Thai Beverage Public Company Limited (Y92) Earnings Call Transcript & Summary

Good evening, everyone, and thank you for joining the Thai Beverage FY 2021 Results Call. [Operator Instructions] I will now hand over the call to the presenter, Ms. Namfon Aungsutornrungsi, Thai Beverage Head of Investor Relations and the Member of ThaiBev Senior Management Team. Thank you.

Good evening, ladies and gentlemen. Welcome to Thai Beverage 2021 ended the 30th of September 2021 Financial Results Conference Call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the conference call tonight, I will start with a summary of the 2021 results, then we will open the line for Q&A with our management team here. For the summary of our results, total sales revenue of the company for the year ended the 30th of September 2021 was THB 240,543 million, a decline of 5.1% when compared to last year. This was due to the impact from the COVID-19 situation, which was more severe than last year. Net profit was THB 27,339 million, an increase of 4.9% year-on-year. This was due to positive change impact from last year's nonrecurring costs and deferred tax utilization related to Beer business restructuring of THB 2,660 million. The Board of Directors has proposed to issue a dividend of THB 12,559 million or THB 0.5 per share, which is higher than THB 0.46 per share of last year. The payout ratio for the fiscal year 2021 dividend is 51% payout ratio. Please note that the interim dividend was paid in June 2021 at THB 0.15 per share and the final dividend will be THB 0.35 per share. For the highlights of this year, the company's Spirits business remained resilient in the 2021 despite the closures of entertainment venues and restaurants, as spirits are mostly consumed via off-trade channels. The business generated sales revenue amounting to THB 115,052 million or 1.9% decrease year-on-year. Taking into account at 1.8% decline in total sales volume. The Spirits business delivered stable net profit of THB 22,138 million, along with an improvement in the net profit margin. The company's Beer business recorded sales revenue amounting to THB 99,157 million in 2021, a 7.2% decrease compared to the previous year in view of lower beer sales volume due to the strict COVID-19 control measures in Thailand and also in Vietnam. Total sales volume decreased 11.1% year-on-year when including SABECO sales and decreased 4.4% year-on-year when excluding the SABECO sales. The net profit of the company's Beer business declined 11.4% year-on-year to THB 3,119 million. However, Beer business in Thailand reported an increase in net profit from cost saving initiatives. The company's Non-alcoholic Beverages business generated sales revenue amounting to THB 15,205 million in 2021, a decrease of 6.6% year-on-year due to a 7.6% decline in total sales volume. The net profit from normal operation rose 51% to THB 548 million year-on-year as a result of cautious cost management by reducing advertising and promotion expenses as well as controlling administrative expenses. And excluding the margin of insurance claimed on property damage from 5 incident of Oishi beverage factory recorded in the previous year. The company's food business recorded sales revenue of THB 11,280 million in 2021, that's 14.4% decrease year-on-year mainly due to the impact from the government imposed containment measures to contain the virus spread, including restaurant closures in the shopping mall and the prohibition of the dine-in services. The business undertook active mitigation measures such as enhancing home delivery and takeaway options and by managing costs prudently. Nevertheless, the decrease in sales revenue led to a net loss of THB 488 million for the food business. The company's international business recorded sales revenue of THB 57,294 million in 2021, an 8% decrease year-on-year. The decrease was mainly due to an 11% decline in beer sales. Following the lockdown and strict social distancing measures in Vietnam, this was partially mitigated by a 5% increase in revenue generated by the international spirit sales due to the growth in contribution from scotch whisky and also Chinese spirits. Now we will open for the call to any questions on our results. Operator, please help open the line for Q&A.

[Operator Instructions] First, we have Thitithep.

Hello?

Thitithep, go ahead.

You can hear me right? I have a few questions. Maybe I go one by one, if that's okay with you. Number one, can you update us on the situation in Myanmar. It doesn't look good both in terms of the violence, the line-out and then also the COVID. How was the sales in Myanmar during the past 6 months? And your view on the future sales growth would be appreciated?

You want to go one by one, right? I will ask Khun Prapakon to respond to your first question.

Actually, on Myanmar, the question is relating to COVID in the past few months, we start to see that Myanmar have returned to normal in term of COVID cases have dropped and the vaccination rollout actually done quite well. In terms of -- we also have full vaccination rates, and that's even provided by the government. So that's something, it's is not of concern. The concerning topic that everyone is operating in Myanmar today would be probably the economic environment, the banking system and how cash or banking system operate due to instability of the government. I think that's just the risk of being in Myanmar for every businesses. For our business, we remain profitable. And in fact, we closed the year in local term, I'll touch on the foreign currency in a bit. But in local currency term, we closed the year actually for the Grand Royal business net profit after tax are higher than last year. So we remain very confident we have no eating receivable issue. In fact, our eating receivable report, it's actually healthier than before all these financial -- all these economic environment or in stable government because I think we -- since the beginning of the year, we decided we put even more control on '18 receivable because that to prevent the risk of not be able to collect our revenue on sale. So that's a check. And the foreign currency itself has been fluctuating but start to get stabilized since October. The currency was running around THB 1,300, THB 1,400 per U.S. dollar and then to about May, June, July, it went all the way exceeding THB 2,000 chart. The government have put in quite a number of exchange control and asking the exporter to convert the dollar back into cash in local currency. So that starts to stabilize foreign currency. And the latest is that foreign currencies start to stabilize around THB 1,700, THB 1,800. And that's about just about where we budgeted for the year. We think that anything below THB 2,000, it's still a variable level of FX, I mean, it's not possible to expect the currency to remain in that level before. So I think all in all, we remain confident. There is an import material risk that coming with the FX rates being higher. So I think all the producers in Myanmar have started to incorporate price increase into the segment or the segment that can increase price would increase price. We also incorporate in our budget some price increase. So we are moving towards that directions to basically absorb -- basically pay for the raw material price upwards. I think in terms of the sale, it's not so much soften a bit, but I think due to the economy, but I -- we believe that there are certain consumer preference over toward alcoholic beverage brand that doesn't relate it to the current government. So with that shift in demand or the producers that are privately owned, just like us, I mean, in Myanmar in a real private sector own have benefit from the spillover effect of that demand. So on the answer on Grand Royal is that we're in a good position given the -- all the risks involved in Myanmar, we remain very confident within our business.

Thank you, Khun Prapakon. Khun Thitithep, your next question, please.

Yes, I have a follow-up question on Myanmar. Before the coup, Myanmar wasn't an attractive market because of GDP growth, it's pretty steep. And I believe the FTI, the far end investment was one of the driver of the GDP growth. But after the call, I highly doubt if they can still -- if they would still enjoy the same level of FDI. And without GDP growth, would you change your outlook on Myanmar market I'm talking about in the next 3 to 5 years, do you think that it would still be a growing market like it was in the past 3 years?

Khun Thitithep, I think we have to take it from the different kind of risk perspective. We're a Thai company and Myanmar is a neighbor country. We see that as an integrated market into the future. So it is the place that we will continue to invest at the right opportunities. In fact, when there is risk and there are certainly more opportunities. We actually think that there will be more opportunity in the next 2 years available for us to expand over the long term. So we do not think that we will write off this country in terms of growth. We think that give it another year, it will be more stable. And there will be foreign investment, but maybe from a different segment of the world or maybe different geographic part of the world that are going to invest in Myanmar.

Right. Okay. Okay. And then my second question is on the commodity price, especially the malls and then the gas price because I believe you use gas in your -- the glass bottle factory. How much would you be concerned about this price and do you think it's going to affect your gross margins going forward?

Okay, Thitithep. This is Sithichai. Since the cost push is relating to all beer, spirit, NAB and food. So I will take these questions. We have to admit that this year, the cost not only commodities but packaging, gasoline an all, one of the critical problems for all business here. But this is -- we put all this on the table and discuss is almost every meeting anyway. So I think we have to -- we already sort of commit to the Board our budget. And then we filed out that the cost push will probably have a chance to jeopardize our P&L, but we sit together and then work to mitigate that. Cost on the commodity price, I think we -- they are malt and then molasses. We're still happy about it because I cannot tell all my secret because with some of them, we have forward buying and then which probably last until many months ahead of time. So that one, we do not have any concern. The one that -- the other one is packaging. On packaging, as you know, that in our alcoholic beverage business, the highest cost will be on the bottles. And then we are talking about how to manage the percentage between returnable bottles and the new bottles. Of course, we have aimed to increase the returnable bottles percentage because that is controllable and manageable by our team. And then with that, it can help mitigating a loss, a cost push a lot. And of course, the remaining gap, we are considering a price increase. I think it's on the drawing board for all the brands -- or sorry, all the BU, which we believe that, that can really close the gap, which means that we probably have to increase the price on our key products here. So bottom line, yes, there will be a problem on the cost push, but the management will focus on it. And then we can assure you that we'll be able to manage it, okay? And then really sort of stick to the commitment that we have with the Board and the shareholders in terms of our plan. Thank you, Thitithep.

Right. Ueychai Tantha-Obhas, I have the follow-up questions on that. If you pass on the higher cost to a consumer by raising the price. But then the demand in the market now is still quite weak because of COVID mainly. Do you think the higher prices affect the volume?

Of course, we also consider that seriously, but we probably have to manage to the level that is acceptable, okay? We don't want to increase the price until jeopardize the volume and market share definitely. So the level of price increase will be different, and we closely monitor the consumer acceptance. It could be down to the details of by SKU, okay? So which we are sure that we can move up the price, of course, that we not plan to lose any volumes from this price increase programs. It's going to be tough, but we cannot avoid it because cost push is not only in Thailand, but it's in all over the world. So I think everybody have to face that and how we manage that. You probably can hear from the news, even the big beer, international beer they have put in a headline that no more cheap beer, which means that everyone have the same problems and then if we have to move up, yes? So bottom line is we will move up very carefully. And then we will consider timing and also now to the SKU, which may not all the brand will probably not increase like 5% for all SKU, no. It have to -- we have to work by the SKU, okay? Thank you.

And then my last question. Thai government gradually lift lockdown, I think, starting from September and starting from November, they allow the restaurants to sell alcohol in certain provinces. And then I think the activity of Thai people start to go back to be normal gradually. Should I -- is it fair to expect that in the first quarter of fiscal year 2022, the sales of your product in Thailand should improve Q-on-Q? Is that a fair statement in your view?

Yes, it's bit forward-looking. But anyway, it's true that restaurants are open and allowed to drink. But please remember the pub, bars and everything will not be open until 16th of January. That's still a problem with us. The opening of the bar and restaurant actually benefit our food sector the most because, as you can see in our department store and everything, they're allowed to dine-in. Definitely, the food will benefit from that. But for the alcohol, I think like beer and brown spirit, we probably have to wait until January 16 to go full-blown. But as you know, our Spirit business, mainly on white spirit big, big chunk on the white spirit, which is home consumption. That's why our Spirit business believed to be very resilient.

Next, we have from UOB Kay Hain, Yao Teng.

Can everyone hear me?

Yes, hello. Hi, we can hear you, Yao Teng.

Okay. I had 3 questions. I think the first 2 were already asked by the previous analyst. So maybe I'll go on to my last question. So with regards to the Beer IPO, so I understand that's been -- was actually postponed or actually might be call out. Could you share some updates on Beer IPO?

I'll ask our CFO to address that. Khun Sithichai will respond to your questions.

Sithichai, Group CFO. We have known that because we make announcement on 16 December this year for the Beer IPO due to the COVID. But now the situation even in Thailand and Vietnam recovered. So now we're gathering all the our FA, LA and audited back for the office and then to start again. Yes, so whenever we have any significant that needs the announcement and now to the stock market, but we definitely have to do this to be success on this one, but the timing you can see on the announcement to the stock market.

Thank you, Sithichai.

All right. So I have just 1 more last question, if you don't mind, sort of a simple question. So for the Beer business, the net profit. Could you share what is the percentage between Thailand and Vietnam, if that's okay.

Yao Teng, in terms of the split between Thailand and Vietnam, actually, we do not disclose for ThaiBev Group for the beer we include everything together in -- just the Beer segment, we do not disclose separately. Sorry about that.

Next question we have from Morgan Stanley, Divya.

So I had a couple of questions. The first question was just on the Spirits business. If you look at the implied fourth quarter revenues, they are down about 19% and the volumes also seem to be down 19% year-on-year in the fourth quarter. Despite the Beer business, at least on the domestic front, looking more stable. So could you comment on what happened on the Spirits business in the fourth quarter, and that seems to have impacted margins also for the Spirits business. So that's the first question. The second question is on Thai Beer. Just wanted to get a sense on how the market share has been for the fiscal year '21. And how is the performance of those new launches that we had mentioned earlier this year on cold brew and espresso. And just a follow-up on the first question that was asked on price hikes. I mean, has -- or taken any price hikes yet? Or has nobody actually moved in the Thai Beer market? And just the last question would be on just your comment if there's any noise on excise tax changes that we should be aware of at any regulatory changes in Thailand or in Vietnam.

I think, Bob, can you address the first questions, Khun Prapakon. Second questions will be Lester. Third question, we don't -- we have to check.

Divya. So Thailand -- sorry, the Spirit business, generally, so majority of it, over 19% is from Thailand. And in quarter 4, the slowdown by COVID impact in terms of consumption really hit hard because I think since the government had the lockdown in April, May, and start to show up in terms of consumptions and the government provide less support in terms of income support to the people who have the jobs as well. So in Q4, that started to show. And I think it's just a very slow quarter for us. So that's what we see basically. In terms of managing it, we have basically look at it from the overall full year basis. And I think we look at the number on a full year basis. We're reporting now a good net profit and EBITDA for the year, comparable with the year before. So I think we just want to see from that perspective. I think from this Q1, currently, we have put in place some gradual price increase. And so in the October, November, we start to see some factor loading that coming back in the Q1 numbers. And looking forward to the opening of the segment, I think on the ground, we are getting information that even though the government are saying that weak -- people shouldn't be -- cannot allow to be drinking on their pub and bars and on-premises in many locations, but it seems that people generally start to disobey and they start to drink because I think people have -- it's getting to New Year's and people probably have enough of it. It's not something that we're encouraging, but it's just we see that on the ground. And if that's happening, the consumption of alcoholic beverage of the portfolio that delivered by our company will probably get some benefit right up in the New Year's, pub and bars are opened in January, we will start to see a lot more pickup in terms of brews for sale as well.

Lester, please.

Divya, this is Lester here. Let me go to your 3 questions one by one. The first question you asked was about market share for last year. I'm very happy to report that we picked up share. And this is in spite of a lot of cost savings in our A&P as what Khun Namfon mentioned earlier. So the share pickup was mainly due to better use of resources and better execution on the ground. So that part -- we picked up close to 2 percentage points in the market over the year. Your second question was about espresso. This one, not as good news as I would like to report. Basically, espresso was -- is mainly sold in the modern trade channel in the convenience stores. And so the success of the espresso variant really it is dependent on how well convenience stores do. And you see that last year in the market, the convenience segment took a big hit. In fact, there were a lot of closures of stores. So we kept activity to a minimum for espresso. But what I would like to report is espresso was also done -- was done for 2 reasons. One is, obviously, to excite the market with new products, new exciting products. And the second is when we launch new products, we would like them to be higher margin. So while espresso being a higher margin item did not do so well as due to the market. I'm happy to report that cold brew, our next higher-margin item actually did well. And our share continues to climb. I think we are approaching the other brand in the market that they sold in a green bottle also. So our share is coming up against them, and we hope to surpass them in the near future. And your third question was about Boon Rawd have they had any pricing increases. And the Ruang Khao, now we not observed any price increases on their end. Obviously, we do keep a very close eye. I think both of us keep close eyes on each other. And again, we will move accordingly. But at the moment, on their end, no price increases yet. Thank you.

Thank you, Lester. Divya, I didn't get your third question, the third big question. Would you repeat it again slowly.

Sure, sure, Khun Thapana. The third question was just any information or on any talk about excise tax changes in Thailand or in Vietnam or any other regulatory changes related to the sector that we should be aware of?

I will respond on the Thai side. I think the government has already increased the secret tax. And then as normally the spirit and beer were coming, but we didn't hear anything yet. As I always mentioned every time we have these kind of sessions for these questions is tax increase is unavoidable, okay? We do not -- we cannot influence the government, but our track record, we always manage it well. And every time we have a tax increase is our opportunity to move up the price to cover the tax plus slightly more higher margin, okay? Because in normal day or normal situation, if you move the price, the consumer complaint, but with the tax increase, I think we can do a bit of that and then don't get any complaint from the consumer. So bottom line, we don't know, okay? The government has already increased the secret tax. In the past, it's only a few months after then they announced the tax increase for beer or spirit. They haven't done that this time, so quiet. But we will follow up closely. Our eyes and ears closely to these matters. For Vietnam, I don't have any idea. Bennett, are you there? Can you give a...

Yes.

Okay. Can you respond to that, please.

Okay. I will do that, thanks, Ueychai. For Vietnam, there's always room that the excise tax will increase and the government wants to increase the tax collection. But for us, we have been working at the industry, as an industry, we've been lobbying or talking to the government to ask to tell them that we shouldn't increase excise tax and we are very hopeful that there will be no tax increase very, very hopeful. Having said that, even if there is a tax increase, I think we've demonstrated that in the past, we always are able to pass on to consumers and were never a problem passing on to consumers. And just for a fact, I mean, we -- in fact, I mean, we just increased -- to just announce the increase or price for December. So sometimes in December, our prices will increase. So that would even mitigate even if there's an excise tax increase coming. But I just want to reconfirm again that we are very hopeful that there will be no tax, excise tax increase in the coming year. Thank you.

Thank you, Bennett. Thank you Divya for your questions.

Can I -- Khun Ueychai, can I just have 1 clarification from Khun Bob on the Spirits business because I'm still struggling to understand that why the fourth quarter was as weak as it was. But could you comment on this October, November, you mentioned that there's some price hike that's been taken? Like when exactly was this taken? And how is the volumes -- have the volumes improved in the fourth quarter -- sorry, in the first quarter? Or -- Are they still pretty lull? Because typically, I mean, spirits has been resilient. It doesn't get impacted so much from COVID-related restrictions. So just wondering what's the latest update on spirit volumes? And when exactly was this price hike taken and how much.

Okay, Divya, we'll let -- separate the 2, 1 is price increase. Another one is the momentum or consumptions in the market, okay? The consumption in the market have started to suffer from the longer shutdown by the government, so the consumption starts to have some problem in Q4. That's what we see and more so in the brown spirit front, but not so much in the white spirit side. But the relaxations of the social distance and lock down will start to get better in October, okay? So that one take note. And like our company Thai Beverage, we came back to the office in the middle of October and we came back in full in the first week of November. We are now back in the office. So it's not like work from home is not -- that doesn't work for us anymore. So that's just to show this is happening. We start to see traffic jam in Bangkok. That's a good things and bad thing, but the pollution is a bad thing. But when you see a traffic jam in Bangkok, that means you're back. That hasn't happened in the past year since COVID arrived. So we start to see that. So we believe the economic activity have returned in October and November. We start to slowly come back and the government now relaxing and have more tourist arrival and also have program for domestic traveling as well. So at the moment, as we speak, we start to see a lot more moving back to normal, okay? So the only thing that's not back to normal is just the pub and bars that are not allowed to open right now, and it will be after the New Year. The rest of the things we see kind of its back and people on in the provincial side start to have more money, they will start to consume, our FMCG products, consumer products like us, okay. That's from the economic front, I'm sorry, consumer front in terms of Q1 that we see. In terms of price adjustment, we have been planning this. In fact, the planning of some adjustment price increase have been postponed due to COVID for a while. Before COVID, we have price increase adjusted to our brown spirit, right before COVID arrived in April last year, April 2020. I mean believe it or not, it's less than 2 years ago. So that had been kept delaying and we start to roll this out in October this year, a gradual price increase adjustment in our white spirit portfolio. So that -- we believe that the -- in the past 18 months, we do not see any drop in the demand of white spirit and therefore, justify the change in price that we've incorporated in. We are confident that over the long term, looking out 1 year, 2-year, that is not going to impact our long-term consumption. So that's how confident we are in terms of price increase. And the price increase will help also pay for obviously a lot of commodity prices have been pushing up and some of molasses from the last crop that quite expensive for us has also factored in -- start to factor into our P&L and our cost of goods, okay? The outlook for spirit in Thailand, the outlook for raw material, especially molasses in this crop are much, much lower. It's about 20% lower than last crop. So this crop, we're expecting a lot more sugar from sugarcane, the harvesting will start in early December this year. And we have -- we understand the forecast that there will be about 20% more in harvesting sugar. So therefore, that will be 25% more supply in molasses and bring down the price. So I think that's factored in nicely with our cost of goods being under control, we also start to see, especially in the last quarter, higher level of used bottle in both Ruang Khao white spirit and HongThong brown spirit. So I think we probably can push that up a bit further this year to help mitigate those cost increase from glass bottle that have meant -- some other gentlemen have mentioned earlier. Okay? So that's hopefully answer the Q4, one last bit is that last year in Q4, we had trade promotions on our white spirit in July, the first month of Q4. So the overall volumes you see in Q4 last year is a bit elevated slightly due to trade promotions. We did not have it in this quarter because we think it's not necessary and we're monitoring the level of inventory. And I think towards the end of September, the level of inventory have moved down to a level that we think is suitable. Therefore, we roll out those gradual price increases. So long answer, but I think we not worry so much about it. It's under control. Thank you.

Thank you Divya for the questions.

Next question we have from CLSA, Low Horng Han.

Are you able to hear me?

Yes.

Yes, we hear you.

I have a few questions. So please bear with me. The first question I have is with regards to your promotional activities in FY 2022 how different do you think FY 2022 promotion activities will be compared to FY '21? And do you see the dollar value of A&P spending to be similar or it could increase according to revenue? The second question I have is with regard to the gains in market share in the Beer business. Do you see a possibility where your competitors will be more aggressive in A&P to regain market share. And if so, will you also react by increasing your A&P spending? I do recall your market share gain has been quite consistent over the last 1 to 2 years. The third question here is still on beer. Do you have any plans to hike the prices in beer? And if so, when would it be? Last question here will be with regards to spirits. I do recall one of the reasons behind the resilience strict performance was because I think some of the rural workers have returned back from city areas due to the COVID pandemic. And that is one of the drivers behind the spirits consumption in the rural part of Thailand there. Now let's assume that Thailand is in the early phases of a long -- reopening over the next 1 to 2 years of full reopening. In this scenario, where most of the -- some of the rural workers will return back to their jobs in Bangkok City, how would you see this great performance to be in terms of the sales volume. That's all I have.

I will respond on the A&P questions. You asked whether this -- going forward, we're going to spend more. I cannot give you the exact answer because it depends on the situations. Definitely, if situation allowed, we will have to come back and spend a bit, but we already learned a lot during the COVID period that which one, which kind of activities worked for us, which kind don't work for us. So it will be very -- I think -- I can say it's going to be very prudent, okay, in the future. But hope -- actually, I hope that the situation is getting better, so we can have the activities and really competing with the competitors. Of course, I think that we can think like this and the competitor will probably think the same. And this is fact of life, okay? So that bought -- I mean, to conclude, we don't know that we have to evaluate the situations. We wish we can spend. We can do some activities and then kept the consumer excitement and all that. And we believe that the competitors will not be still and then you cannot just pretending that they won't do anything at all. I think we are now competing head to head, okay? Because we're gaining a 2% market share, of course, they want it still.

Okay, understand.

Han Low, this is Lester here. I just add a little bit the A&P Khun Ueychai, just mentioned as well as covered a little bit about how competitors will react to try and get the share back. As Khun Ueychai mentioned, it is a fact of life, working in a competitive market. Both sides will try and take share from each other. Hopefully, we will not use money as the tool to buy share back or to buy volumes back. What we've been very fortunate with during the COVID period was that because of the lack of activities, it gave us more time to actually take a step back and review all the activities, all the A&P activities that we do. We've broken down into all 14 activities that we do and we worked out an ROI for each category of activity. And we now know which activities do give us the best returns and which ones actually make us lose money in running these activities, and those are the ones that we will stop. So when you ask about, will we spend more? Hard to say, but what I can say is we will definitely spend more prudently and that money that we spend will be more effectively used to get returns in the market. I think that is clear that every part that we spend will work harder for us to get volume and to get share from the competitor. Your last question was our price increase this was answered. The first round already. Khun Ueychai also mentioned that we will monitor cost increases and also monitor what the competitor is doing in the market, and we will have to balance it altogether because we -- while we want to cover any increases in our cost of goods, we also want to have to balance that with potential volume losses if the price increase is too high. So it is a balancing act. At the moment now, we are still in the review period as and when prices go up too high, we will have to seriously consider a price increase when the time is correct.

Next question is from Credit Suisse...

Sorry, I was referring to the -- I do have a question in regards to the spirits performance. Someone referred to a drastic regards to how to performance can be, should Thailand return to full reopening given the I believe some of the resilience over the past 1 year driven by rural workers migrations should return back?

Yes. Okay. You're right. Last year, when COVID arrived, I think we see worker migrations. The 2-part foreign workers left Myanmar, Cambodia left, went back. And I think also the Thai workers or staff from more tourist area, really more tourist-related area, Bangkok, Kanchanaburi, Pattaya, Phuket are moving back to the Northeast, and that's what contributed to a higher level of proportion of sales in those areas in a rural area where we also have strength into our distribution. So as we expected, as the economy returned to service sector will open up, we'll start to see the better consumptions in the tourist now, which you already start to see in Kanchanaburi, in Phuket, we start to see a lot more consumptions. And so it is anticipated, and we have the team ready for the returns. In the past year, we see a lot of decline in the channel of modern trades like in the Tesco, Big C, that macro those channels but we are anticipating those channels will have higher proportion of sale of returning back. So that's something we also have the strength in terms of distributions in that channel as well, okay. So that's something we are anticipating and be ready for that.

Next question is from Credit Suisse, Nicholas Teh.

Just 3 questions from me. I wanted to ask to clarify what you mentioned on the Beer IPO earlier if I heard it correctly that you've restarted the process now and brought back the financial and legal advisers, but timing is still uncertain. The second question is on the forward buying of the malt and molasses. How fast forward if you could roughly tell us have you brought forward for? And then the final question is just on SG&A. I guess, over the past 1 to 1.5 years during COVID, A&P spend has come down. But in terms of other kind of SG&A, other permanent savings or cost cutting that you've done through this period that would keep SG&A low even as we reopen.

Sithichai, Group CFO. Normally, you know that all the FA, LA, they don't want to spend too long. Normally, the process seen last time, we complete the offering circular, we complete the MAS approved. So now just come to update the FY 2021, even the quarter performance on FY '22. So I think it don't take long. Normally, for FA, LA, maximum they do is about only 6 months. If you are over 6 months, as they have another job to do.

Nicholas, on the forward buying, I cannot tell you exactly, but I can hint, we can sleep well for the next 6 months.

I think that's referred to malt. I think from a molasses in Thailand, there's no buying because it's an annual crop. So it is something that it's mostly domestic annual crop based on the plantation crop harvesting. So we generally buy right before the harvesting period, which is about now. And therefore, that's why we provide some indication that molasses price have come down substantially from last year because we're anticipating and the industry anticipating more -- about 20% more harvesting for this annual period.

Your last question about the potential outset, I mean whether we can save more SG&A. I think we find any opportunity to save, but we will not save until it's hurt our future, when we'll have in future operational performance. So there are some, but I think the key one is the A&P.

Next question from UBS, Permada Darmono.

I have a few questions. So in terms of the spirit sales in Myanmar, if I look at the financial disclosure in the sales in other under spirit, it's up 5% year-on-year. Given the weakness in -- and the situation in Myanmar, obviously, that's an impressive performance. Can you provide some color how you managed to increase sales in both in bad terms and volume terms?

Part of the sale outside Thailand or international markets are also covered by our scotch whisky business. And in our whisky business, we have done very well this year. I think it's also part of European. So economy and U.K. and Europe economy returned back to normal. So that's helped with the demand. In Myanmar, as mentioned earlier, net profit in the local currency have increased for the year. So we adjusted for the exchange. We're looking at the numbers and flat internal profitabilities, cost-cutting, higher level of control and higher efficiency in plant management, our direct raw material prices are within our control. So our volumes are down, it's about 5%, 6%, 7%, not much for the annual period. So that's why we managed to have a higher profit for the year. So basically, there's no secret to how to run the Myanmar business at this environment. It's about making good and collecting the money. So it's because it's we sale in credit. So we are -- as mentioned, we are paying -- we monitor our eating receivable, where we're tightening it even more so at the moment.

So I'm assuming that would it be fair to say that the driver of the performance in spirit sales in other, it's more the U.K. and Europe from scotch whisky rather than Myanmar.

That's correct.

Okay. Secondly, on the beer margins, if I can sort of ask, Lester. Investor feedback on the Beer IPO typically is like investors are finding it hard to predict or forecast what is the sustainable margin of the Thai Beer business. And it's encouraging to see your initiatives on focusing on higher return from advertising and promotion spend. But can I ask if actually you have an explicit kind of margin target for the company on a sustainable basis. And also with respect to tourists spending on beer, pre-pandemic, what is the contribution from tourists spending typically on beer sales in Thailand?

Permada, Lester here. Just asked to talk about a specific target for beer margins, no particular target. What we do is we do benchmark other beer players around the world, and we try to reach those kinds of margin levels. Obviously, we are mainly a mainstream player where you do see other international beer companies, they do have an extensive premium portfolio. So we know it will be difficult to match them, but we want to be as close as we can. So the target for us is to always be improving our current margin levels to move them up. So a couple of ways. Obviously, one is to sell more premium margin products. At the same time, we also want to lower the cost and make our spending more efficient. So that is the plan. So no particular target in mind, that we set in mind.

And tourists spending? In terms of the tourists spending contribution historically, pre-pandemic on beer?

We don't keep a track of how much tourists spend on our peers. Although in the tourist areas, again, the bulk of our volumes come not from the tourist areas, but in the traditional trade, in the rest of the country. I cannot -- the volumes that we get from the tourists are not small, not large, but again, they're not small either. So -- but they're not major enough to affect our total volumes. Again, like I said, the bulk of our volumes come from the traditional trade in the traditional areas of the country, but we will take as much as we can from the tourists when they do come back. Thank you.

You'd be able to see the fluctuations in terms of the sales from like areas like Phuket, Kanchanaburi and all of that, right, like between pandemic and pre-pandemic and without even trying to measure it, you'd be able to see roughly without that?

Yes, we do see that the Southern area where most of the tourist areas, the tourist islands are Phuket, Krabi, Phang Nga all those areas. The Southern region is actually the smallest of all the regions in the country. So while we saw a drop in the Southern region, what we tried to do was to pivot away from the tourist areas into the local areas even in the South. So -- but the South is the smallest contributing area in the entire country for us, not particularly big.

And if I may ask Khun Bennett on Vietnam. We've received a bunch of -- or we're tracking the situation there that essentially around 20 out of 53 provinces are now in Level 5 in terms of highest risk. You mentioned earlier in your quarterly briefing as well the reopening by the government is quite cautious. What's the situation from on the ground right now in terms of on-premise reopening? And how do you see it in terms of going back to normal in Vietnam.

If I were to sum of it, I think the Vietnam is learning to live with COVID. So that's the first thing. They will not go back to the kind of the -- kind of lockdowns anymore. We believe that because the economy needs to be running, right? So that's the first thing. If you see, as in any country that living with COVID, the cases come down and we start opening up then the cases rise again. However, because of better vaccination rates, the cases that require ICU or oxygen are less. So I think we are going through that stage where Singapore has been through and many other countries been through. So the cases are now slightly will keep up. But I think they are very controlled in the sense that the government will not lockdown the entire province anymore. We'll probably look at, what look at districts to lockdown if any, right now. So we've seen a bit of lockdown here and there, but it's very limited to just districts, so not the entire province. So in a way, we see consumption coming back. In fact, we can see people coming out, we see people dining out more and consuming alcohol already. So I believe that this is going to be a gradual recovery. And I would say, if you chart a straight line all the way to July when -- from now to July, I think you were both better and better and better, barring any big surprises, better and better than second half of July, we'll see more or less what we see in 2018, '19. And if you ask me then, probably hopefully at 2023 will be back to 2019 levels. So in a way, it is coming back. I see people out. I see people drinking and people are getting jobs. They are able to afford to buy alcohol. So that's good news for us.

And last question to Khun Nongnuch, if Khun Nongnuch is around. We are seeing push from Kentucky Fried Chicken to move into plant-based meats. Recently, one of the companies recovered corn, for example, they said there's going to be a joint statement of collaboration between corn and KFC across Asia and Europe on plant based meat in Thailand as well, like Meat0 obviously, is around and so forth. Any plans for KFC to move into plant-based meat nuggets. And secondly, as well on ham, like the Pizza Company, has pizza campaign right now containing ham and you move towards food containing ham or drinks for that matter.

Yes. Thank you. This is Nongnuch. Actually, we do have the plant-based chicken nuggets and also chicken pop, okay? And we do actually test in our 2 outlets in starting, if I'm not wrong, in August or September, okay? It's doing pretty good. It's a local plant-based meat. We got a very good feedback with the PR communication and also people would like to try, okay? So we are having that in our current plan and probably we will roll out pretty soon.

So the supply is local, is that right Khun Nongnuch?

Yes, yes, it's local.

Okay. Great. And with respect to ham, any move towards cannabis containing beverages or food.

No, not yet on that plan.

Next question from the Bayard Asset Management, Deepinder Bhatia.

Can you hear me clearly?

Yes.

Great. So the question I had is really around the free cash flows being generated by the company currently. And the dividend policy, as I understand at 50% as a payout ratio. Could you give some medium-term vision into how you see both cash flows evolving, the policy as it currently stand, debt reductions, investment, either organic or acquisition-based opportunities. If you could just please try and tie together some of these different strands all of which are somewhat interconnected, that would be great.

Sithichai. So you can see that we are strongly committed dividend pay out ratio not less than 50% but subject to cash flow. Seen now for -- our target now we are high gearing. But while we still commit 50% because we have the plan to deleverage for the -- we need to make announcement for the Beer IPO. And now we are on the investor back to catering to do it again. And we believe we can delay account to low debt on that one. There are any big investment, currently we have not any big investments at the CapEx. You can see that FY '21, our CapEx is really low, not big. Normally, our CapEx THB 4 billion to THB 5 billion, but this year, just about THB 2 billion to THB 3 billion only. This is why we had a free cash flow that we can pay dividend, and we have to make it deleverage to, deleveraging not to high debt.

Understood. So as you look around acquisition opportunities, are there any that are of interest? And if so, what would be some of the areas that you might consider for inorganic investment opportunities. That's sort of my follow-up, part 1. And then as to follow up, part 2, can you please give an idea, even though we are in somewhat of a lower volume growth scenario currently post-COVID, during COVID and post-COVID. I just want to understand the capacity utilizations that are currently in place at the current point in time. And how much further capacity utilization is available before you may need to have any specific capacity increases or CapEx increases over and above the levels that we are seeing currently.

Sithichai. Normally, we have so many good relationships with all the banks, investment bank, commercial bank what domestic and overseas, they have the purpose as so many M&A, but we are considered whenever we have inorganic, we will make announcement to the stock market. But now no, it just got an organic side only. For the capacity, I will hand over to Khun Pisanu, the Chief Technology to answer.

Hello. For the capacity, we are using just around 50% to 60% of both our distilleries and beverages. So for the big CapEx, it's not in the near future for sure. Thank you.

Understood. My last follow-up here, if I may, really quickly. Based on the scenario that you're describing, capacity utilization in place, dividend payout and debt reduction, it should seem that in not the distant future, your debt levels may be really quite healthy. They're already well supported, but they may be even quite a bit significantly stronger. I understand that dividend payout is a board matter. But just to understand, get a little bit of visibility and vision into how you're thinking about either relevering, maintaining a certain leverage or increasing a payout policy or share buyback. Could you give us a little bit of a longer range view here in the absence of any major acquisition, how that would evolve. And here, I have not even brought up that the BeerCo listing. I leave that aside in the current conversation. But even on an organic basis, your debt levels will be very healthy. And I'm trying to understand, is there a target level you would like to maintain at. How you see the payout ratio or share buybacks or some other form of capital return evolving in that scenario? That's my final question.

Okay. My target, debt level. Net debt to EBITDA less than 4, yes, this is my target level. But we would like to keep healthy, healthy, you know that. Now going forward, in the U.S.A., may be that we started tapering the QE and maybe another year or 2 years, they will start to increase interest. So we have to be careful this one. But whenever we have a need to utilize our healthy everything, we will make announcement.

Next question from Phillip Securities, Paul Chew.

Just 2 questions on the Spirits business. Typically, I mean, after you make a price hike for white spirits, I'm just wondering what has typically been the past behavior of consumers? Or is it a limited impact since, I guess, there are no legal alternatives. That's my first question. And can I just trouble you again just on spirits, what can help the rural economy, especially in the Northeast to help support the spirits consumption? Just a general macro question. These are my 2 questions.

So in terms of price elasticity for white spirit. It's actually not -- it's not very high. I mean we've seen that on the price increase, our demand will catch up quite quickly. And with the strength of demand in the past 18 months, we see, we're confident. Although the consumer price will rise, it will not affect by effect of volume by that much. So I think it's a good payoff in terms of price increase versus a slight decline in volumes near term. So in terms of what would drive the Northeastern consumptions or even rural area, it's just general economy. I think the return of the service industry, the tourist industry generally would allow Thailand as a country to have a higher GDP. So I think the rest of the segment, we think is quite normal. I mean, agricultural, it's seasonal. And so I think that's all the comment that we have on this.

We have a follow-up question from CLSA, Low Horng Han.

I just want to have 1 question, if you don't mind, with regards to the timing of Beer IPO. I understand the IPO was postponed early this year due to COVID. And if you look at the situation now, we are probably in the early phase of recovery with COVID. If you look at the market share is just starting to improve and get better. So there is clearly earnings recovery potential, but it's going to take quite a bit of time to materialize given how volatility macro environment can be. So the key question I have is why this now? Why not later when the economy of consumption spending patterns are better? Second question to wrap it up is with regards to the cash proceeds. Is management looking for it to use more for M&A purposes or to deleverage?

Sithichai again. So we see that you can see Thailand we used to have more than 20,000 case a day. Now it's about 5,000 case a day. So Thailand opened the country for tourists. We have a lot of vaccination. First dose, 70% to 80%. Second dose, above 50%. Even in Vietnam, they can control the COVID but should I say that now -- U.S. in other words, debt capital market, they start to taper the QE. I still lucky that that's on in interest. So in my view, it's good time to restart the IPO. If you were a year or 2 years or with a normal line, the normal other business. You have to make a vaccination, you have to make a third dose, you had to make any protection for this one. But another given 1 or 2 years is the U.S. start to increase interest this is a call for you to sell IPO because the people who would like to invest in the debt capital market, they have exactly yield. So I think it's a good time to run the equity capital market IPO now. It's better than to wait. If you receive the positive, the level maturity and certain we made for any new opportunity for the make any investment that fit to the shareholder, enhance the shareholder, but maturity is deleverage.

Okay. Sure. So if I did not hear you wrongly, I think you're talking about potentially looking to improve the balance sheet of the cash proceeds, right? And not so much for M&A purposes but for the cash proceeds?

Yes, correct.

We have a next follow-up question from Morgan Stanley, Divya.

Just a couple of numbers that we were missing from the earlier explanation. Khun Bob, could you give us the blended average price hike that has been taken for the white spirits business? And also what's the current return rate for bottles versus where we were historically before the bottle changed? And the second is on the Beer business. Could you just tell us a split now between bottles versus cans for both Thailand and Vietnam?

In terms of price increase, Divya, ask me 6 months from now, we haven't finished it. So it's still a trade secret at the moment. So until we then probably finish it in the second Q. So I think after our first 6-month number when we have the call, I will answer that question. In terms of the used bottle return, it's half especially the white spirits it has increased to very close to the optimal level. Last year, I think our used bottle for large and small running around 30%. This year, we are running around -- sorry, 20% to 25%. This year, we are closing in about 40%, 45%. So we think that about 55% to 60% will probably quite a high optimum level. So we still have about 10%, 15% more to go in terms of optimization of used bottle.

Divya, this is Lester here. To talk about the pack split for beer in Thailand. We are mainly a bottle market, 87%, about 87% of our total volumes up bottles, 12% cans and then the balance 1% is on draught beer and kegs. So we are primarily a bottle market. I think this is why we go so much on getting used bottles back because it really drives our costs down when we use higher amounts of used bottles from the market. Thank you.

Can Bennett, respond on the -- yes, thank you.

Yes. So for Vietnam, in the past, I mean, the market is about 50%, 55%, 60% can, given the pandemic has gone up to about 70% and primarily because the on-trade outlets are closed. So the lockdown is full lockdown with on-trade. So on-trade in these used bottles, even then with more than 70%, we expect that to come down over time when the on-trade outlets start to open. So we're going back towards the 60%, we believe, in the coming year or 2. Thank you.

Thank you, Bennett.

There are currently no questions. [Operator Instructions] And if there's no further questions, we will now begin closing comments. Please go ahead, Ms. Namfon Aungsutornrungsi.

Thank you for joining Thai Beverage Conference Call tonight. And if you have any more questions, please feel free to contact IR department at [email protected]. Thank you, and have a good night.