Thai Union Group Public Company Limited (TU) Earnings Call Transcript & Summary

Good morning, management, analysts, bankers, investors and our guests. On behalf of Thai Union Group, I would like to extend a warm welcome to you for quarter 2, 2021 result presentation. Once again, we meet virtually. So I hope you are well and ready to join us for the result announcement. The executives joining us today are, of course, our President and CEO, Khun Thiraphong Chansiri.

[indiscernible]

And our Group CFO, Mr. Ludovic Garnier.

Hi. Good morning, everyone.

And our Investor Relations Manager, Khun Kalvalee Thongsomaung.

[indiscernible]

So as usual, Khun Thiraphong will present to you the key highlights and recent developments and followed by the financial results with Khun Ludo and financial results by business outlook with [ Khun Gail ] and Khun Thiraphong will end the presentation by presenting to you the business outlook. Any questions you may have during the presentation and Q&A, please feel free to type it down in a chat box. And without further ado, I would like to invite Khun Thiraphong to begin the announcement. Thank you.

Good morning, dear analysts and bankers. Thank you very much for joining our Analyst Meeting for our second quarter this year. Let me go through the first section, executive summary, and then I will have Ludo and the team to walk you through the details. Page -- Slide #5. First, I'm very, very pleased to announce the result of this quarter even though our top line growth is at 8.6% year-on-year, but this is our best record high net profit in 1 quarter. The reason for our exceptional growth of our top line are from Frozen sales, which was up by 29% year-on-year. And thanks to the strong turnaround in our food service businesses and exports. Also, our PetCare and value-added sales was up by 13%. Thanks to growth in new and existing products. And Ambient sales, although is dropped by 6.8%, but for us, it's kind of normalized due to the fact that last year's second quarter, it was a pantry loading when we first had the first wave of COVID-19. Gross profit margin is also one of our all-time high at 19%, up 82 basis points year-on-year. Our continued high gross margin is from Frozen margin recovery. PetCare and value-added, very strong demand and also from the new and innovative product. And even though we have a slight drop in our Ambient sales, but we still were able to sustain the good Ambient margin. Operating profit also a record high at THB 2.5 billion, supported by strong gross margins. SG&A, although it's slightly high at 11.9% and is due to the higher sales and also due to the marketing cost, thanks to our effective cost management. Net profit all-time high at THB 2.3 billion, up 36.5%. I think this is all the key highlights from our second quarter. Thanks also to the turnaround in Red Lobster, very strong in our second quarter. Next, please. This page, for the first half of this year, our net profit was up by 51.7% year-on-year with THB 4.1 billion. Our share price so far this year from Jan to August, up by 64.2%. Even though it looked very strong, but the fact is that our PE multiples still remain below 15x multiple. Net debt to equity, slightly higher in this quarter ended at 0.98x. It's also due to the fact that we have made some investments, one in Rugen Fisch, and one in one of the listed company in Australia, and I will share with you later in details. Look at the financial summary, you can see again, net profit up by 51.7%. EBITDA, up by 26.4%. Top line growth by 4.4%. Next, please. With this strong net profit, we have announced our first half interim dividend of THB 0.45 per share or dividend payout growth by 40% compared to the year ago. The ex-dividend date would be August 23, record date 24th, impairment date will be on September 7. And this is the payout ratio by -- of 52% complying to our dividend policy. Next, please. And again, key development during the second quarter. You can see that we had Yueh Chyang of Vietnamese factory was closed on July 12 for 5 weeks with plans to reopen on August 16. We have a vaccine implemented in Seychelles, U.K. and U.S. They are in advanced progress under core program with the local authorities. Songkla Canning, we have closed the factory for 2 weeks during the fourth week -- the fourth wave of COVID-19 and have reopened on July 5. And so far, right now, they are operating as usual. In Samut Sakhon, we are still operating as usual so far. We never closed any of our factory in Samut Sakhon. We continue to work closely with the local authority. We're doing active case filing through antigen test kit extending our factory accommodation isolation. I think we have basically a good experience during our third wave in Samut Sakhon from December last year. So I think overall, we have all the key measures in place, we are confident that we can manage through this COVID-19. Next, please. This is the investment that we have made in the second quarter. We acquired the remaining 49% share in Rugen Fisch. So basically, right now, we own 100% in our German business. As you recall, in 2016, we acquired 51% at EUR 43.5 million and we acquired the remaining at EUR 44.8 million in May this year. So Rugen Fisch with the revenue over EUR 140 million per year, and it's the #1 brand in Germany. Next, new product initiative towards our 2025 strategy. We have expanded healthy living portfolio. We have implemented and introduced value-added tuna product with more functionality in the market. For example, John West Australia have launched tuna with protein and calcium. And it's in the market since July this year. We also have enriched with calcium from natural ingredient, our Tuna Bone Calcium is a patented technologies. Besides John West Australia, we also have introduced similar products right now in France through Petit Navire and also John West in U.K. We also launched our new product line under Bellotta and Marvo in Thailand. We launched a new dry pet food product in July this year. Next, please. And again, we have released our 8th annual sustainability report published in May 2021. We also get recognition from UN Global Compact SDG Pioneer Award. Dr. Darian McBain was recognized as an SDG Pioneer, 1 of the 10 business leaders for her work towards a sustainable ocean economy. We also continue to support local community impacted by COVID-19. Next, please. These are the key steps to our 2025 corporate strategy. Besides strengthening our core business, we also have implemented our new business unit. That is tuna bone calcium powder at Songkla Canning in 2021. We have launched plant-based seafood and meat in the first half of this year, produced from Thailand. Our refinery in Germany has already started back tuna operation again this year. We have established and launched Thai Union Lifescience this year, and the first batch of products right now in the market from August this year. We are introducing calcium, oil and collagen into Thai market. Functional beverage and medical product joint venture will also be launched through JV with ThaiBev this year, end of this year. Our culinary project, the new factory will also be ready by end of next year. The new factory of protein hydrolysate and collagen peptide will be started -- now is started construction, and we hope that it will be also completed by end of next year 2022. Based on our corporate strategy, by 2025, we expect the revenue from innovation will be at least 10% with gross margin over 20%. We expect 3% annual conversion cost improvement from our core businesses. And we expect to achieve EBITDA between $450 million to $550 million by 2025. Next. Culinary project, you can see that from the picture on the right boxes, we have completed the pilot right now, and we do hope to complete the construction in 2022. Total production area would be almost 10,000 square meter with new automatic cold storage. Capacity will be increased by 38%. Total CapEx is THB 1.1 billion and plan to launch commercially in the third quarter next year. Next, please. Expanding into new attractive value-enhancing area, Thai Union ingredient focused on valorizing part of our fish into value-added marine ingredient under the brand UniQDHA, UniQBONE, but this is going to be B2B for sales channel. Protein hydrolysate and collagen peptide factory will be completed in 2022. Thai Union Lifescience B2C business. Product is now launched in the market in August this year that will be under the brand of ZEAVITA supplement. There will also be a ZEAVITA joint venture with Interpharma for hospital channel. There will also be ThaiBev joint venture for functional beverage. Alternative protein, we have launched OMG in Thailand. We have also a collaboration with international FMCGs to launch plant-based meat in Asia. So you will see more significant revenue from next year. Although we just started end of this year, the number still relatively quite small. We aim to achieve $30 million revenue for our alternative protein by 2025. Next. This is the latest investment that I want to share with you. We have invested up to 10% in the company called Clover Corporation, a listed company in ASX market as of July 2021, at the total purchase price of AUD 29 million. Clover Corporation owns Nu-Mega Ingredients, producing encapsulate, DHA oil, including tuna oil and [indiscernible] oil in the market serving infant formula market. Encapsulate is kind of in the dry form for tuna oil. If you are aware, Thai Union produce tuna oil in liquid. Clover is one of our strategic partner, who buy our oil and then make it in the dry form. Headquarter is in Australia with majority sales in Asia followed by Europe. We turned from business partner to strategic partners from our investment so that we can broaden our product portfolio, our customer reach and geographic coverage. Next, please. We are launching supplement under ZEAVITA brand in Thailand. It's going to be first-time ever, the most enriched and natural supplements from 100% deep sea tuna parts, patented in Japan for better functionality. The market opportunity in Thailand, the size is THB 30 billion. We have launched -- we have introduced product in August, but will be officially launched in September. Focus now on key products, collagen, calcium and fish oil. Right now, we have exclusive partnership with Watsons and the top 100 independent pharmacies. We will drive sales from both off-line and especially online channels. Next. Alternative protein effort so far. Key success we have built a multiple product portfolio across category. We launched OMG Meat in Thailand from March this year. We have a contract OEM partnership with leading FMCG players, well-positioned plant-based, startup and strategic customer, for example, major U.K. retailers. We unfortunately cannot disclose the FMCG clients due to confidentiality agreement with them. In Thailand, we also collaborate with V-Foods from June 2021 and partner startup More Meat to co-develop new product. We have ambition to reach THB 1 billion revenue by 2025. Next. We continue to invest in our food-tech start-up via our CVC fund, USD 30 million. The latest investment that we made in June-July, one is ViAqua, a biotech startup focus on disease prevention for aquaculture, based in Israel. We have invested in the company called Aleph Farms, a leading cells-cultivated meat company based in Israel. We will continue to maintain a very active pipeline for further expanding our CVC portfolio in these strategic areas. Next section, I will pass to our CFO, Ludo. Thank you.

Thanks a lot Khun Thiraphong, and I'm very happy and pleased to be with you this morning. As you could hear from Khun Thiraphong, we have many good news to share with you this morning. Our financial performance in Q2 is exceptional. You have here all the key takeaway. Top line, I will not comment further. Khun Thiraphong already mentioned, is one that grows. We are very happy with the growth. We have, just for you to remember a positive FX coming from the euro and the GBP. But even if you exclude the FX, the growth is still very strong at plus 7%. I think for me, the key takeaway for this quarter is really the record high gross profit margin at 19%. If you remember, in Q2 2020, it was already a record high, our previous record high at 18.2%. So here in 2021, we are really overachieving this performance. And I think this is really coming from a unique combination where we have all 3 categories performing very well at the same time in terms of gross profit margin. And I think this is one of the key success, and we will get back to this and explain and elaborate further in [ Khun Gail ] section. As a result, the OP was at THB 2.5 billion, record high for us, improving versus last year. And even below the OP, we have some very strong improvement. If you do remember, Q2 2020 Red Lobster, most of the restaurants were closed at that time. Now the situation in Q2 '21 is completely different, and we will elaborate further. But they are mostly operating almost all their restaurants. And as a consequence, the loss from Red Lobster has been reduced dramatically. And this is also one of the key driver for our strong performance. So bottom line, net profit, we are generating THB 2.3 billion combined. We are very pleased with that. This is a new record high for us for the quarter. Again, the key drivers are our operations. We are doing very well in terms of sales and OP and also below OP, we have a lot of good news also to share. Next. Another thing, which is very important. And you know the sustainability is really one of our key assets since many years now within Thai Union. And since last year, we have been trying to develop everything around the blue finance. And if you do remember, in Q1, we told you that we have been launching a new sustainability linked term loan, SLL. That was in February '21 for THB 12 billion. What we can announce to you is now in July 2021, we just launched successfully THB 5 billion sustainability-linked bond. It's a bond this time. It's not a loan anymore. It was the first time that we did that, that something like this was performed in Thailand. The regulation is very completely new. I think it was a loan only since May. And again, we had a lot of success coming from this one. You can see here the amount of oversubscription more than 2x. So this is very happy. We can see a lot of appetite coming from the bonds and coming from the firms on this kind of tool. The KPI. So again, we have some sustainability KPI to be respected, and they are almost the same that the one we had for the loan before. So we have 3 of them. DO -- DJSI is one of them, carbon intensity is another one. And the last one is related to electronic monitoring. And you can see here, it will be a 7-year maturity senior and secured, and then you can see here the interest rate, which is, I think, very, very attractive. Great success from our treasury team from [indiscernible] and all his team. And I think we are very pleased to be the first one to launch this kind of tool in Thailand. I think at the end of 2021, we will have something like 40% of our long-term debt, which will be based also on sustainability-linked KPI. This is a lot. We want to push further for next year also, but we are really pleased to drive the whole industry in this direction. And I think it really shows the commitment of Thai Union towards more sustainability. Next one. So even if we have some great numbers in terms of financial performance, we are facing some challenges like any other companies. I would not comment further COVID-19 challenges because Khun Thiraphong already mentioned this one. but the situation is clearly in our radar. But I will get back to the container shortage issue. And if you do remember, we talked about these topics in Q4 2020 already. We told you in Q1 that the impact was an increase of our selling costs by almost THB 200 million. We have roughly the same situation and the same exposure happening in Q2. Again, we are facing some container shortage. We have some delay in the shipments. Of course, we try to pass through the cost to our suppliers, to our customers. So it's a commercial discussion. We are trying to mitigate all of this. But eventually, at the end of the day, the impact in terms of selling costs was THB 200 million again for Q2. So this is total for the H1, something around THB 400 million. And I told you already in Q1 that we're expecting the situation to improve. It is improving. However, it is much slower compared to our expectations. And now we expect the situation to continue until the end of the year. We expect to have roughly the same impact in H2 compared to H1. And we expect the situation to kind of normalize in Q1 '22. It's a huge impact. Of course, it's impacting everyone. Just to give you an idea, the cost of a container moving from Thailand to the U.S. or to Europe has been multiplied by 4. Pre-COVID it was something around $2,000 for one container. And now we are moving in the range between $8,000 to $10,000. And of course, this creates a lot of challenges in terms of supply chain because it delays all the deliveries. Again, nothing to be concerned about. We are managing the situation already since 6 months. So we know how to deal with this one, but this is clearly one of the challenge that we have to face with. On the top right, you can see another challenge that we have, which is related to inflation in our business, mostly coming from packaging and also coming from oils. And I'm sure you have read a lot of articles coming from all the industries and especially the food company mentioning this kind of inflation already impacting us a bit in '21. So we're having some discussion with our suppliers, and we're trying to find some way to mitigate this inflation. However, we have to face with this one. So for us, it's a watchout. It's a watchout for H2 '21, but also for 2022. We have really -- most of our purchases, which are hedged or performed or sourced already for '21. So the majority of the impact should come if it is confirmed, should come in 2022, and this is something watchout for us to keep in mind. Again, some challenges. We need to keep them in mind, nothing to be concerned. I think this is part of our usual day-to-day operation. Next slide. Quick focus on the tuna prices. You know that tuna prices is one of the key driver for our performance. In Q2 '21, the average skipjack price is around $1,323. We have an increase by 4.5% compared to last year, so a bit of inflation here. But we told you as long as we remain in this gray area between $1,300 and $1,700, we believe this is comfortable and this is sustainable. So on this one, and we believe it is okay. Just to give you some outlook on H2. We are still planning to have a bit of inflation there. However, it should be again under control. We are not anticipating some new increase or significant decrease of the fish price in Q3 and in Q4. Next slide. So the next slide is the overview over the last 3 years of our performance, and I think we are very happy about this one. You can see the top line has been positive. We have been generating some growth over the last 6 quarters in a row and the last 1 in Q2 '21 at almost 9% is very interesting for us. The gross profit margin is also very nice. We have been able to generate some top line growth together with some profit increase also. Gross profit margin at 19% is record high. Again, the previous record was at 18.2%. And if you look at the net profit, net profit margin at 6.5% is also record high. So very pleased with these numbers. Again, we will get back to this in the category analysis to explain to you further where this comes from. Next. So just we are just starting to deep dive on the financials. And here, you can to see the performance in terms of sales. We already commented the performance in terms of Q2. Just to show you the numbers for H1, so THB 67 billion. In terms of sales, we are growing by 4.4% compared to 2020. And if we compare to '19 pre-COVID situation, we are growing by almost 9%. So this is very interesting and very attractive for us. The story that we had in Q2 is almost the same that we had in Q1. If you remember, in Q1, we have a Frozen regrowing. We had also the PetCare value-added growing, and we had the Ambient category kind of normalizing. So we have the same situation happening in Q2, except that in Q2, our frozen business also in Asia is back to growth. And we told you in Q1, it was mostly our U.S. business which was growing, but the Frozen business in Thailand was still a bit soft. The situation is moving in Q2. And in Q2, we can see that now our Frozen business, both in U.S. and also in Thailand are back to growth. And this is why the Frozen is growing so much, also true that the comparison, the baseline in Q2 2020 was really soft because of the pandemic. We have an opposite situation in the Ambient. And maybe we can get to next slide. You will see here the view that we had. You can see on the left of the chart, the bridge between Q2 '19 to Q2 '21. Q2 2020 to Q2 '21. You can see all the Ambients are declining. Tuna, Sardine and Mackerel, Salmon are all declining. And then you can see all the next boxes, which are all green and growing again. And I think this is very interesting to compare to the same bridge we presented to you last year. Last year, we had exactly the opposite situation. On the right, you can see that the Ambient was really growing. This was coming from the COVID-19, the pantry loading and the panic buying. And you can see that the frozen was also decreasing, okay? So we have exactly the opposite situation. Now the Ambient is kind of normalizing, the frozen is recovering and the PetCare and value-added and other products is still growing, okay? So a very interesting chart. And I think it shows how resilient and how strong our portfolio, our product is because last year, we had a lot of discussion regarding how sustainable is the performance for Thai Union. And you can see in '21, we are able to grow even compared to last year where we are benefiting from COVID-19 situation. Next slide is our usual focus by regions. I think we can see here some growth in Q2. This is mostly the U.S. and also Europe. If you do remember, Europe in Q2 2020 was a bit soft. We were facing with some out-of-stock situation in these markets. So we had to cut all the promotion activity at that time. Situation is different now. In Q2 '21, we have been able to restart again all the promotional activity in the EU. And this is why you will see that the U.S. is very strong and also Europe is also very strong. In terms of mix between branded and private label, we don't have a lot of change. I think this is a situation as usual. Next slide. So we'll just show you, just a quick focus on gross profit margin, and I really did comment the performance for Q2. So I will not get back to this one. Again, I think 19% is coming from a very strong combination with the 3 categories performing really well, okay? Frozen and Chilled Seafood, we told you, we are back to a very strong top line, PetCare also very strong top line. And these 2 businesses have been generating some very high gross profit margin. Especially, you will see the PetCare and value-added business has been generating more -- a record high gross profit margin higher than 30%, which is great. The Ambient, even if we are kind of normalizing in our top line has been also generating a very high gross profit margin at 22%. You will see this one. So over H1, now we have been delivering, on average, 18.4% gross profit margin. This is much higher compared to our initial expectations for the year at 17%. This is also above last year where we had 17.3% and above 2 years ago, when we were at 15.8%. And you can see in terms of numbers, absolute amount, we stand at THB 12.3 billion at the end of June 2021. Next one, just a quick focus on the OP. You may have some questions regarding the level of SG&A. And this is correct. Our SG&A has been growing a bit and now they represent 16.6% -- they are increasing by 16.6% and they are representing 11.9% of our sales, which is in the high range of our usual guideline between 11% to 12%. A few things that we have to highlight. First of all, we have, of course, the impact in this quarter of the logistic costs. And I did mention to you that our estimation was something around THB 200 million. Plus, we have also some increase in our marketing activities by almost THB 200 million. I told you that Q2 2020, we cut a lot of marketing activities because basically, we are facing out of stocks. Now we get back to normal marketing activities, and this creates an increase in our SG&A. Last one, I will get back to this one. We have one one-off item to mention to you this quarter, which is a goodwill impairment. We're getting our business in TMAC. TMAC, If you know this is our shrimp actuary business, I will get back to this a bit after. But despite this SG&A increase, thanks to the very strong gross profit increase, we are delivering a record high OP at THB 4.4 billion over 6 months, okay? In terms of margin, this is 6.6%, again, very high and very pleased about these numbers. Next slide. So as a consequence, from a very strong OP, you will see the EBITDA is also very strong. Over 6 months, we stand at THB 7.6 billion. Last year, we had almost THB 6 billion kind of flat versus 2019. But growth of the EBITDA by 26%. Of course, we are benefiting from the strong OP increase from Red Lobster recovery and also from the FX gain that we are having. Just one thing maybe to mention, Avanti. Avanti is our Indian partner. They are doing in the feed and the frozen business, and they have been suffering a bit in '21 on their frozen activity. The COVID-19 situation in India is not great, and they have been facing with some shortage in terms of labor force. So in terms of share of profit, this is a bit declining, still very strong, but a bit declining versus last year. We do expect the situation to kind of normalize in Q3 and Q4. The feed business is still doing well. And of course, this is a listed company, so this is public information. But the rest and especially Red Lobster is strongly recovering and fully offsetting this impact. Next one, just a quick focus on net profit. We mentioned this one. I don't get back to Q2, but you can see THB 2.3 billion. The previous record high was THB 2.1 billion in Q3 2020. So THB 2.3 billion, we are super high over 6 months at THB 4.1 billion, we are very pleased. We are growing by 52% compared to previous year. Next slide. We have only one one-off to report to you this quarter. I mentioned you the payment of TMAC. Just maybe some few words about this one. So TMAC is one of a very specific business, one unique business we have within TU, where they are doing the hatchery business and they are also playing the role of R&D center for our Frozen business in Thailand and also in the U.S. So this business has been loss-making since few years. We had a very strong action plan in order to turn around the picture here. And over the last few years, we have been improving year-on-year, and we have been reducing the losses. However, in 2021, for different reasons, we are not improving anymore. So we are not getting back to breakeven. And this is a trigger event for this goodwill impairment for THB 105 million. So this is a one-off that which is reported to you for this quarter. If you exclude -- should you exclude this one-off, then the net profit would be even higher at THB 2.4 billion. Next slide, just a quick focus on the earnings per share. So for Q2, we stand at THB 0.49 and for 6 months, we stand at THB 0.86. Again, this is a consequence of the very strong net profit. Again, we are delighted about these numbers. Next slide. Just a quick focus on Red Lobster. And if you remember, Red Lobster was really painful last year because they have been generating a lot of losses coming from the closure of most of their restaurants. The situation is very different in 2021. If you do remember, if you look at the first line here, you can see the share of profit coming from Red Lobster. Q1 '21, they have been able to generate some benefits, some profit. If you do remember, Q1 is always supposed to be the best quarter for them. They have a lot of events. They have the land and they have a lot of commercial activities also during this quarter. Q2, they are generating a loss by THB 49 million. However, we have much more and a much better situation compared to Q2 2020. Q2 2020 if you do remember, they have been generating a share of loss by THB 700 million. If you do remember, they have most -- the vast majority of their restaurants, which was closed during this quarter. And that's why we have such a huge improvement. Now almost all the restaurants are open. We have been doing many changes, and I will get back to this in the next slide within Red Lobster, and we are very happy with the performance. Just a quick focus on the second line here. You can see share of profit from the lease accounting adjustment. If you do remember, we introduced this topic in Q1. Already, we told you we have some accounting differences between U.S. GAAP and Red Lobster are applying and Thai GAAP that we are applying here in Thailand. The impact is we are recording -- it's a pure phasing difference. So we are recording some expenses ahead of them. So we have some negative impact. It's a pure accounting adjustment. There is no cash impact at all. The impact is quite large. There was a one-off impact of THB 300 million in Q1 '21. And going forward, we expect to have an impact around minus THB 100 million per quarter. So total for the whole year, we expect to have some lease impact around minus THB 600 million for 2021. It will continue in the next years to come, but it will reduce further. And at one stage, it will remove and then it will become a positive adjustment in few years. Apart from the other line, other income, interest expense don't change a lot. We had a lower income tax. Why? Because we have lower share of loss coming from Red Lobsters, so we are enjoying less tax credit on these parts. Next slide, we just want to show you a quick focus on all the changes we have been doing at Red Lobster. One of the most important is, of course, you have heard about this one, Kim, the CEO of Red Lobster has been retiring. And we have a new CEO who has been joining since last week, Kelli. She has a very strong background. She was leading the Black Box Intelligence, and she has been also leading the Chili's Grill & Bar, which -- where they are operating more than 1,600 restaurants. We are very happy and pleased to have Kelli on board. We had her on the call this morning. Of course, this is her first week but we know she is clearly an expert of this category, and we are very confident that she will be able to improve the situation at Red Lobster. Guest count. We mentioned this one. This is a challenge for Red Lobster since few years, and this is really the key challenge we gave to the management team. We told them we want to see the guest count improving. Of course, it is improving compared to last year when we are facing the COVID-19, but overall compared to the competition, we want to regain some market share. And this is a key challenge that we gave to Kelli and the whole management team. Just in terms of people, we told you that in 2020, we cut a lot of employees. And now that we are reoperating all the restaurants we have been hiring people 20,000 people since January 2021, 26,000 people, this is huge. And of course, you can imagine how challenging it is to train all these people and to integrate them into Red Lobster. However, we are fully confident that the Red Lobster would be able to integrate all these people. We are very happy to get back to a more normalized situation in the U.S. Of course, we continue to follow up very carefully the situation of the COVID-19 in the U.S. You know that we have an increase of the number of cases in the U.S. So far, we are very far away from the situation that we have in Europe or even in Asia. But still, this is a watchout for us. You know the vaccination campaign has been very successful. So we believe that we are in a much better situation this year compared to previous year. In terms of financial performance, if you do remember, last year, they have been generating a loss by THB 1.2 billion. At the beginning of the year, we told you that we are planning Red Lobster to generate -- to improve by 0.5%. So we are planning to have a loss by almost THB 600 million considering the very strong H1, which is above our expectation. We revised this target to be a loss by THB 200 million to THB 300 million for the whole year 2021, okay? So you can see over H1, we have a small profit, before H2, we expect to have a loss and especially in Q4, where usually they are generating some losses because of seasonality. Next slide. Free cash flow. So I think this is maybe the only KPI where we are returning a bit below our target and our plan. I think we have some good reason for that. In Q1, we have been generating a negative cash flow. We are catching up in Q2. So we have generating THB 1.6 billion. The total of H1, we have been generating THB 1.5 billion. We are revising down a bit our CapEx because we didn't spend as much as we planned in H1. And maybe we can move to next slide. So this is our net debt bridge. And here you will see. So we are generating in H1, a very strong EBITDA by THB 7.6 billion. However, we have a very strong increase of our net working capital by THB 4 billion. Why? Because we took the decision to invest in our net working capital. You can see that right now, you have a lot of demand for our products everywhere in the world, and we want to be able to face with this very strong demand. So this is -- we have decided to increase our volumes of inventories. If you do remember, in 2020, we have been facing some out-of-stock situation in some regions in the world. We want to avoid having such a situation. So we have been increasing our level of inventories. Keep in mind also that for some specific activities like our Frozen business in the U.S., we had a pretty large pricing effect. And I'm sure you have seen in the news some price increase on the lobster, on the crab categories. So even if you keep the same volume, you have a very strong pricing effect. CapEx over 6 months, we have been spending THB 2 billion. This is a bit below our forecast. We told you at the beginning of the year, the full year plan was to be between THB 6 billion to THB 6.5 billion. You will see in our guidance, we are revising down this guidance to THB 5 billion for the whole year. We have a bit of delay in some projects because we were anticipating the COVID-19 situation to really normalize in 2021. We all know this is not the case. So we are revising down a bit our CapEx project. However, no concern for the plan. I think everything is under control, and we will be able to catch up in 2022. So it does not change our commercial plan, which is a good thing. All the rest is almost normal, except for the investing part, and Khun Thiraphong mentioned this one we have been investing into Rugen Fisch for the buyout of the minority shareholders and also in Clover Corporation and few other investments. Consequence, our net debt has been increasing from THB 52 billion to THB 57 billion and net debt to equity has been increasing from 0.94 to 0.98. But we believe the situation will improve in Q2, and we'll get back to a better situation. Next slide, just a quick focus on our euro funding. We have been refinancing in Q2 '21, a very large portion of our debt. And this is why you can see some changes in terms of currency and also in terms of maturity We are very happy again about the successes and the achievement we had in Q1 and in Q2 regarding the sustainability-linked bond and loan and very pleased about this one. Last slide. Just a quick focus on the profitability ratio. And you can see, I don't need to go through all of them. The situation is improving everywhere. Of course, the profitability is very strong. We have been very fortunate. The inventory days, you can see here are increasing from 120 to 126 days. And in terms of absolute amount, you can see the increase of our inventories. At the end of Q4 2020, we were close to THB 39 billion, and now we have THB 43 billion, and we are much above compared to Q2 2020. Clearly, we were not happy with Q2 2020 performance because it was too low. It was not sustainable and we are facing some out of stocks, and that's why we are much more happy with the situation at the end of Q2 '21. Net debt to EBITDA, I think we are below 4 net debt to equity also, we are exactly where we want to be. And now I will hand over to Khun Kal to go through the performance by business unit. Thank you.

Thank you, Khun Ludo. For raw material price. Tuna price in second quarter remained relatively stable at USD 1,323 per tonne. So positive 4.5% year-on-year. We expect some reasonable inflation for tuna prices during the [ fact band or the fish aggregation devices ] during July to September. So in July, tuna price was USD 1,500 per tonne, but this is, of course, within our manageable range. 7 months for this year or year-to-date, tuna net price remained at a low level, still at USD 1,300 per tonne, so unchanged compared to the same period of last year. Shrimp price in second quarter was stable. Also, in July, we see the price drop as well. So 7 months this year, shrimp price remained in our bad debt. Then as salmon price was NOK 63 per kg. So in July, salmon price was stable, and of course, 7 months was still in our bad debt. On the currency, in second quarter, Thai Baht weakening against euro and past currency while strengthened against the U.S. dollar. So average FX year-to-date still support our sales growth. We have 3 core businesses compared to second quarter last year, we saw a higher sales portion from Frozen and new Chilled Seafood, PetCare and value-added business unit, while the Ambient sales portion normalized from last year exceptional sales from the pantry loading. So we go more detail on this. Thai Union delivered solid performance. You can see from the right chart of the first half earnings, it grew 4.4% from last year and 8.8% from pre-COVID. And you can see our gross margin has been in upward trend. So we go more detail in each business. In second quarter, Ambient sales declined 7% due to the mixed performance in key regions. We go for the U.S. and Asia, we've seen tuna sales drop reflecting the exceptional sales push in second quarter last year and also some effect from the global container shortage. However, it was partially offset by the higher demand in Europe because last year, there was a stock out situation during the pantry loading in Europe. So overall, we see higher, I'm sorry, high gross margin continued at 22% because of the raw material price and also the improving salmon business. If you compare to the pre-COVID-19 level, Ambient business will expand on sales and its sustained margin. Frozen business, in second quarter sales recovered very strong 29% year-on-year, and that also supported by sales volume growth. We see the business recovery in shrimp, lobster from food service and retail business in the U.S., so that helped a lot for the gross profit margin recovered strongly to 11.5% this quarter versus 7% in second quarter last year. So of course, we compare to pre-COVID-19, for sales and margin expand firmly, particularly for shrimp and lobster business. So we go more what we -- our strategy is that we growing to profit. First half of this year, profit, we record THB 3 billion, up 72% year-on-year and that between first half pre-COVID and even first half last year. So we have 2 strategies, both from the sales top line and also the cost reduction. We mentioned already about the recovery of the culinary channels in the U.S. We do more on -- secure more contract for the OEM for the new customers, we introduce more value-added products to customer as well. And of course, for the cost side, we install more automation machines and streamline the production there. So we continue to do this in the next quarters. And to highlight on PetCare and value business has increased 13% year-on-year. We launched the products and also we expand the customer base, We had the great performance in packaging business as well. So gross margin continued at a high level of 30%. And of course, we continue to deliver guest high profitability and innovation product launch to help on this business. So with this one, we see the upward trend of the sales and margin. Of course, the global PetCare innovation center is working closely with the new and key existing customer. We codevelop the innovative pet food. And you can see from the picture that this is the example that we launched our brand that bring delicious and the [ kidney-friendly ] cat treat. So that comes in different formula to help in the digestion, skin, [ joy ] and bone that for example. So into the graphic diversity. In first half of this year, we see the slightly increase for the North America. So thanks for the recovery of the Frozen and Chilled Seafood business. Going to North America, so increased 12% on sales year-on-year. That's driven by the frozen and seafood sales and of course, partially offset by the Ambient business. But overall, it still grew a lot at 12%. We see the Red Lobster improving performance in second quarter. So the performance solid compared to pre-COVID. In Europe, sales also increased 15%. We have higher demand in branded business. And also, we're doing well industrial salmon and other seafood business in Europe as well. We benefit from the higher FX currency and also we have the strong performance on pre-COVID. Thailand recover up 14% year-on-year. We have business on the frozen, chilled seafood together with the PetCare business. Even we have some lower sales from the Ambient. Sales remain going at 2% from pre-COVID-19. Lastly, on the emerging market and the rest of the world, we see sales decline 10% year-on-year, and that from the Ambient business, particularly in the Middle East market in Japan, but we see some market growing like China. So overall performance remains challenge if you compare to pre-COVID but we see increasing trend. So overall, to summarize, we delivered 19% gross margin and THB 6.8 million-plus profit for this quarter. For the full year financial guidance, we adjust into item on the gross profit margin and the CapEx, we maintained our sales 3% to 5%, gross profit revised up to 17% to 18%. And of course, CapEx revised up to THB 5 billion. That because we postponed some CapEx into next year. So this wrap-up the presentation. Khun Thiraphong, maybe you can give more on the outlook or guidance for this year, that would be very grateful.

Well, looking ahead to the end of the year, we still find the demand in the market, it's still quite strong. We expect also Red Lobster to perform as per our plan. The ForEx, Thai Baht to dollar is also very favorable given the current level right now, so it would be very supportive to our business. And you see from the guidance, I think we are -- although the top line growth, 3% to 5%, I think we are very much determined to deliver at 5% or more, if we can, gross margin 17% to 18%, I would expect to see it on the upper side. So that would be my expectation. I think everything still going as planned. Fundamentally, our business is still very strong. We don't have any issues package with us. We're still managing our nonperforming businesses. So things still going as planned. I think let's open for Q&A, please.

[Operator Instructions]

I think that I see the list of the question here. Number one is regarding the functional drink. I would say that we cannot disclose in details because this is a joint venture between us and ThaiBev, where we are both listed company. But I would hope that you could appreciate our joint venture partner, which is ThaiBev that they don't expect to do anything small. So I do hope that with our joint venture with them would lead to a sizable business. Another question regarding the supplement market, THB 30 billion. This is a very fragmented market right now. Nobody really owns or dominates this segment. You may know the famous name like Black Mall, [ meka ] et cetera. But the market is still relatively very fragmented. So we do believe that there would be a space for us to be in this market. And as we mentioned, we -- our products are very much different from what's available in the market because it's all natural from [ Marine Best ]. So -- and with the management team that we recruited the Managing Director for this unit, it came from what's the name? Ludo? She was in charge before.

[indiscernible].

[indiscernible]

Yes, [indiscernible].

From [indiscernible]. Okay. So hopefully, with her knowledge would help us to penetrate into this segment. Regarding ThaiBev. ThaiBev assumption -- assumes around what...

Right now the focus -- yes, go ahead, go ahead, Khun Thiraphong.

Go ahead, Ludo. I think our budget was what? 30...

THB 31. And now it has been increasing. And in our forecast, we are assuming THB 32.5 for the rest of the year. And we had some discussion yesterday with some analysts because right now, indeed, the FX is around THB 33 to THB 34. We have been discussing with some banks in Thailand, and the expectation is the Thai Baht will be increasing in Q4. So we don't expect to remain at this THB 33, THB 34 level, and that's why our own assumption for the rest of the year is THB 32.5 just for you to keep in mind.

And Ludo, why don't you also share with the analysts about our expectation from Red Lobster in third quarter?

Sure. Sure, sure, sure. So we mentioned, you can see already over H1, we have a small profit. If you combine Q1, which was positive [ 80 ] and then Q2, which is slightly negative, we mentioned to you that we expect to have for the full year, the share of loss by THB 200 million to THB 300 million, We expect Q3 to be slightly negative. And we expect Q4 to be more negative. If you remember, in terms of [indiscernible], Q4 is always the loss-making quarter. It was quite large last year. Last year, they did quite well in Q3, but we expect them to generate a small loss in Q3. But for the full year, what you need to remember, we do expect to have a loss between THB 200 million to THB 300 million. This is just coming from the operation. It does not include any lease accounting impact, okay? Lease accounting impact is something which is different. But overall, very happy with the performance of Red Lobster.

Okay. Let me ask next question for you. So a question from analysts. This year, we have extra expense from the [indiscernible] around THB 800 million. So if the situation unsolved, sorry, solve early next year, that would be THB 100 million add back to the profit. Is that the right to say?

No, no, no. I think we just show you the incremental cost affected us, but having said that, we have been able to pass on most of such costs to our customers. So when the situation improves, get back to normal, then it will help us to be even more competitive to offer our customers even better price.

Absolutely correct, Khun Thiraphong, just to add on what you're saying. You are certainly correct the THB 400 million we have been sharing, it's just an impact in our selling costs. It's not an impact in our bottom line. It has to be very clear, we are able to pass through some of these costs. And again, just to be a bit careful when we say we do expect to have the same -- roughly the same exposure for H2. This is just an estimate at this stage. So we don't know if at the end of the year, it would be THB 800 million or not. I think the key message that you need to keep in mind is, until now we have been able to face with this situation, and we have been able to generate some very high profit despite this challenge. So just be confident that we can continue to cope with this challenge. I think this is a key message that you have to keep in mind.

I just want everyone to understand that the business has been always challenging with all the issues that we encounter, but we have proved our ability to mitigate the risk and with our scale, with our relationship with all the vendors, we should be able to manage the situation better than our peers, I would say, in Thailand.

Next is on, can you please share with us how long Thai Union hedged the raw material price, including the oil and the packaging?

Maybe, Khun Thiraphong, let me take this one, and you can add if you need anything else on this. I think we have different practices around the regions. We can talk about Thailand. Thailand is mostly in OEM business. So we don't have very long-term hedging in terms of packaging and oil, we mostly have some quarterly costing. We have, in some regions, some different practices, especially in Europe, where from time to time, we are doing some long-term hedging especially for the oil and for the packaging, sometimes we have something like 6 months agreements on the prices with the packages. Keep in mind also that we have some inventories also to offset this kind of inflation. I can see the next question regarding the percentage of growth. Just to share with you, we have some requests which are quite high for the timing around 8% inflation right now, the packaging and apparently more to come also in 2022. This is a pure commercial discussion right now. It doesn't mean we will accept that. We are trying to find everything, of course, to mitigate with these costs. It's not only applicable to us. I think you will see a lot of communication from all the other industries saying we are facing with this inflation. We report to you because this is a watchout. However, you can be confident that we will be able to cope with this situation. We are used to that. This year, it seems to be a bit higher because, of course, you have a lot of industries getting back to normalized situation after COVID. So there is a lot of demand for all the steel and all the materials. However, we'll be able to fit with this situation. It may imply passing some tariff increase at the end of the day to the consumers. And you could hear already some very large consumer product company announcing some inflation from the next year. We'll try to do whatever we do, we can do to protect the consumers and to limit the price increase as much as we can, but we follow very carefully the situation here.

Next is on the currency, how and what percentage do we hedge foreign currency revenue and the cost?

Again, maybe Khun Thiraphong, let me take this one. We are very conservative on the hedging. We don't try to play. We have different practices in the OEM business. We usually try to hedge as soon as we have some sales and also part of our inventories. So we don't try to play at all with the currency. It means, of course, that sometimes we lose some opportunity, that's correct, but we don't want to play. We have some different practices in our branded business where sometimes we take some hedging for more long-term view. Like in Europe, sometimes we hedge for 6 to 9 months in advance, and we try to do it gradually and to increase all over the quarters, okay? So we are very flexible on this, and we have some very specific rules which are there, and we are applying. Again, we don't want to speculate at all. Right now, we can see the FX is going in the right direction for us because we are an export business. And of course, the Thai Baht is depreciating versus the other currencies. This is good for our business, but it can go also the other way around, okay? So we have a very clear guidance to say, okay, we need to hedge x percent of our full year commitment and also our sales and inventories.