Consolidated gross margin was 45%, improved by 3.7% compared to the same quarter last year. The EBITDA margin was 28.7%, representing 2.3% improvement compared to the last year. The building materials industry in Indonesia continues to face challenges despite the downward trend in inflation. High price inflation, especially in furnishings and routine household maintenance, continues to be felt by consumers, as evidenced by the rising CPI. In addition, the increase in the minimum wage was not kept place with price inflation for the building materials industry. The rising number of claims for unemployment insurance also specifies increasing layoffs, which further deteriorated consumer purchasing power. Compared to other domestic segments, we witnessed the two FMCG companies reported 12% and 8% drop in sales. In addition, one ceramic company also experienced around 8% sales decline in this quarter. Amidst the challenging economic environment, Avian brands continues its growth strategies by focusing on product innovations, coupled with multiple marketing initiatives to gain market share. In quarter 2 of this year, we launched two products in the marine category and one product in wall category. Leveraging on our well-known brands, we continue to introduce new products to meet the effort changing consumer demands. We added one wholly owned DC and three mini DC in quarter 2. By the end of this quarter, we have established 114 wholly-owned DCs, 37 third-party DCs and 13 mini DCs. Within our wholly owned DCs, we own and operate 599 delivery trucks. We have the capability to make around 10,000 deliveries per day. We continue to work to increase our efficiency by focusing on streamlining the delivery process through logistics automation. Our goal is to reduce redundancies, waste and add-ons to achieve lean and efficient delivery processes. Through multiple technology-driven initiatives, we are able to fulfill 95% of 1-day delivery service to retail outlets within 50 kilometers of a wholly owned DC. I will now pass to [indiscernible] to continue the presentation.

Thank you, Pak Andreas. Good afternoon, everyone. Consolidated sales grew by 3.8% in the first half. A sales contribution in Q2 last year was primarily due to the last-buy moment in architectural solutions segment, which led to stronger demand across all product categories. As the chart on the left shows, Q2 contribution last year accounted for 26%, higher than the historical average. We added more than 300 customers in the first half of this year. We are committed to building ongoing relationship with our customers based on trust and communication so that customers feel more confident and connected to our brand. We believe this effort will lead to growing customer loyalty. To keep track of our growth in the five main islands of Indonesia, we benchmarked our sales to the GDP contribution of each Island. We prioritized stronger growth by deploying more resources in the area where we like the most, namely the Jakarta region and the Northern region of Sumatra. On the island of Kalimantan, Sulawesi and the rest of Indonesia, we have higher sales compared to GDP contribution. Within the architecture solutions segment, the wall, waterproofing as well as wood and metal categories continue to be the top three revenue driver for the company. The company continues its focus on strengthening the wall category. Our mid-tier product, architect [ coal ], performed well in the first half of the year and exceeded our expectation. The contribution to sales in the trading goods segment improved compared to the previous quarter as the PVC pipe category performed better in Q2. The chart on the right shows around 93% contribution to sales from traditional retail outlets. The contribution from order and retail outlet rose to more than 7%. The consolidated gross margin increased to 45%. This represents an improvement of 3.7% compared to the same quarter last year and an improvement of 4.4% compared to full year 2022. EBITDA margin was 28.7% in Q2, a 2.3% improvement of over Q2 last year. When compared to the full year 2022, the EBITDA margin improved by 3.8%. Net income margin was 22.6% in Q2. The comparison with the same quarter last year was flat. Compared with full year 2022, net income margin improved by 1.7%. Architectural solutions revenue decreased slightly by 2.2% in Q2 compared to the same quarter last year. The slight decline was due to a strong compression last year driven by a last-buy moment in all product categories. In the first half of this year, total sales increased by 4.3%. As explained earlier, volume in the architectural solutions segment were softer in Q2 as we face a comparison to a strong quarter last year. The impact of the last [indiscernible] in Q2 last year was reflected in a 28% volume contribution for the year 2022. The company remains committed to improving its volume performance to meet its full year 2023 target. This is reflected in the introduction of new products by leveraging our well-known brand in the market as well as strengthening our project division. The architectural solutions segment acquired more than 900 new customers in the first half. By expanding our distribution presence, we continue to add new customers and maximize the number of retail outlet conducting transaction. We recorded stronger sales in the trading goods segment in Q2. Total sales increased by 5.6% in Q2 and grew by 1.6% in the first half. Within the segment, the PVC pipe category recorded higher sales and performed better than the furniture and supporting product categories. In the first half of the year, we recorded transaction of more than 42,000 retail outlets in the trading goods segment. This segment continues to show high synergy effect within our business. Gross margin for architectural solutions solution improved significantly compared to the same quarter last year. The sequential improvement is driven by the stabilization of raw material prices. Gross margin for Q2 was 51.4%, which represent a 5.2% higher value when compared to the same quarter last year. In the trading goods segment, the margin normalized to 17.9%. I will now pass to Pak Robert to continue the presentation.

Earning costs increased slightly in the first half of this year as we continue our efforts to increase brand awareness and our distribution expansions. Declining trends in raw material prices had a direct impact on the decrease in COGS as a percentage of sales. We observed relatively stable direct labor and factory overhead costs. Below the line marketing expenses also remain at around 8% of sales, in which around 7% allocated to existing products and 1% allocated to new products. We kept our trading working capital at around 27% in the second quarter of this year. We have a lower working CapEx of around 2% of sales. This CapEx consists of upgrades to manufacturing facilities and infrastructure of IT, trucks and vehicles in the distribution centers and in the machines for retail outlets. Our ability to generate a high level of cash, combined with low routine CapEx, has resulted in a strong free cash flow, which gives us the confidence to meet our commitment to pay a dividend of at least 50% of net income. Please note that the company will continue its efforts in M&As, and in the meantime, we will maximize our dividend payout ratio. In the last 2 years, we have paid dividend amounting to around 90% of net income. With these dynamics in Indonesia characterized by high inflation and weak purchasing power have put pressure on retail outlets, as evidenced by a slight decline in our on-time collection. Nevertheless, we remain optimistic that retail outlets will continue to prioritize us in terms of payment. For the full year of 2023, we've maintained our guidance for [indiscernible] volumes even though we are facing weaker consumer spending. We expect gross margin for the architectural solutions segment to be around 51% and around 17% for a trading goods segment. The company continues to monitor the effectiveness of our strategies by focusing on growth initiatives, margin management and cost reductions, while taking actions and planning for a variety of scenarios that could unfold the incoming quarters. Thank you very much for the attention. I will now pass to Pak Andreas to moderate the Q&A session.

Thank you, Pak Robert. We can now proceed with a question-and-answer session. Please use the raise hand button or the chat box. I see you. You can start the question, [ Yuan ].

Yes, maybe I'll start asking maybe specifically on the volume side. I guess you all talked about tough comps in second quarter last year. I think to the extent that maybe can you -- Pak Ruslan, I mean, first quarter, you did highlight weakness in demand already, Lebaran -- particularly Lebaran. Can you just talk about how much is it market environment versus market share loss in there, maybe in the volume side? And then, I guess, for the volume target for full year, to the extent that new product launch maybe doesn't happen as well as your plan, can you still meet the volume targets?

Thank you, [ Yuan ], for the question. So when we look again in this year, right, I've always been cautious since the beginning of the year with regards to our guidance, right? And which is why -- and I continue to communicate this during our first quarter earnings call. But looking at any potential loss of market share, again, I don't want to sound arrogant, but the fact is we've really done a lot of things as a company, right? So it really doesn't make sense for us to be losing market shares given that many, many smaller players really don't really do anything. So if we look at the competition landscape in Indonesia, we've also been reacting very aggressively to whatever we see in the market. So I suppose there's one other company, which is, as you know, report their Indonesia business. And I think in the next few days, they will have their earnings call. So we're also curious to see how they performed in this second quarter. But when we, again, look at the new products, as you mentioned, [ Yuan Long ], we have a lot of products that will be launched in Q3 as well as Q4. Now one product, which is mentioned earlier, ARIES Bling, was only launched recently, in fact, only in May. So it's a bit too early to see the impact of this product. Nevertheless, this is an important product because it is targeted for the budget wall category. So again, when we realize that this is a market where -- weak consumer demands are really seen in Indonesia, right, because we shared with you earlier, right? FMCG companies also recorded a drop in sales. A few other companies also are not performing all that great. Only earlier today, we saw numbers from Ace Hardware, Depot Bangunnan and a few. So they're all reporting like basically just single-digit growth within their business. And this is really not a great environment to be in. But we feel confident that with some of the new products that we will launch in Q3 that we will still be able to achieve our guidance in terms of volume as well as value for this year. So I think that's the short answer to your question, [Yuan].

Got it. And I guess maybe a side question is, we talked about giving shares to distributors. I think you started this earlier this year. How is that going on?

It's still very slow. I -- we started to do this with a few shops actually. I'm not doing this to the distributors but the shops, which we basically tell them, look, instead of giving -- getting gold coins, why don't you take some of our shares? So it's only a few shops are starting to do it. But the fact that there are maybe about 20 shops or something like that -- but I'm really curious to see the impact that we have in these 20 shops because if they really show significant progress, then obviously more reason for us to actually do this on a larger scale. And we didn't do this on a huge scale. We only trialed with like 50 or so shops. We communicated with them, blah, blah, blah, and then explained. And then in the end, about 20 shops decided to go ahead with it because, as you can imagine, right, many of these shops are really unfamiliar with the equity market. So they don't know what's happening and they don't know what to expect. So it's a learning process. But for us, at the same time, we're curious to see, okay, this is something entirely new. How is this going to be impacting them, right? So we're also curious to see the effect of this. But we're only starting like as we speak now, [Yuan Long]. So they won't accept any shares in the next few days or a few weeks, and then we'll see from there what happens.

Got it, got it. And my last question before I get back to queue, last quarter, we talked a bit about Avitex Gold, right? so how big key products, a product, how is that trending so far?

It's still very good, which is why we said that it's still above our expectation. In terms of new product launches that we've had Yuan Long, this is by far one product where we have seen the fastest pickup. So we've never seen this kind of a pickup for any other products that we've launched. But obviously, as the below-the-line marketing budget that you saw, right, we split into two so that you guys have an idea that we are not just recklessly spending our below-the-line budget. And the fact is for the existing products, they are down slightly, but an extra 1% is being allocated to cater for a lot of these new products. We needed to be extremely aggressive and that's what Avitex Gold is. So we -- I just approved the new TVC concept for this product. So it's going to be quite different again. And we'll launch this in maybe in 1.5 months or so. So we'll continue to maximize these products as well as many other products that we'll launch. But not every product will be supported by television advertising, obviously, because ARIES Bling, for instance, won't receive any support of that kind. It will just be predominantly the below the line a few marketing bits and pieces. But Avitex Gold continued to show its contribution, and it's been very meaningful. And so we're continuing to be extremely positive on this -- for this product.

We can go next to Robin. You can start as question, Robin.

I'll start with two questions. How much of ASP growth was due to product mix and how much was due to other factors? And aside from Avitex Gold, any other products stand out in the second quarter?

In terms of ASP, maybe Pak Hadi can answer that number?

Yes. I think up to first half of '23, ASP effect is around 9%.

And your second question is aside from Avitex Gold, so we haven't seen any other products yet in the market -- well, to be honest, in the first and second quarter, not many products that we launched, right? If you see that we only launched two marine products in this quarter, Robin, this is a budget marine that we're trying to launch, leveraging on the Admiral brand from the company that we acquired just before listing. But this is a completely new product. The left-hand side here that you see here is the first epoxy adhesive with a sawdust,that we just launched in Indonesia. So this is like a new technology for Indonesia. Nobody has ever had this yet. And then the middle one here for Admiral is really a product which we target for the fishermen. So for these two products, I mean, the pickup is still very slow because we're trying to introduce something new to the fisherman. Don't use a house paint but use this product instead. So -- but we'll continue with this effort because as you know, there are the millions of fishermen in Indonesia being an island nation. But ARIES Bling is another product where we believe will be contributing in a meaningful way. And the reason for this is that this is a product which should answer a lot of the lower-income families' needs because there's already a segment for this product in the market. And we know that when we launched this product, our competitors should be quite concerned because we are targeting their products, which exist in various parts of Indonesia. And so we're feeling quite optimistic about ARIES Bling. But because it's only launched in the 22nd of May, right, so we only have like 1 month and 8 days, it's definitely too early to see the effect or the contribution for this product. But it will definitely be more meaningful as time goes by because another product like ARIES Bling is where we believe that we will make a dent in the market in terms of the budget-well paint.

My next question is how has July volume been doing? And in the second half overall, what -- anything specific to boost sales volumes?

Yes. Well, obviously, because last year June was also a [ last buy ]. So July of last year, we -- the comparison is the exact opposite, right? So July of this year, we're definitely doing better. The growth was in double digits. So if we look at our year-to-date July performance, we're able to actually perform better than what we did in June. But look, the market is still very weak. When I speak to many of our partners, and they all basically communicated the same thing. So I think what we will do is to rely on the innovation [ side ] and look at some of the new products that we will launch not in July, but mostly in August and September. And then -- and this is, again, an interesting product because when we leverage on our well-known brands in the market, we know that success is achieved in a shorter amount of time rather than introducing a completely new brand that people have never heard of. So it will be another brand extension that we'll do and in a category that we know needed this type of products to exist. So we're quite excited to see how the market will react in September or part of August when we start to launch this product.

My last question is perhaps direct to Pak Robert. Could you comment on how raw material prices have trended? And how do you think it will fare towards the end of the year?

Yes. The raw materials, I will say that it has been stabilized quite a lot and eventually has declined, especially on the resin and the pigments for O2 as well as the packaging. So we will see that the raw materials will, I would say, remain the same or normalize again in the Q3 and Q4.

I think even some of the solvents have also gone down in price.

Yes. The solvents, starting Q2, it has seen -- softened up as well.

Yes. So which is why when Robert shared earlier, right, in terms of our guidance, we feel quite comfortable about maintaining our architectural solutions margin to be at around 51% margin.

Safe to say, can we assume that the GPs that we saw in second quarter will sort of go until the end of the year?

Yes. That's basically what we're saying.

Is there anyone who want to ask some questions? Harry. Yes, you can start to ask questions, Harry?

I want to ask a bit more on volume -- on the volume points because I know you said that last year was a high base. But if we look even on a 2-year basis, then the volumes are still down quite a bit. So I just want to get a sense like is -- perhaps at these levels that we saw in 2021 even around COVID, a bit elevated? Or do you just see this as a function of how weak the consumer purchasing power is?

I think it's the latter, right, on the weaker consuming power because we should not only benchmark this within the building materials itself, even though that's the segment that we currently exist at. But when we again look at the FMCGs, Harry, that's basically what we're also seeing, right? It's unreasonable in my mind that FMCG to be experiencing this kind of weakness because people consume things, right? They use soap, they use detergent and they eat things from the FMCG world. And yet their performance has also been bad. So I think that's basically what we believe is happening. So definitely, the industry is facing a lot of headwinds at this point in time, especially the building materials. And what I basically gather from many of our friends in the similar industry is that this is really happening in not only in [ bank, ] but many other products across the board. And there are a few companies which are publicly listed in Indonesia, right? We mentioned like ceramic tiles, but there's also another one who is also a player within the roof, plastic roofing. So they also, for the first time, recorded a very low single-digit performance in the first half. Even though if you look in the past 4 years, their growth have been exceeding 15%. So I think we -- this is something that we really witnessed in terms of weaker purchasing power, Harry.

Okay. Yes. I mean, it seems like there's been a sort of dual track growth with maybe more of the higher income segment being less affected, but...

Correct.

I suppose, would it be right to think maybe the higher end segment customers of other paint companies? Or would you see that in your numbers as well?

No, because we're really not a dominant player in the premium segment, right? So obviously, when we -- in my mind, when we discuss this internally, then it makes sense that the higher-end players would be doing better. And I think you can also see that from the modern trade contribution, right? So if we go to a modern trade pie chart contribution, right? It actually exceeded 7% for the first time in 5 years. So -- and if you think about it, the end consumers that visit modern retail outlets tend to be of higher income than those who visit traditional retail shops, which is why the modern retail outlets are slightly less impacted when the consumer buying power is weak. Nevertheless, as I shared earlier, right, the reported earnings of two publicly listed modern retail outlets showed that their growth is only about 6% and 5% in the first half. But we are seeing it, and therefore, the modern retail outlets contribution, which always been hovering at around 6%, this time around, it passes the 7% mark. But I think it will correct in Q3. It will go back to around 6%.

Okay. And what do you think needs to happen for this -- kind of to start to see the volumes improve, particularly on the architectural side?

In the Q3, the products that we will launch again will be catering to the consumers with lesser money, right? So I don't want to disclose the product that we have, but we feel very optimistic about this one segment that we'll be launching. In August, the product will be launched in some parts of Indonesia, followed by a nationwide launch by the end of September. So I think you will see that in Q3, our performance will definitely be better because this is, again, a product that we believe is needed in the market. And when we look at our competition for this segment at this pricing point, there isn't any one there. So we feel very good about this. And in fact, in terms of product launch, we're preparing a lot of inventory to cater for the demand that the retailers should have for this particular product. So we'll see how things fare in August and in September for this product. So again, that will be for the architectural solutions segment, for sure, to counter for the volume.

Okay. And have you seen any sort of more aggressive competition, like more discounting or sort of higher promotions amongst your competitors just given this feels like it's a market -- a volume -- a market volume decline?

No, not really. In fact, if I tell you, out of all the players in Indonesia, right, Nippon has certainly increased prices again, the third time this year. And if you look at Dulux, they actually did it once, Jotun did it once. I think Mowilex also did it once. So a bunch of players are still trying to maintain their margin. And we have not seen crazy discounting here and there. But we do see intensifying in terms of branding, for instance, right, more and more shops are getting branded. So we follow suit. So that's why we continue to do and monitor this type of situation. So if any shops are about to be branded by any of our competitors and we look at their sales and say, "Hey, it's worthwhile for us to counter," that's what we do. So we've been investing quite a bit on the branding as well so that ideally, every year, there will be maybe close to 1,000 or so shops -- between 500 to 1,000 shops that will brand with our products. And you'll see more and more of this. So we use our good quality paint so that the branding and the main thing on the exterior building will last longer. And so you do it once and you don't need to redo it for another 7 to 10 years. But no crazy discounting is evident in the market, Harry.

Okay. And with raw material prices now sort of come down quite a bit, and if I look at sort of your architectural revenue divided by your architectural volume, like the price per metric ton, it's quite high now. Is there any circumstance under which you think it makes sense to reduce prices? Or is that just not something that crosses your mind?

No, I would not reduce prices. But as I mentioned, like we would introduce brand extensions of a very known brand that we already have and leverage those. So that's how we would have it. So we showed you, right, in the wood and metal, right? We have Avian and then we have Avian Cling. So that's one example. So I would not reduce the price for Avian, but then we introduce an Avian Cling so that consumers say, "Hey, if I want to buy something cheaper, at least it's the same brand." And even though the quality will be different, they know. But they're willing to accept that. So Avian Cling is another example that we have, and this product is doing very well. I mentioned like -- I mean, it exists in the same price range as [ Globin ], but we're planning to discontinue [ Glow-in ]. And we're looking to see if in a year or so, [ Glow-in ] really is not performing well, then we'll stop it because we already have Avian Cling, we don't need to have [ Glow-in ]. So I think what will happen over time is that you guys will see that we'll start to reduce the amount of brands that we have and will, in fact, focus of maybe around two or so in each category. So give you an example, right? We have a platinum under the wood and metal, okay? So this is a product that we will basically rebrand. It will be called Avian Platinum. So people know, oh, it's platinum, yes, but it's the premium version of that product. So -- and then we'll have [ Globin ] will be discontinued and then we'll probably have Yoko only. So in the wood and metal, only two brands, one is Avian, the other one is Yoko for premium and for the lower end. Things like that will basically happen in the next decade. And we'll continue to streamline our brands because, as you know, branding is expensive, right? And so we need to really just leverage on what we have and take it from there. But we do not have any intention of lowering the price area, harry. By the looks of what the competitors have been doing, right, neither are they, right?

Got it. And sorry, my final question, just based on the guidance you've given, I think it requires about 15.5%, 16% growth in sales in the second half year-on-year. Is that -- I mean, is that something you still feel pretty comfortable with? Or...

Yes, because if you look at our performance last year, right, we didn't do so great in the second half. We did better in the first half. So the base that we have for the second half is definitely lower. Nevertheless, let me remind you that we did have a lost [indiscernible] in the month of November last year. So obviously then we need to think about this time, okay. November last year, yes, as you can see here in Q4, so price increase in November, so lost [indiscernible] in October. So that's something that we were basically seeing, okay, this is the only one obstacle that we need to overcome in -- when we are comparing ourselves to our performance last year. But with the new products that we will launch in Q3 and Q4, we feel confident that we should be able to maintain this. Any other questions?

Ian, you can ask a question.

I just have some minor details to work out with you. First, we just look at the first quarter, second quarter, I think we do have the one slide to give on the breakdown. The product we launched, Avitex Gold, and also the new product, ARIES Bling, are both in the wall paint category, right?

Yes.

So I just want to check on a Q-on-Q basis, wall paint seems to be declining, among all the paint products is the one experienced most negative decline? Is it correct?

You're talking about the wall category in first quarter versus second quarter?

Yes.

Hadi, do you have the number? I don't think it declined.

Okay. Yes, actually, we have the number. I think for Q-to-Q, just like Ian says that, yes, our number actually is declining.

Okay, just Q2?

Yes, Q1 versus Q2.

In terms of the wall paint contribution.

Yes.

Yes. Just on the value of the wall paints, in Q1, the Q2 sales since Q2 is on Q-o-Q decline from the Q1.

Yes. Okay. I see what you mean, here, yes. Sorry. Yes, yes.

So yes, of course, -- there are 2 factors here. One is Lebaran this year. Lebaran this year is in end of the first quarter, right? Of course, then April will be affected. Just wondering, given the Avitex Gold was such a big success in -- they had a huge impact in March number and April number, is there any concern about the over purchase by your customer? Maybe you can just give me kind of the minds of minds, say, how the April to May to June into July so we can have the better -- because the year-on-year here is so much being distorted by a very contrasted first half or the second half of last year.

So no, I wouldn't say that we're worried about our retailers are overbuying on the Avitex Gold because when we look at the number of shops that have bought Avitex Gold in this year, the number of shops participating is still far below our target numbers, let's put it that way. So we know that the potential for Avitex Gold is still huge and we know that there are a lot of shops that we are targeting to buy this product. But obviously, because Avitex Gold positioning is the most premium within the mid-tier, so not all cities have a huge potential for that market, right? So -- but I tell my team that when we look at the market overall for Indonesia, for the mid-tier wall paint, ideally, Avitex Gold sales needs to be higher than Avitex. And we haven't achieved that yet. We're still quite far from it. So we know that the potential for Avitex Gold is greater than that of Avitex. And the fact that Avitex now is still contributing way more than Avitex Gold, and that's what we're trying to basically narrow the gap. So we're not worried about shops over purchasing because -- but what they do when they over purchase from us in certain shops is that they have to reduce from other brands then, because it will be impossible for them to be selling and pushing Avitex Gold and still also buy from our competitors at the same time. Then it will be quite difficult. So the only way for that -- for those shops to survive is to reduce what they are buying from other competitors. So that's how it will work. Does that answer your question?

Yes, yes. Just a follow-up -- not a follow up. I think you just mentioned by passing, you think the Nippon in has done three price increase, right? But we only did the once in May due to the solvent inflation. In what category Nippon has been increased. I'm seeing price category also product category and why you didn't react.

So they basically decided to split their price hike this year in a bit of unusual way. So they would only -- okay, for the second and third, yes, normally, we would always react because as I shared, right? We don't want our products to be deemed to be inferior to them if the price difference is so much. But that's not the case. So in this time around, they actually launched -- the second price hike that they did is targeted more on the automotive refinish. So I don't know if you're aware, in Indonesia, within the automotive refinish category, Nippon really is the strongest. So they have very strong presence in the automotive refinish category. In contrast, our automotive refinish category is still very small. So we're not dominant in automotive refinish at all. So -- and you can see that from the pie chart, it's combined with others. So we don't pay a lot of attention on this. So obviously, when they decide to increase their price, we look at the price difference between their prices and our prices. And we felt that, okay, well, I think we don't need to adjust our price for the automotive refinish, we didn't react. The third price hike that they just did, maybe just a couple of weeks ago is they're only doing it -- they only did it for the tinting products. So when we again saw that, we made comparisons to tinting prices to our tinting prices. And then we felt that, yes, we also don't need to react because tinting is way less sensitive in terms of price because when consumers buy any tinted products, the price varies from one color to another. So when you have 2,000 colors, let's say, and you go to any shops to get whatever color that you want, the prices are -- there are 2,000 prices, it will vary greatly. So tinting is really not that sensitive. And then when we benchmark their prices to our prices, we felt like, look, we don't need to adjust this. So we didn't feel the need to react on the last 2x of their price hike. And then when we benchmark their prices to our prices, we felt like, look, we don't need to adjust this. So we didn't feel the need to react on the last 2x of their price hike.

Okay. Got you. Just speaking on the continuation, right, I think in the first quarter, we actually say you're going to accelerate the roll out of the information. But I look at your cash flow number, I didn't see any big number change.

It's still not a big number, Dan, but we are adding more tinting machines than what we have added last year. So in the second half, in particular, we'll be adding more tinting machines. But it's not going to be a huge number because again, we need to make sure that the revenue per tinting machine is achieved because we just don't want to start randomly adding aggressively in terms of tinting machines and not get the kind of returns that we do. But now the performance per tinting machines continue to improve, right? If Avitex Gold does better, for instance, tinting will also improve, right? Because Avitex Gold is also available in ready-mix and tinting. Likewise, with this new product that we'll launch in August and September, for instance, it will also be available in ready-mix and tinting. And therefore, the tinting performance should also benefit from the rollout of this new product. But we don't want to be that aggressive yet because I think until we achieve the kind of revenue target that we have per tinting machine, then the rollout will be faster, but not in any way that you will notice it from the trade working capital per se.

We have a question in the [indiscernible].

I'm actually quite curious regarding ARIES Bling. Can you give us a sense of the gross margin there?

Yes. So when we look at our gross margin, so wall paint margin is where you can see from the price difference from category 5 all the way to category 1. So it has a really wide product portfolio, right? You can see from this page, right, it's a lot. But in terms of profit margin, if we just focus on the difference between Aries -- Avitex Gold to ARIES, for instance, okay? Between category 3 to category 1, we're looking at single-digit margin difference, Leonard. So it's not huge. So then if you look at ARIES Bling because it's somewhere in between, then the margin will be, again, in single digit. It will be somewhere in between. Because that's how we generally approach our pricing. And when we look at our competitors, it seems like the approach that they do is quite similar because this product, as I explained earlier, is really targeting a lot of the different competitors, which exist in Indonesia. And we're talking about a lot of different brands. So it's not only targeting one by Nippon or Jotun or [Axel]. But there, in fact, there are a lot of different brands, which exist in different pockets of Indonesia and we're trying to attack that with ARIES Bling. So this is a product that will be -- is targeted or launched to do that. But margin difference is, again, in single digit.

Got it. That's very clear. Just a follow-up. So I think you previously mentioned that you're targeting GP margin of 31% for architecture solutions, right? Given the price increase that you guys have been taking as well as raw material cost has been decreasing. I was wondering -- is this a bit too conservative? And perhaps, are you seeing any other gross margin kind of pressure that you guys are not revising it upwards?

No, not really. I mean, as Robert indicated earlier, right, I mean, the raw materials are stabilizing, right? The trend that we're seeing now still basically leads that margin will be maintained or maybe even slightly improved, right? So it is very possible that the margin will slightly improve to maybe 52%, slightly above 52%. But the fact is we don't know, right? So we don't want to be overly aggressive and basically tell you that margin will continue to improve because what we see now is still stabilizing. A bunch of products, which Robert mentioned are also on the declining trends. We also don't know how long that will last. But given the fact that we're now in July, we do feel comfortable that maintaining our margin guidance for the architectural solutions at 51% is something that we know that we should be able to do unless another war breakout or whatever, right? But God forbid, if those things are not happening, then I think we feel quite comfortable here. But obviously, what I explained earlier, right, we need to then look at the OpEx side of things, right? Because now let's face it, right? Transport costs is back, right? We can do our internal audits and all the DCs as per normal. People start traveling and things like that. So there's going to be a slight increase in the sales and marketing aspects of things as well, as I mentioned earlier, right, in terms of branding, we're trying to also do and make our brands feasible -- more visible in many cities around Indonesia and we'll definitely counter the aggressions of our competitors if they wanted to come into our shops. If any particular shop is under threat from any competitors and they say, "Hey, I'll brand with Brand X." Then we'll go there and say, no, you better take our products, and then we'll do branding. So we'll definitely look at that in terms of the effect on the EBITDA as well as the net profit margin. But we feel quite cautious with regards to our gross margin maintenance for now.

Next, from [ Jun Jao].

So can I ask on your -- I mean, previously, you made a comment about Nippon. Nippon raising prices and then we looked at your portfolio and you felt there was no need to increase prices. I mean does that mean that your pricing is really quite high relative -- even before your competitors raise the prices? How does the price gap -- how does your pricing ladder against your peers and your categories? So I guess my question is, does Avian price very high already, which is why you don't see the need to?

Yes. Okay. Good question, Jolion. So let's look at the first comment, which I said on the automotive refinish, right? So as the market leader in the automotive refinish, so Nippon definitely has a higher price than us. So it's not true that our prices are higher than them in the automotive refinish because we won't be able to sell our automotive refinish products. But the fact is our automotive refinish products needs to be lower in terms of pricing than theirs. And when we saw their price hike between 2% to 3%, 4% we felt like I think this is a margin that we still feel quite comfortable. We don't need to adjust. So automotive refinish, their prices are higher than us and we don't feel that we need to adjust. It's fine. But on the second matter, which you -- which I explained that they also decided to raise prices on tinting. So tinting in Indonesia in terms of pricing is a bit tricky, [Juno]. So when you look at the ready mix, right, it's clearly segregated. Let's say I want to benchmark our waterproofing products, okay? I can look at Aquaproof, which is the pioneer in waterproofing. I can look at Nippon and I can look at other bank products. For ready-mix, it's very easy. But when it comes to base, it's quite tricky because some companies will price their base A to be higher than the ready-mix. Some companies will price at lower and so on. So we hardly make comparisons on the -- benchmark each other on the base. Base will just leave it as we set our own price, they will set their own price. So we don't really pay attention too much on what our competitors do on the bases because, like I said, right, base is very much an open price policy. So when you choose different pink to another pink, the price will vary. And I think in many other countries, including Singapore, that's how they also operate, right? So because of that pricing that they give to consumers, right, retail shops are really not sensitive when it comes to base prices. It doesn't matter what our base price is, but they just look on the ready-mix as the -- more of a benchmark. So that's why when Nippon raised their, as we look at their tinting, okay, fine, you raise your price. So we need to adjust, we look at ours now. We don't need to make any adjustments on the tinting. We feel comfortable with our positioning and the margin that we've demonstrated in Q2 still went up. So we're okay with it. That's why we didn't need to adjust. I hope that helps.

Okay. Automotive finishes, I mean that's one. It's tinting. Is that everything else basically on the screen?

Say it again?

I mean is tinting basically everything more or less everything in a wall wouldn't matter waterproofing, wood care, glue and others.

So tinting that we have predominantly are in the wall within metal and waterproofing. And so are the others. Wood care is not so much, hardly anyone do tinting on the wood care segment. Neither do they on the automotive refinish. So automotive refinish is not so much tinting. Unless you go to body repair shop, that's a different product, again, we don't win against them. It's a very small niche market for the body repair. So that's different market.

Okay. And since the price sensitivity and tinting is less sensitive, why would it be -- I mean, I guess what's the logic behind not increasing our prices, especially if the pricing is so big across different brands?

Yes, because we were trying to encourage tinting from -- to consumers, right? And the fact is one of the biggest barrier that we found in the past few years is that the perception from the consumer is that tinting is a lot more expensive, okay? Maybe they're just not aware that it's a different approach, right? The colors and everything else, which is why I think when we benchmark our tinting -- not to say that our thinking is cheap [Jolion]. Because, again, we have our policy that -- let's say, if ready-mix is at 100, right? Maybe our thin thing for base will be at either 98, 97 or could be at 102 different products. We set it differently. But it doesn't mean that our tinting price is way cheaper. And secondly, we look at our gross margin, right? So [indiscernible], Andreas and Robert, right? We all participate in the gross margin monthly discussion and it's actually split between ready-mix gross margin and tinting contribution. So if we see that our binding contribution is less than our ready-mix, then we make a judgment call, okay? So we need to adjust this. But in the last meeting that we participated in just a few days ago or a few -- 1 or 2 weeks ago, right, we felt quite comfortable with our tinting margin and many are actually higher than our ready-mix margin. And therefore, we said, look, we don't really need to make any adjustments for now. So let it be. So that's why we didn't make any adjustments on the tinting.

That was clear. My second question is on Avitex Gold. Yes, in the first quarter, it was -- I mean, it was a pretty hot product and you are running that aggressive below-the-line. Yes, that aggressive promotion strategy on that. So can you just help us understand how big of your sales is Avitex Gold code now? What's the quarter-on-quarter growth? Or did it decline? Just just a bit more color on that.

So to be honest, I don't want to share this information because I know that the others are listening, right? But what I can share with you is what I said earlier, right? We have the ambition of trying to make Avitex Gold contribution for the company to be bigger than what the normal Avitex is currently contributing, right? So if you look in the screen here side by side, right, you have the Avitex Gold in the dark blue can. And on the right-hand side, you'll see an Avitex in the white can with the blue colors. So as of now, the contribution from Avitex, it's definitely still higher, way higher than that, okay? Multiple fold. So because of that, then we say, okay, well, we need to be very aggressive in Avitex Gold so that the contribution for Avitex Gold can be bigger than the normal Avitex, right? So why if you recall in my first quarter earnings call, we mentioned that it's likely that we will sustain the kind of aggression that we have, aggressiveness for the Avitex Gold promotion, that we're currently giving to our retailers, and we'll maintain it maybe up until next year because we wanted to make sure that the revenue growth for this product can continue to grow before we decided to stop and reduce our below-the-line budget on this product. But that -- but for now, the market is still very big for the Avitex Gold product portfolio, right? And it's dominated by two players right now, right? One is Nippon, the other one is AkzoNobel. So we're -- and a lot of smaller players, obviously, also try to participate and enter that market. So the market is still very big, and therefore, we don't want to reduce the budget for the Avitex Gold because that's what we need to grab from our competitors. And you know -- as you can imagine, right, they're not going to follow our kind of budget that we're giving because when their revenue is already so big, right? I mean, they lose money if they do what we are doing. But for us, we're starting from scratch. So the margin of Avitex Gold is small to begin with, let it be. And the important thing is that we can maintain the margin for everything else or we can improve, in fact, as you have seen with our numbers. And I think that's how we look at it. But every quarter, the contribution for this product is -- continues to be quite meaningful, and we're quite happy where it stands for now. But I tell my team, look, there's still a lot more shops that we can hit and offer with these products. So let's be even more aggressive. So I'm always incentivizing our internal teams with a lot of things on the wall paint and Avitex gold in particular. And now I've added a -- ARIES Bling. Let's hit our competitors also with this product.

Okay. But if you can share -- quarter-on-quarter, is it directionally the same as your general paint portfolio? Or did it buck the trend? So I mean your paint revenue declined quarter-on-quarter?

No. So Avitex Gold continued to be very good. Yes. That's where it's heading.

Okay. So Avitex Gold revenue in second quarter is higher than the first quarter.

I don't have the exact number. But if it's not higher, at least it's comparable still very good.

Yes. Okay. And then my last question, and then I'll get back to the queue. So in talking about your guidance, volume growth and orders, are you expecting -- are you generally expecting the macro scenario to improve going to the second half of the year? Or you think it's mainly the low base last year that will help you meet the guidance?

I think it's, again, the latter, right? It's more on the lower base. But Also, I think it's combined with the new products that we will launch. I don't think the Indonesian economic condition will actually improve in the second quarter -- in the second half, especially as the presidential election, it gets even closer, right? So as you know, this is a time when retailers tend to be a bit anxious and therefore, they don't want to stock up too much. But again, I mean, our entire value proposition to the retailers is like, look, because of our speedy delivery and the fact that we have warehouses everywhere, really, you don't need to carry so much stock, right? And you just carry enough, but whatever -- whenever you want to make more profit, you can offer our products and we'll deliver it. So this is another thing that we'll do. And then you will see that when we say that we're improving our supply chain, I think you will see that we'll do more on this. But the whole idea is to really encourage the shops to carry -- to sell more of our products and maybe you don't need to keep inventory of these products. So I think that's what we're expecting them to understand, and therefore, they're going to be willing to offer more of our products because when we continue to launch more and more and more products, right? We have to think about the different ways to get to the retailers to actually offer the products to consumers, right, in addition to our own team making wave with the painters, contractors and so on, but the retailer needs to also participate, right, because there are a lot of these retailers, right, 56,000 of them across the nation. So -- but I don't think Indonesian's condition will improve in the second half. So we'll just have to be continuing with what we're doing, product innovation, new products and really push. As you can also tell, right, our on-time collection also dipped slightly, even though it's a level that is still very reasonable. But we're looking at this and looking at, okay, what else needs to happen? So yes, I think that's how we see that second half, quite cautious.

Sorry, speaking of elections, historically, has this been a boon or bane for you guys or just volatility in general?

I think the volatility tend to be unknown when it comes to election, right? Even during Jokowi's second term, right, which is supposed to be -- it should be a landslide victory for him. Nevertheless, something happened, a huge demonstration erupted in Jakarta, and it was quite severe. But I think I've also shared that the next day, everything just on die down and just disappeared. I'm like, wow, what happened. So we really don't know. And because we have no political affiliation whatsoever, right? And we don't know what's going to happen, what's likely going to happen. But I think the way we look at it is that, look, I think whether -- whatever happens on that end, right, it will be business as usual for most Indonesians, right? And we just need to do what we do, try to get market share. When our competitors are really lessening their aggression, then we'll be more aggressive. But it's a controlled aggressiveness, right? We're not trying to just throw away the budgets and try to get rid of -- and just spending recklessly because that's not how we operate. Andreas, there's a question in the chat box.

Yes, there's a question from [indiscernible]. May I ask why the 4 to 5 points improvement in gross margin from COGS are not filtering through the bottom line? What are the major increases in the cost during this period that prefer this? When can we see a pullback in this additional cost and thus an improvement in margins?

Yes. Can you go to consolidated margin, please? I think to answer this question we should go back to year of 2021. Because in '21, we extra monitor our expense or reduce our expense in response to COVID-19 condition and some because of movement limitation from the government. And this condition continued to the first and second quarter of 2022 before coming back to normal level in Q3 and onwards. As a result, even to gross margin in Q2 last year was secured at 41.3%, as you see in the deck but the EBITDA margin was recorded higher at around 26.4%. This high level EBITDA margin has led to a high level of net income margin in Q2 last year, which was at 22.5%. Normally, if gross margin was recorded at around 40%, 41%, then the normal level of EBITDA and net income margin should be around 23% and 19% at the full year. Now back to 23%. Gross margin improved to 45%. And even though OpEx increase or normalize and also because of addition of new PC, but the EBITDA margin is able to be maintained at around 8%. Because the increase in OpEx was able to be absorbed by the improvement in the gross margin. So the 28% EBITDA in Q2 '23, corresponded to the 23% level of net income. Therefore, when we compare to Q2 last year, net income margin was quite flat. Because the net income margin last year was recorded at high level due to a low level of OpEx by that time. So hopefully, it answer your question.

But maybe to add that to Ken Lo's question, right? I mean if revenue improved in Q3, right, if our guidance is met, then obviously, the logical thing to be thinking is that the net income will definitely improve because the OpEx, as you know, right, can be covered by the improvement in sales. So I think that's what we're looking to see if that can happen. And everything basically depends on our ability to hit our target. But if the target is hit, then it's safe to say that our net income will also go up. I hope that answers your questions. Any other questions? Go ahead, Jon.

Yes. I guess maybe a bit more going back in history. I mean, [indiscernible], every year, you saw launch new products, right, like 2019, I remember like in one, Sunguard, 2020. Avitex and whatever. So I'm just trying to think -- I mean, what -- because this is the first time I'm meeting you guys said. We really emphasized Avitex Gold when you say start product. So I'm just trying to understand like what you know your product portfolio when you launch new products, what determines hit and miss? And what makes you decide to invest more? Because every year, you launched like 10 to 12, for example, this year -- last year, we heard Avitex Gold. Then this year, you're saying there's the new one, the economy, I think you mentioned ARIES Bling. So I'm just trying to go back in time and understand why now, why this product is more emphasis when I -- correct me if I'm wrong. I don't think you've been that vocal in pushing some of your products in previous call.

And [Jolion], to be honest, that's a mistake of ours. We should have been more aggressive in launching new products because look, we're not trying to reinvent the wheel, right? So first of all, let me stress to you that almost all of the new products that we launched, okay, there's already a market for that product, right? With the exception of ADMIRAL, okay? ADMIRAL and the Marine, okay, we're trying something new, okay, let's ignore that for a second. Everything else that you see in this page, right? There's already a lot of competitors in that particular segment, right? Whether that's Avitex Gold, whether that's ARIES Bling, whether that's Avian Cling or whatever that is, right? But if I learn and look at the success of Asian Paints in India, right? And then we shared with you that we've been there before COVID. We look at the market there. And based on Asian Paints presentation, in 1 year, they launched more than 30 products now. I said 30 products. How is that possible, right? When you think about the footprint of a normal shop in India, it's only 1/3 of that of normal shops in Indonesia. So how can Asian Paints launch 30 different products? So the answer has a lot to do with their superiority in supply chain. How fast they can deliver and how they can get their products into the hands of the retailers, right? Because Asian Paints supply all of their sales through the retailers, right? So immediately, this is what I basically mentioned earlier, right? Well, you'll see more surprises when it comes to our supply chain. Are we happy with 95% 1-day delivery? No. You'll see us doing even more on that because we already have the DCs everywhere, right? How can we get retailers to offer more of our products. So that's basically the thinking behind how Asian Paints have been able to drive and continue to deliver the kind of volumes, the kind of value growth that they have been doing for decades, right? So we're really learning a lot from Asian Paints looking at what they're doing successfully in India and trying to say, okay, how is that applicable for our business in Indonesia? What can we do, right? So the short answer to your question is the mistake of ours was that we should have launched more products even more aggressively, maybe start from 10 years ago. Why didn't we? Well, that's the mistake. We should have I should have learned more from Asian Paints from a decade ago and launched new products. But the question is, if we go back to the product portfolio today, what I mentioned earlier, right, in the wood and metal category, right, [Globin], it doesn't work, we'll discontinue it, right? So at the same time,[Jolion]. We also do not allow our ego to get in the minds of the business, right? If globin doesn't work, we'll stop because I don't care if dosing doesn't work, we'll terminate it. So launching new products, but at the same time, being focused on analyzing whether which product works or which product doesn't. Is there a future for this product? If there's a future, okay, maybe we need to continue with this product, even though sales is slow now, but it will pick up as we educate the market and so on. But if there is really no future for it, like in the case of Globin, then we're really not shy. We'll just stop it. We'll terminate it. Again, we always do it in a way where in terms of loss to the company, it's very minimal. Because whenever we discontinue any product, the process will last for at least 2 years. So we really don't want to just take it all from the shops. We'll tell the shops okay, a lot of colors a little bit discontinued. So you'll that this product will slowly disappear. But in the meantime, you can continue to sell the products. The loss of the company when we discontinue any products is at minimum. At the same time, with any launching of new products, we're always concerned about the inventory. So we always use our ERP, our supply chain capability to really manage this well. So I think that's how we really try to balance the launching of new products and the discontinuing of products that really don't work.

Got it. If I can follow up. Just two short questions. I guess maybe since in the past, [indiscernible], maybe just curious why hasn't the company been launching more products like history-wise. Yes.

Yes. I think we felt that we have a lot of products. I think we felt that -- I think I shared with you guys last time, right. I'm not a big believer of brand extensions. In fact, I didn't like brand extensions, right? But since COVID, I really changed my mind. So again, I think that's a mistake for me. I should have done more brand extensions from a decade ago. I should have been more aggressive in launching new products from a decade ago. So the fact that we didn't, it's purely a mistake on our side. And -- but I mean the good thing is we're -- number one, we're not shy to admit if we make any mistake. And number two, we immediately take actions to correct those, right? So Robert and I and the R&D team, we meet on a monthly basis, [Jolion]. We go to the factory, we got the R&D. We talk about all the products that we have okay, what's next? What's next? What's next? So Robert has more than 3 years' worth of pipeline now thinking about what will we launch in the next 3 years because we need to know where the market is heading. We need to also prepare the company because we have warehouses everywhere, right? Are they going to be enough, right? That's also a concern, right? We need to make sure that, okay, hey, we can't just launch, launch lots without thinking about what about our warehouse capability. Because at the end of the day, the contribution from our wholly owned DC is still around 88%, right? If you sell to third-party DC, it's easy enough, right? It's your warehouse, I don't care about it. I don't need to think about that. But the fact that we sell through our wholly owned DC means that we have to think about the preparation of all this, okay? It's the warehouse supportive, right? Buying trucks is easy. We can just buy trucks. But is the warehouse supported? If not, what can we do? Do we need to get more warehouse? Do we need to build more? Do we need to lease more? So these are all things that we have to extra -- put export thought into because we own the wholly owned DC to that extent.

Got it. And then my last question, if I can sort of prove a little bit on that I mean, to be fair, you have launched products late 2019, 2020, 2021. I mean like [indiscernible], whatever. I mean we followed you for a while Yes. I guess in relation to, I guess, what [indiscernible] have asked about the guidance for second half. Some extent of that relies on, I guess, ARIES Bling, for example, new products being launched to deliver. Given how you've cited about product success or not, what gives you the confidence or, I guess, to for this ARIES Bling to perform in the second half?

Yes, a very good question, [Jolion]. Because remember that I also said that we didn't do as well in the second half last year, right? So I think we definitely have the lower base to our advantage when we entered the second half last year. And then couple that with the new products that we will launch, right, and the continuation of the Avitex Gold, for instance, right? So we feel quite comfortable, okay, we can meet our guidance and then we'll need to be aggressive. Our aggressiveness will not -- will continue in the second half, because I do not think that the Indonesian market condition will actually improve that much in the second half. So if we don't remain our aggressiveness, then it will be very difficult for us to hit our target. So that's not how we react. We'll always push very much to the limit. So maybe Dan can answer your questions again.

Sure. I just have questions. I check all the volume data. We're still below the same period in 2019 but that's not unique to you. I think every other paying company like ExxonMobil,, PPG, [indiscernible] I think all the volumes this year so far has been collapsing. Price holding up because deflation or some of the material help. Since everyone is about the same story. But my question is because we always see some of the paint demand is non-discretionary. Am I right? So on kind of the time people have to do the repaying if there's a new constraint, there could be repaid. But now where does volume is going? Where is demand in terms of volume? It just disappear. When will come back? And what kind of condition those volume come back? At least thinking about 2019's level?

Yes. So when -- again, I think at the first quarter earnings call, I mentioned that we are still experiencing a gap between where minimum wage have gone up in the past 3 years. When you compare that to where paint prices have gone up in the past 3 years, right? It's still about 10% or so gap -- so I think if you ask me where or when will that come back in terms of demand, I think next year, we're definitely in a much better position because the minimum wage should go up faster than what prices have gone up in this year. And therefore, the gap will be very narrow. And therefore, I think we will be in a good place. Obviously, this also depends on the volatility of -- the predictability for the election market, right? If everything goes well, then nothing will happen, then we feel very confident about what's happening -- what's going to happen to the Indonesian paint market next year. So I think that's how I look at it. But now with that gap in mind, right, that we're still trying to overcome, then the introduction of more economical products, leveraging on existing popular brand needs to continue, and that's basically what we're trying to do. I just wish I had done it faster or sooner but it's a mistake, and we're trying to correct that now with some of the products that we've launched or that we will launch.

Okay. Let's hope that will be the in tune next year. Just on a related topic, I think we also disclosed some customer number and the customer being the retailer of the paints? But I do a simple calculation. Since kind of average customers kind of volume, the paint they are purchasing for you actually getting less and less. But at the same time, the number of customers you have grown quite a lot right used to be below 40,000. I'm saying now is getting to close to 50,000. So why -- this just means the new customer like just long-tail customer, they are very skewed to the small volume purchase or is about the average customer, they just purchased less today than say, '19 or '18?

No. So it's more like -- so it's very -- you're very correct to identify that the number of customers that we have, even though they've been growing, but what they've been buying on the average in terms of the per shop has not grown very much. That's because, generally speaking, for most companies -- or in fact, for all companies in Indonesia, again, is that when you go and enter any new market, the first shops that you'll visit will be the big shops for sure, right? So my team would have done that also exactly. But because of our way of thinking in terms of penetration, right, we want to supply to the shops directly. So what has happened, right? Well, number one, in Indonesia, there are also an existence of shops where they actually like to redistribute, okay? So they are, in fact, wholesaler even though they are -- we don't have any wholesaler in the country, but these shops exist, and they like to supply to the smaller shops. Now what happened with our distribution network expansion? Well, when we open more and more DCs everywhere in the country, so obviously, the bigger shops who used to wholesale obviously, their market share will shrink or their sales will shrink because we supply now to their customers, right? So -- because of that, when we add more and more customers, it definitely doesn't make sense that the revenue will scale up alongside those shops, which is what I'm trying to counter now, right? Because if I, again, go into the Asian Paints case, right, we look at what they're doing with all the new products. I say, hey, how is Asian Paint being able to grow so fast every year and yet continue to launch all these new products and the footprint of the shop being only 1/3 of that of Indonesia size? So the answer lies in the fact that we need to do something in terms of supply chain, and that's basically what we need to do, providing the fastest delivery system to encourage shops to buy more of our products. But I think along the years, every time we add new shops then, they tend to be smaller because they used to buy from wholesale because they could not buy from us. We didn't have a DC there. Maybe our salespeople went there, but they also, again, focus on the big shops. But now as soon as we open a DC -- one of the important KPI is to add more shops, okay. Whether that's 10%, 5%, 20%, whatever it is. We have to add more shops and supply to them directly. So what has happened in the past decade and will continue to happen in the future is that wholesalers don't like us very much. So sometimes I meet these type of wholesalers, right? We invite them to come to the office to get a visit the factory and then meet me, blah, blah, blah. They say, hey, but you're supplying to all my competitors now. you're supplying to all my shops now, my revenue will drop because you supply to them to which I said, please, when it comes to our products, I only want you to sell our products on the retail front. Because if the moment you want to redistribute, you're directly competing with our business model, right? And it doesn't work. So I don't expect you to redistribute because it's not the way we operate. We like to supply it to them directly. We don't want to have any middleman in between. So that's basically what has happened in the past many, many years and will continue to happen. The numbers of wholesalers continue to shrink, as you can imagine. But everywhere, you still find here one or two here and there, here and there. But we give them a good understanding. Look, we just want your retail business. Don't do redistribution. We -- it's not a good fit with our company.

Okay. That's very good. Just on the last question. So I think last year, there was a concern about Nippon setting up the DCs in Kalimantan. Is it -- how does that go now?

I think they have opened in a few locations, which is why going back to my point earlier with regards to our aggressiveness, right? If any of our big shops are being offered or being approach by them, we're really not shy to counter whatever they do. And not only Nippon do, but everybody else do, right? But I think what has happened with in Nippon specifically is that finding warehouses in many of the more remote areas is not the easiest. So if you're trying to open time in a year, I think you probably will succeed. I think they'll be able to do lesser than that, and they will take them a bit longer. But the moment they decide to open in any particular areas, then obviously, will compete even more aggressively with them. But it's not easy for them to get our market. And so because we always do our best to maintain and defend our position there and launching a lot of new things, a lot of different initiatives that we have with the retailers. We've been proactively trying to invite a lot of these customers to come to our factory, doing meeting with me as well as the R&D team to really shorten our capability. To make them understand that, look, we're not only a company that can do this. We can do way, way more, right, including premium products, right, including all kinds of products that you may not sell at this point in time. So I think the battle between us and Nippon will continue. But I think as you can expect, right, if the #1 and #2 player continue to battle it out there, the smaller players will suffer the most because they couldn't even keep up with the pace at which we're launching our new products, right? They're trying to counter ARIES Bling and then we already launch something else. Even my own third-party distributors are also complaining and said "what? I can't keep up with a number of products that you're launching into the market every day". I'm like -- but that's the name of the game. If we don't do this, I think it will be difficult for us to grow. So we just have to continue with this, and we'll support you, we'll educate and train your people so that at the end of the day, they can perform their job well, but that's part of what we do. We have to launch new products to cater for the market of Indonesia. Andreas, you're on mute again. Maybe we'll take the next -- the next or last question from Felicia.

[indiscernible] from Felicia. Felicia, you can ask questions.

I think she is still on mute. There you go.

So my question is actually on the rebranding strategy because previously, you mentioned that there's going to be a rebranding on wood and metal segment. So can I just clarify that it's only for that segment? Or it's also going to be for the other segment? Because I saw that the brands in the world paint, especially is also already quite -- yes, already quite a lot. And if you're going to issue the economic products at which price range that you will target? Is it going to be a 3 level or 2 level or 1 level?

And so essentially, Felicia, is that the rebranding will not only happen in the wood and metal, but we will also do that in the wall category. So not only in the middle level or economic level, but some of the premium will also get rebranded. So I think in a nutshell, I think you can see here in the wall category, right, in the premium under Category 5 or 4, you can see 2 brands. One is called Sunguard and the other one is called Supersilk, okay? So this is part of the rebranding that we'll do. So essentially, in the premium, we'll only have two brands. One is Sunguard for Exterior. One is Supersilk for interior, okay? Everything else that we have within this category will be rebranded under Supersilk all under Sunguard. Likewise, when we talk about the wall segment in the mid or economical tier, right, I think you'll see that a lot of products are already under Avitex, right? You have Avitex Exterior, Anti viruz, Avitex Gold and so on. But then you also have dairies. So I think for the mid and economical here for the wall paint, you'll also see Avitex and ARIES, okay? So I think that's how we look at it. So essentially, two brands per segment. I mean wall paint is actually an exception because it's -- wall paint is so big then we can have two in the premium and then two more in the -- another two in the mid-tier. So in wall paint, we'll have like four different brands. But other segments, we'll only have two at most. If you look at waterproofing, we don't even have a second one. Whether we'll launch a second one or not remains to be seen. But for now, we'll just focus on the existing one because the brand is very strong and then we'll continue to leverage on that. But we don't want to launch any more new brands, nothing that will start from scratch. But instead, we'll just leverage on the popular brand that we have and continue from there.

Thank you, Felicia. Investors who have unanswered questions, you can e-mail me, and I will respond after coordinating with the management. Once again, we would like to thank you for your participation in our quarter 2 2023 earnings call today. We look forward to seeing you again in our next earnings call. Please take care, and bye-bye.

Thank you.

Thank you. Thank you, everyone. Bye.