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

Good day, management, investors and all participants online. Welcome you all to virtual earnings call for Thai Union Group's Third Quarter of 2021 results announcement. Today, our key speakers are Mr. Ludovic Garnier, Thai Union Group's CFO.

Hello. Good afternoon, good evening, everyone.

Ms. Narisa Phahulrat, Group Accounting and Controlling.

Hello, everyone, and good evening from Bangkok, Thailand.

Ms. Kalvalee Thongsomaung, Head of Investor Relations.

Hi. [Foreign Language]

And myself, [ Bunlung Waiyanont ] from the Investor Relations team and acts for the emcee for today. This event will be approximately 1 hour with a presentation of 45 minutes, followed by 15 minutes for Q&A. Please do note that this earnings call version will be conducted in English. [Operator Instructions] Now please allow me to invite Mr. Ludovic Garnier, Thai Union Group CFO, to start the briefing. Thank you very much.

Hi. Good evening, everyone, again. Very happy to be with you tonight. I think we have overall good news to share with you. We have a strong Q3. I think it's quite aligned with Q1 and Q2 already. But let me jump maybe into the details, okay? So shall we move to the first slide, please. Next one. So overall, you can see here our numbers, KPI. We believe we have a strong Q3. Top line is interesting. Gross profit is increasing. OP and net profit overall are declining a bit. But yes, we are very happy with the numbers we are releasing tonight. If you do remember, just take a step back 1 year ago, Q3 2020, we did achieve at that time a record-high quarter in Q3 2020. If you do remember, in Q3 2020, we delivered a 9% top line growth, high gross profit margin, high -- record-high OP and net profit exceeding THB 2 billion, okay? So we are very pleased to release in Q3 '21 a growth in top line and gross profit versus this record-high Q3 2020. So the sales stand at THB 35.5 billion, growing by 2.2%. That was in line with our expectations. Same situations in Q1 and Q2, we had very different situation by category. You can see the product business have been growing a lot by 11%. We have a very strong rebound in the food service business again. The PetCare, value-added and others are also growing a lot by 11.4%. The Ambient sales are normalizing by 8%. So here, we have a very similar situation compared to the one we had in Q1 and Q2. Gross profit, we stand at THB 6.4 billion. In terms of gross profit margin, we have 18%, slightly reducing versus Q3 2020, where we were at 18%. But you will see overall the frozen margins are really recovering and, in fact, with almost record high in Q3 '21. The PetCare and value-added gross margin are dropping a bit. I will explain that we have to face in Q3 2021 with some factory closure. So we have some extra costs coming from this one impacting negatively our gross profit margin, and the net margin actually are quite healthy and stable. OP, we are just below THB 1.9 billion. OP margin at THB 5.3 billion, but you will see this is one of our key highlights for tonight. We have an increase in our SG&A and we have record-high G&A at 12.7%. SG&A to sales ratio, we had to face with some high -- very high logistic costs. If you do remember, we already mentioned this one in Q1 and in Q2. In Q3, where we disclosed the amount we estimate on this one, but indeed, we are facing some very high logistic costs and very high SG&A. So because of this one, our OP overall is declining a bit compared to last year. Below the OP, I believe we have some good news overall. It's almost on track versus last year. We have some strong FX gain, but we have some negative impact coming from the share of loss. I will again get back to these fronts. So overall, compared to last year, we are declining a bit by 5.8% compared to the record-high THB 2 billion we had last year. But overall, the feeling of the management here is we are very pleased with this Q3 performance. And I think it's a good track and in line also with our Q1 and Q2 performance. Moving on to the 9-month picture. So of course, H1 was really great for us. We delivered record-high H1. So you can see the 9-month picture is very interesting. From the right to the left, you can see total sales are increasing by 3.6%, gross profit by 7.5%, OP by 6.7%, EBITDA almost by 15% and net profit by 27%. Just want to highlight that now, after 9 months, we have been delivering a net profit of 6.1 -- almost THB 6.1 billion. Just to remind you that last year, we did achieve our record-high net profit over 12 months by THB 6.2 billion, okay? So already here at the 9 months, we almost achieved and reached the 12-month record-high level net income of last year. So again, very strong performance. One watchout maybe to mention to you, which is on the net debt to equity, we have an increase of net debt to equity from 0.94 to 1.08. We will explain and elaborate on this one. This is maybe the only watchout that we have in terms of financials for this quarter. So next one, we just focus on here our supply chain. And you know that in Q3, we have been facing some challenges in our supply chain. You can see here on the right all the factories which have been impacted by the COVID-19 in Q3. We had to close -- we decided to close i-Tail. So i-Tail, you remember, this is a new name for Songkla Canning. We decided to close for 2 weeks the factory, and the production has been ramping up in Q3 and now it's back to normal in September. However, we had some hit in our PetCare business in Q3, and you will see this one in the gross profit margin. The next one is TUS. Again TUS, we decided to close the factory for 10 days, was reopened mid-December. The production again here is ramping up, okay? And the last one is a smaller factory we had in Vietnam, YCC. The whole region, all the factories were closed by decision of the government. So we just reopened at the end of September the factory, okay? In terms of size and exposure for us, the first one is the biggest exposure for us. However, we are able to remove and reallocate some of the volumes to our other factories. The second one is in the frozen business and the third one is in the Ambient, our also frozen business. You can see here also on the left the progress regarding our vaccination campaign. Overall, we are quite successful. We did some good progress in Europe, in the U.S. It's a bit slower in Thailand, however, there were some progress over the last weeks and 9 months. But overall, we believe we have been managing quite well the COVID-19 situation. Of course, you are fully aware that this has triggered a situation of labor shortage in some of our factories, especially in Thailand. But despite all of these issues, and we have been facing these same issues in Q3, we have been -- we are able to deliver some strong numbers in Q3. Next is an update regarding some investments we have been announcing over the last weeks. The first one on the left is 10% acquisition we announced at end of September on a company called R&B Food Supply in Thailand. This is a listed company. The value of the acquisition is roughly THB 3 billion. Thai Union will have a Board seat on this one. So we will be able to record this one an associate company. So moving -- starting from Q4, we will be able to record 10% share of profit coming from this company in our P&L. We believe we will have some very interesting synergies. This is a company which is focusing on the food ingredient, very successful company. They have also some nice opportunities in the CBD and in the health market. And you can see here, we believe we can develop a lot of synergies with them, okay? We have been working with this company really since many years. We have been sourcing some ingredients from this company, but we believe we can do more with them. On the right, you can see this is a joint venture we just announced with Starflex. We said we will set up a new company. We have our subsidiary called Thai Union Graphic. We just set up a new holding company, 50-50, but in terms of common shares, Starflex will have the majority of the Board. And the goal of the new joint venture will be to focus on the flexible packaging. You know we have a very clear road map and a lot of sustainability targets in terms of packaging, and we believe this partnership will help us to focus and to achieve our sustainability target related to the packaging. Next one, I'm sure you heard about this one, this is TFM listing. We just listed this one at the end of October. It was a successful listing. We are very happy about this one. We have been talking over the last 2 years. So very happy to see the end of this process. On this one, you all know, TFM, I hope -- it's our feed business in Thailand. We are operating in Thailand, but we have also now some factories in Indonesia and also in Pakistan, and we have one partner called Avanti in India, Avanti Feeds on this one. So we were owning before the IPO 67% of the shares. After the IPO, we still own the majority. So it doesn't change anything in our numbers. We still record that of the sales and the OP of this company. We own 51% as we are owning already a few years ago. The only change would be an increase in the future of the allocation to the noncontrolling interest. That will be the only change. There is no impact in Q3 on this one. You can see here we did ride the accounting impact we expect to have for Q4. So first of all, we will record a gain on the sale of the investments. We will record this one through equity, not through the P&L. So we have something like THB 200 million gain coming from the sales of the shares we are owning. Plus also, we will be able to record a 1.5 -- almost THB 1.5 billion cash inflow coming from the IPO proceeds. Very happy again about this one. This is the end of a quite long process. So moving to the key -- here are 3 key takeaways. Again, we told you we were very happy with the top line and the gross profit margin, and then we are a bit penalized by the SG&A, the high operating cost and the high freight cost that we have to face within Q3, and we have also some lower share of profit. So just get back to the top line. So top line growing by 2.2%. Again, the key categories are frozen and PetCare, value-added while the Ambient is normalizing. We are also helped by the FX in Q3. In Q3, the Thai baht has been depreciating a lot versus USD, GBP and euro compared to Q3 2020. So if you exclude this FX impact, we are declining by 1.2%. So it's a fact that we are just declining, excluding the FX. However, overall, we believe it's still a very strong performance. Gross profit margin, maybe we'll elaborate a bit further on this one. But overall, very strong in all the categories. We had a bit of a hiccup in the PetCare, value-added, explained by the closure of 1 factory. SG&A have been increasing, again, the logistic costs, and we have some additional expenses due to the COVID-19 in Q3, and that's why our OP stands at THB 1.9 billion, decreasing by 5.7% year-on-year. Share profit, we have a mixed picture here. First of all, Red Lobster is almost in line with last year. We had a share of loss of THB 63 million, very close from last year of THB 54 million. And then we have also some declining contribution coming from Avanti Feeds and Avanti Frozen. So overall, our share of profit is declining compared to last year. I will elaborate further on the losses. But overall, bottom line, we believe our net profit is very healthy at 1.9%. We have a decline compared to last year by 5.8%, but we believe the explanation are really coming from the higher freight costs, the workforce capacity issues and also some of our factory closure in Q3. And again, very pleased and very happy about this performance overall. If you look at the long-term view over the last 4 years, I think we have a very good track record. We have been delivering some top line growth over the last 7 quarters in a row. And we have a gross profit margin which is very stable, around 18-plus percent over the last 6 quarters, okay? This is a very strong performance. And of course, you can see the impact on the net profit. Net profit has been very high since the beginning of the year, and we are still enjoying this one. Next slide. Of course, one of the consequences we are benefiting from higher rating from the credit agency. You can see on the right, if I start with the right, this is the first time we're asking for the Japan Credit Rating Agency to provide us with the rating. We are [ provided ] with A- with a stable outlook in August. We are very happy with this one. Maybe you don't know that A- is also the rating for -- the sovereign rating for Thailand. So this is very high, and we believe this is a very strong recognition about all the efforts of Thai Union over the last weeks and months on this one. We have been provided also with increased rating. Again, we are at A+. No change compared to the rating before. However, there is a revision on the outlook to positive. This is good. We believe, again, this is strengthening the financial profile that we have. We have some improvements in our leverage ratio, and our profit margin, as you could see in the previous chart, have been improving a lot over the last quarters. So again, very happy about these ratings overall. Next slide is our journey to sustainable finance. And you know we have been clearly a leader on this journey. You can see, starting from 2020, all our net debt was traditional. And then 2022, we moved to 50% of our net debt coming from sustainable finance. And the goal is to move to 75% in 2025, okay? And you can see just below what we have been doing in Q1 and also in Q2, the THB 12 billion SLL, sustainability-linked loan, we have been issuing in Thailand and in Japan was very successful. And then in July, the SLP, sustainably-linked bond in Thailand. It was lots of success. I don't get back with this one because we really elaborate on this one in Q1 and Q2. However, you can see on the right, we just -- we will announce very soon that we issue THB 6 billion SLB in Thailand. Again, a lot of interest from the finance community, a lot of other subscription. You can see here, we have a mix of 5 and 10 years maturity. And you can see the interest rates are between 2.27% to 3.36%. So very attractive financial interest for us, and we believe this is good. We are also working on the last wave, which will be SLL in Japan, and which should happen before the end of the year. Overall, you should see a lot of [ improvement ], which we've been doing over Q3 and in 2021. I think it's clearly a step change for Thai Union. So next one, just to show you also the way we do manage our portfolio, okay? And to announce on this one, the first one on the left, we have been selling our joint ventures in Middle East. We have 2 different businesses. We have been selling them back to our joint venture partner. Maybe you know that since September 2015, we had set up 2 joint ventures in the Middle East together with another large food company, local one. However, the results from the joint venture were not aligned with our expectation. And you know that since a few years, now we are quite active, and we try to fix our issues and we took the decision to remove and to sell these 2 businesses to them because of financial costing impact is quite -- there is almost nothing, interest rate is very small, so we don't need to mention this one. The other one is related to Europe on the right, and maybe you have seen the press release on this one also. This is our Thai Union Europe, announced the first day of October, that we will close a factory that we have in the chill business, MerAlliance -- called MerAlliance Poland. We have been facing with a lot of difficulties with this factory over the last 2 years. And basically, we have some issue. We don't have enough volumes for this factory. And this is why we took the decision that we will close our sale on this freeze business. We are having different discussions with local players on this one. The announcements happened in October. So there is no impact in our Q2 -- in our Q3 numbers. Right now, we are having discussion with different players to see what we do. Just for you to keep in mind, the key factory of our chilled business is located in France. There is no impact from this one. So overall, the impact in our numbers will be pretty small. Here, we are talking of quite a small factory. Next one, we wanted to give you some heads up and some watchout regarding some issues we are facing. And I'm sure it will not be new for you. A lot of businesses are impacted by these kind of challenges over these quarters and this month. You can see on the left here, we have the rising freight costs and we are also facing the situation of container shortage and fuel cost issues. It's not new. We had already the same situation happening in Q1 and in Q2. I told you that I was expecting some improvement to happen in Q3 and Q4, and we didn't see the improvement. And in fact, we are seeing a deterioration. And the impact has been increasing further in Q3 compared to Q1 and Q2. So if you do remember, we told you in Q1 and Q2, roughly the same impact by THB 200 million each quarter. Q3, you can see the impact -- the price impact of the freight cost increase, we estimate this one at THB 468 million, okay? So it's increasing a lot compared to Q1 and Q2. Few things on this one, a few considerations. First of all, until now, it was mostly an issue for Thailand and the U.S. Now Europe is also involved in this one. But you can see an increase on this cost because our frozen business from Asia to the U.S. or to Europe has been increasing. So our exposure has been increasing. You can see here the team has just provided with 2 charts. The first one on the left, this is the cost of a container from Thailand to the U.S. You can see the increase since Q2, Q1 2020, increasing a lot, times 3 or 4. And then also the transit time between Thailand and the U.S. has been increasing a lot between 2019 and 2021. So this is really the first issue, and we are fully impacted by this one in our Q3 numbers. On the right, you can see the inflation and there were many news on this one in the press release. So we are facing with strong increase of the cost of the packaging and oils, sunflower oils and also some others. So we are facing some increase in our COGS, okay? Right now, we don't see a lot of impact from this one in 2021. However, it's a watchout for us, not only for us but for the whole industry. We do expect to have some increase in 2022. What does it mean? It means we have to negotiate some price increase with our customers, and there may be some impact in our next year profitability. It's not specific to Thai Union, of course. The whole industry is talking about this one, and I'm sure you have seen all the other food big players already communicating on this front. And of course, our policy is we try to share the cost with all our partners, all our suppliers. Again, the impact -- despite all these challenges, and there are some real challenges in Q3, we are able to deliver a very solid performance. So very happy about this one. Next one, I will hand over to Amie to go through the fish price.

Thank you, Ludo. So tuna prices overall increased versus prior quarter and declined versus last year. USD 1,400 per tonne in the third quarter was aligned with our expectation, and the price in October increased to USD 1,500 per tonne, stable and within our manageable range. Next please. Sales, including FX, revenue grew 2% in Q3 '21 versus last year, mostly from our diversified products. The frozen continuing strong performance in U.S. and Asia market, started to improve in the third quarter. PetCare and value-added, steady growing in 7 consecutive quarters. Ambient is normalized after last year country stock-up during COVID pandemic. And for 9 months 2021, top line grew 4% and 10% improved when you compare to pre-COVID in 2019. We'll take a deep dive for our revenue component in the next slide, please. And then segment dropped primarily from global demand in canned products. The peak demand last year did not repeat this year, and all regions are back to normalized as anticipated. This reflected 8% decline in sales and 13% volume drop. Frozen and chilled grew in most categories except for salmon. Total segment increased in value 11% and volume 8%. Food service and culinary channels are continuing recovery with strong momentum in sales and our pricing has been firm with the effect of imbalance in demand and supply despite the dampening effect of COVID-19. Revenue quality in PetCare and value-added have been improved, as shown by 9% sales increase in PetCare and 8% increase in value-added, whereas combined volume dropped 10%. This was driven by favorable mix and growth in the U.S. market. FX impact was favorable in this quarter, both USD and euro. And if you compare to pre-COVID, our revenue increased 12% in Q1 '21. Next slide. For 9-month focus, our sales increase in all regions. U.S.A. increased 7% year-over-year from strong demand in food service and positive FX. The geographic proportion increased to 43% from 42% last year. Domestic sales increased 4%, thanks to frozen business supporting hospitality sector and retails. Europe sales increased 2%, driven by resilient demand in Ambient and positive FX. Next. Looking at the gross profit, THB 6.4 billion for the quarter, increased 1% versus last year. And gross profit margin, consistent 18% versus 18.2% last year. Focus on segment, food service has been recovering, and we have continued to participate in this recovery in a meaningful fashion. We offer great food variety and penetrated our products into markets where it can best reach our customers. As a result, margin has been growing. PetCare was one segment that faced the temporary lower capacity from Songkla Canning or i-Tail closure for 2 weeks and the freight inflation. Margin dropped a bit in this segment. Ambient normalizing effect with lower volume in U.S. and domestic, but our margin remains strong and consistent to prior quarters. For 9 months 2021, margin combined was strong 18.2% versus 17.6% last year and 15.9% in 2019. Next. Operating profit, THB 1.9 billion in the third quarter, a 6% drop year-over-year. The logistics challenge continue. Like Ludo mentioned, in the first and the second quarter, we saw the freight rates increase at about THB 200 million each quarter. The magnitude was higher in the third quarter and the freight increased to 400 -- approximately THB 470 million, and that directly impact our operating profit performance. We keep an eye on the situation and, at the same time, we mitigated this raising cost by controlled marketing and other fixed expenses. And for 9-month 2021, SG&A increased 7%. Next. EBITDA for the quarter, 2.7% decline to THB 3.8 billion due to low operating profit. Our nonoperating expenses were favorable, driven by the FX gain explained by Thai baht depreciation. This is offset by lower share of profit mainly from, first, the Avanti business was affected from COVID outbreak in India that lowered the production capacity and the recalled products that were exported to the U.S. Second was from Red Lobster lease accounting adjustments that reduced our share profit, about THB 100 per quarter. And note that this is the accounting treatment and no impact on cash. But in terms of Red Lobster operations, it was right on track and comparable to last year, which Ludo will elaborate on that. Nine months EBITDA, 11.3%, increased 15% year-over-year. Next. Net profit, THB 1.9 billion, reduced 6%. The business environment in this quarter was challenging. We will face some labor shortage in Thailand facility, some longer shipping lead times as well as some freight rate increase. These have pushed our production cost and sale expense to increase across a number of different categories. We look at it as a short-term disruption and business will be improved in the year to go. Regardless of challenging environment, our 9 months net profit was high at THB 6 billion, 27% improved year-over-year. Next is the adjusted net profit. Last year in Q3, we adjusted negative THB 199 million for goodwill and related tax due to the fire incident in our Canada facility. And this year, in Q3, we adjusted THB 63 million insurance income for the fire incident in Canada, and adjusted net income in this quarter was THB 1.88 million. Next. Earnings per share for the quarter, THB 0.40, 4% drop year-over-year due to lower profit. And for 9 months, THB 1.26 per share, same level of our record-high in 2020, which has improved 32% year-over-year. Next will be Red Lobster, I'll turn it to Ludo.

Thanks a lot, Amie. So this is our usual table regarding Red Lobster performance. Just for you to remember, the first line, we had our share of loss or share of profit coming from Red Lobster. The second line is the new thing we have since Q1 '21, the impact of the lease accounting adjustments and the rest are all our usual lines, okay? So you're looking at the share of profit. We have a share of loss in Q3 '21 by THB 63 million. We are quite close from Q3 2020, where we did deliver THB 54 million performance in Q3. 2020 was quite good from Red Lobster, and we are doing almost the same performance. The share of profit, we told you the impact will be starting around THB 100 million share of loss. By quarter, we have this and this will continue going forward. Other income, we have been increasing a bit. We are benefiting from some management fees in Q3 '21 and then we have the usual interest expense and income tax. So overall, we confirm the very strong recovery of Red Lobster. We are far away from the losses that we have been delivering last year in 2020, if you do remember the situation is much better. We have all the restaurants which are fully open for dining halls and off-premise. So this is really good, okay? However, we want them to get back to profit, okay? So we have a very strong plan. And maybe we can move to next slide. Here, we just wanted to share with you that the key -- the top priority for Red Lobster is to increase the guest count, okay? We want to drive the profitable guest count growth, and we have different point to address this one. The first one is we want to improve the menu satisfaction. We believe we have some very good meals in the menu. However, we want to have more very strong meals and a lot of satisfaction coming from the different consumers. So we are working very hard with Red Lobster people on how to improve the menu. We are also working very hard on the execution. This is a change. Of course, you know that we did increase and we need to hire a lot of people at Red Lobster in the beginning of the year, so we had a lot of new joiners, really a lot. So of course, we need to do a lot of training to make sure that the staffing and all the people working in the restaurants, they are very efficient in the food preparation and in the service. And these are 2 of the key requirements. When you go to a restaurant, you really want to receive your food very quickly and you want the quality to be really good. So again, we are doing some investments over there since the last 2 quarters on this one to really step up in terms of quality and in terms of execution. We believe this is really key in our strategy to turn around Red Lobster. Off-premise business, I don't comment that much. We did already comment a lot in Q1 and Q2. We are also pushing very hard on that. You do remember I told you before the COVID-19, my own assessment was Red Lobster was a bit late compared to competition. I do believe that now, with all the changes we have been implementing in 2020, now we are ahead of the competition. And we have a very good proposal regarding the off-premise business. Something which is very important is also to create everyday value. What do we mean by this? The people returning back to the restaurants, first of all, some of them have been losing their jobs. The situation, the economical situation in the U.S. for some people is not easy. So they are really looking for value. And this is why we have some specific proposal with low-price menu or low-price items just to make sure we can attract all these people here. The last part is really to marketing. In 2020, we cut a lot of our marketing investments to face with the COVID-19 situation. Now we are back. We are spending a bit more in terms of marketing spending. However, we are shifting our spending to digital activities and in IT. We have a very strong database already with 11 million customers. The idea for us is to grow and to really try to monetize this database. So overall, we have some good progress at Red Lobster in Q3. However, we are still loss-making. I think the big challenge for us would be Q4. In Q4, Red Lobster is always loss-making quite heavily. We maintain for the time being our full year target for Red Lobster share of loss which is, we said in Q2, between THB 200 million to THB 300 million for the full year. We maintain the same guidance for Q4, so we do expect to have a significant loss happening in Q4. Of course, we try to do whatever we can to decrease and to limit as much as possible this impact. And now we'll hand over to Amie for the focus on the free cash flow.

Thank you, Ludo. So we generated 9 months cumulative of THB 2.1 billion free cash flow from operations. The first quarter cash flow was THB 125 million negative from high level of inventory that was impact from the container shortage, started in December 2020. Second and third quarter cash flow were positive. Profit was strong, but penalized by higher net working capital due to high level of inventory from logistic disruption. A note for net working capital in Q3, high level of trade receivable were included, thanks to incremental sales and that impact high net working capital level in short term, which will turn to be cash in the year to go. Next, for net debt bridge. Our debt increased to -- sorry, our net increased THB 11 billion to THB 63 billion at the end of Q3, driven by -- if you look at the bridge, our profit increased THB 11 billion in 9 months, but offset by THB 6 billion increase in net working capital and THB 2.6 billion capital investment, which we believe is a good healthy level. And for the investing and financing activity, for the first 9 months, we distributed THB 6.3 billion combined for tax, interest and dividend payments. Other investments combined about THB 7 billion to support our commitment in innovation and operations improvement. Majority investments are first, THB 1.7 billion invested in Rügen Fisch, as we mentioned in the last quarter; second, THB 3 billion in R&B Food Supply; and we have some THB 700 million in Clover, the tuna oil company in Australia that we announced last quarter; and we also invested a small amount, THB 60 million, in the start-up food tech company. As a result, net debt per equity increased from 0.94 to 1.08, and that is within our target range of 1.0 to 1.1. Next.

Amie, let me jump in on this one. Maybe just one comment on this one. Indeed, we have an increase of our net debt in Q3. We believe, for us, it's not a concern. We told you that our guidance, 1.1, we are still below the guidance. Just to insist in -- over the 9 months, we are delivering a record-high EBITDA. But indeed, you can see we had this box, change in net working capital, which is higher compared to our expectation. I think we are facing really a unique situation of the freight issues, the container shortage. And because of this one, we have our level of inventory growing in many locations in Asia, in the U.S. and also in Europe. But this is also a decision we have made. We want to support our business. And we believe right now, the momentum is very strong for all our activities. So we took the decision to say, "Okay. We are ready to increase our level of net working capital even if it's penalizing for cash flow, but really want to support our business." Plus, I told you in Q2 that we were ready to do some investments. And you can see here on the top right, you can see the box on the investment that Amie had already mentioned. This one, we did some investment over the last few months. So these are the key drivers for our net debt. However, this is fully under control, and we are quite happy with the development on this one. Of course, in Q4, we tried to decrease the requirement of net working capital. However, we want to fully support the business. This is very important for us, and we are facing with this unique situation. It's just a fact, okay? Back to you, Amie.

Okay. On interest and debt, not changed from prior quarter, exposed more on various currencies through the sustainability-facing programs. As you can see, our fundings were more exposed to USD, euro and Japan yen than the year before. Next slide. So the overall performance, that points to a return on equity, and return on capital employed improved versus last year and on good tracking. And if you look at the inventory days, the days increased to 135 days from 126, mostly from the higher level of inventory, like Ludo mentioned. We also draw net working capital days to 116 days from 108 in the prior quarter. And then I'll turn on the presentation to Gail.

Thank you, Khun Amie. We start with raw material prices. Tuna price in third quarter remained relatively stable at USD 1,400 per tonne, so it dropped 7% year-on-year. And in October, tuna price was up a bit to USD 1,500, but this is within our manageable range, as Khun Amie mentioned. In -- for 10 months, this year, year-to-date, tuna price remain at low level. If you compare to the same period of last year, it's about USD 1,300 per tonne. And tuna price in third quarter declined 12% year-on-year. In October, tuna price increased to THB 143 per kg, but that was typically the entering into the higher season for the shrimp raw material price in fourth quarter of the year. So 10 months tuna price is still lower compared to the same period of last year. Last is on salmon. Price in third quarter remained stable, both for third quarter and for the October. So 10 months, salmon price remained in our bad debt. This is on the foreign currency. Thai baht weakened against U.S. dollar by 5% year-on-year; against euro, percent weaker by 6%; and pound by 12% year-on-year. So FX rate for Thai baht still supports our sales growth for 9 months. And next is on the 3 core business. Compared to third quarter last year, we saw a higher sales portion from frozen and chilled seafood and PetCare, value-added business unit, while Ambient sales portion normalized. So the portion of the brand and private label have not been changed. Next is on our performance. You can see from the right is for 9 months. It's grown 3.6% from last year and almost 10% if you compare to the pre-COVID-19. And our gross margin has been upward trend. So we go more detail on each business. For the Ambient sales, in third quarter declined 8%. We already mentioned on the lower tuna sales in the U.S., Europe and Asia, that to reflect the exceptional last year -- high last year, and of course, some effect from ongoing container shortage. However, if you see the gross profit margin, it's remained high and stable at 20% plus. So thanks to our lower raw material price and improving in sardine, mackerel and salmon businesses. So of course, compared to pre-COVID-19, both sales and margin increased. On the frozen and chilled seafood, this one is very outstanding. We see recoveries about 11%, and that's supported by the sales volume growth as well. So shrimp and lobster business unit were the key growth. So we see substantial improving in foodservice and retail in Asia and in the U.S. And that's the result of the gross profit margin recovery, very strong to 13% this quarter compared to 11% third quarter last year. So both top line margin expand very strong and, of course, that from shrimp and particularly lobster business. Last is on the PetCare and value-added. Sales increased 12%. We did have the new product launch. We do have the customer base expansion, higher sales of the value-added products. And of course, we have the greater performance of the packaging business. However, for the gross margin, it's lower to 23.6%. That's because of the short-term disruption for the lower cost capacity already mentioned on the temporary factory closure in Songkla Canning in the South Thailand, and also some higher freight costs of PetCare products to impact our trading business unit in the U.S. So if you compare to pre-COVID, we see expanding of top line margin. When we go to the geography, 9-month sales portion increased slightly for North America. So thanks to the recovery of the frozen and chilled seafood business. And the rest of the world, the portion increased slightly as well, that's from frozen and chilled and also PetCare value-added. So North America, I already mentioned, Thai baht depreciation against the U.S. dollar also supports the top line. And of course, we see -- still see the solid performance compared to pre-COVID-19. For the euro sales, it was a decline in organic sales due to lower volume. We see lower volume in France, U.K. and Germany because last year, they have a high base of the pantry loading. In Europe, we -- of course, we have the support from Thai baht depreciation against euro and pound that already support our sales. And lastly, of course, to pre-COVID, we see the strong demand compared to pre-COVID. For Thailand, sales was still down 6% despite we see a recovery of frozen and chilled seafood, but of course, it declined from the Ambient sales last year, a high base last year. So Thailand sales remain challenged compared to pre-COVID-19. Lastly, on the sales in emerging and the rest of the world. Sales in China and Japan grew 36% and 2% year-on-year. That's supported by the frozen and PetCare and value-added business, some slight decrease in the Middle East. So again, this business segment remains challenged compared to the pre-COVID level. So overall, this quarter, we delivered consistent high gross margin. To sum up for you, margin recovery for frozen and chilled business, resilient for the Ambient seafood and, of course, some temporary margin drop from PetCare and value-added business. So our -- this year financial guidance, we adjust only on the CapEx, you can see. This one, we lowered from THB 5 billion to a range THB 4 billion to THB 4.5 billion due to a postponement of CapEx into next year. The rest, we maintain our sales for cash 3% to 5%; gross margin, 17% to 18%. And lastly, we confirm our dividend policy, at least 50% payout ratio. So this is to wrap up our presentation.

And just one thing to add maybe on the CapEx to make it clear. The amount we will get here is net amount. We have in Q3, we sold a piece of land in Thailand for THB 400 million, total THB 0.4 billion. So the CapEx you see here, it's a net CapEx of this amount. So if you want to you have the gross CapEx, you have to increase to THB 0.4 billion. And this is also part of the reason why we are revising down our guidance just to make it clear for everyone. Apart from that, the guidance remains all the same for the full year.

Okay. And that's the sum up for the presentation. Now we would like to open the floor for the Q&A. [Operator Instructions] So now please allow me to read the first question. What do you have for the THB 1.48 million cash from TFM IPO?

So here, we don't have a specific plan for this one. So we are benefiting from this one in Q4. You have seen in Q3, we have an increase of our net debt, so we first use this one in order to reduce our net debt. You have seen also in Q3 that we are open for opportunities for investments, okay? So we always have different projects and different targets to look at. We look at this one, I think specific to share with you tonight that, overall, we will be using this cash income to deliberate our next step on each.

Okay. Next Question. Can you elaborate more on the margin enhancement for frozen seafood? Will in gross profit margin be able to sustain as a result?

I think one of the key difference in Q3, bringing the product business, is we see a lot of recovery also in Asia. If you do remember, in Q1 and in Q2, I told you that the key driver was really the U.S. very strong recovery in Q3. We still have some growth in the U.S., but maybe it's a bit less dynamic than what we had in Q1 and Q2. The key change happening in Q3 is coming from Asia. Asia is very dynamic from a frozen point of view. And yes, we do believe that the positive momentum from the frozen business will continue in Q4, both from Asia and also the U.S. market. I told you at the beginning of the year in Q1 that the margin, especially in the U.S., were really exceptional because we are facing a situation of unbalanced market between supply and demand. And we told you that the situation was not sustainable. For sure, it will stop at one stage. So right now, in 2021, we are benefiting from exceptionally high gross profit margin. However, we do believe this one will continue in Q4. And we do expect some normalization to happen in 2022. So yes, the strong momentum of the frozen will continue in Q4. This is right now our forecast.

More questions on the frozen and Ambient seafood business. We see a recovery of frozen seafood business as well as normalization of Ambient seafood business in the second quarter and third quarter. This can -- will continue in the fourth quarter and 2022 or not? How? Could you give a guidance?

Maybe I take this one also. So the frozen, we already mentioned about this one. And I told you, yes, the frozen we believe will continue in Q4. Will the gross profit margin of the frozen be as high in Q4 and Q3? We don't know yet. It was almost record-high at 13% in Q3. A few years ago, we get back to our numbers. We did achieve 1 quarter 14%. So this is not weak or high. However, as long as we are between 12%, 13%, we are very happy with our present performance. Ambient, we have seen that in Q3, we have again our normalization. It's not a surprise. We told you at the beginning of the year that we were expecting some normalization to happen during the whole year. So what we have seen since Q1 will continue -- should continue in Q4. So overall, we have been enjoying a very nice gross profit margin in Q1, in Q2 and Q3. We do believe it will continue in Q4. Please remember that in Q4, usually, we have a small decline of gross profit margin. This is coming from our seasonality. We are selling in Q4 usually more frozen products and less Ambient products. So usually, you always see in Q4 a small decline on our gross profit margin. However, you have seen that our overall guidance for the full year was maintained between 17% to 18%, and we believe we will deliver the high range of this guidance over the full year. 2022, we don't provide yet with any guidance. We are working right now on the budget. We have some further visibility. I told you we have some challenges and some watchouts and some inflation coming from the packaging, also coming from some oil. So we had to face with this one. We do believe the freight situation will continue in 2022. We expect the situation to continue at least in H1 '22, and we do expect to see some kind of normalization to happen in Q3 and in Q4 '22. Of course, on this one, I want to be a bit careful because I told you in Q4 '20 that I was expecting some normalization to happen in 2021. I was wrong. Nobody could expect the situation will be so long on this one. However, you could see that we were able to face with this one, and we were able to manage the situation in Q3 and in Q4.

Okay. What is the sales store sales growth and total store sales growth for Red Lobster in the third quarter '21 and 9 month '21?

So we don't disclose specific numbers for Red Lobster. I think we are already very transparent with the contribution of Red Lobster, but we don't disclose the sales or the net income or the EBITDA of Red Lobster. This is the same situation since the beginning of the year. What you could see through the numbers we have been communicating, overall, the situation has been completely turned around compared to last year, okay? We are miles away from the situation that we had in 2020. However, we have still delivered a loss, okay? And we are not happy with the loss at Red Lobster. We want the situation to turn around, to be a profit. It will be a challenge. We know it would take some time on this one, but we work very hard with the team there to improve and to turn around the situation and to get back to profit over the full year. It will not be the case in '21. Again, our full year guidance is still between THB 200 million to THB 300 million for Red Lobster. For the full year, you can see over 9 months, we are almost at breakeven, slightly negative for Red Lobster. So it means that the share of loss is expected to be quite large in Q4. Of course, we want to decrease this impact. There are some specific activities happening right now at Red Lobster in order to try to maximize the share of profit in Q4. However, they are always facing with a low seasonality in Q4, and it will continue in '21 and for the next years.

Would it be possible to quantify impact in Thai baht term on your sales and costs from factories closure during the third quarter '21?

So this one, honestly, we tried to do it, honestly, but it's a bit difficult to do. Why is it difficult? Of course, it's very easy for us to give you the impact for 1 factory closure. This is easily -- easy to manage. However, you know we have quite a strong network, and we were able to reallocate some of these volumes of these closed factories to some other factories. So at the end of the day, I don't -- we don't want to provide you with a gross amount because net-net, we have been able to reallocate some of these volumes to some other factories. And the issue we are facing is with the freight cost and the container shortage issue. The situation in the supply chain is overall a bit challenging, okay? So definitely, yes, they have been impacting Q3. We have lost some sales, and we have been delaying some sales. And especially also, we have been facing with some increasing costs in our COGS and also in our SG&A. Why? Because we have to pay some extra bonus for the people coming and working in these difficult conditions. And also we have some increasing operating costs during these conditions, okay? However, again, the key message is we are able to face and to manage this difficulty. And even despite all these challenges, and there were some challenges really happening in Q3, we are able to report a very healthy performance in Q3.

With loss target for Red Lobster in 2021 of THB 200 million to THB 300 million, that means Red Lobster loss in the fourth quarter '21 could be lower than fourth quarter last year of THB 321 million?

Yes. I think this is a very simple math, but I think this is correct. Our ambition is we want them to increase year-on-year every quarter. So yes, in Q4 2020, they did deliver quite a significant loss by THB 321 million. We want them to deliver a lower loss in Q4 2021. Again, it will not be easy because of seasonality. However, we have launched some initiatives. Let's see other numbers. But yes, the ambition is they will be improving. And full year, we have an ambition between THB 200 million to THB 300 million coming from Red Lobster.

Next. Can we assume volume growth recovery for PetCare in the fourth quarter '21 compared to the third quarter '21?

So we told you that in Q3, we have been facing a unique situation with the closure of SCC. At this stage now, all the factories are up and running and are back to normal production. So yes, we do expect to see some recovery in PetCare. One watchout we are still facing with the issues on the logistic costs and hopefully we can improve. But yes, there were some volume being delayed from Q3 to Q4. Now we need to see the situation at the end of 2021. We could face also some delay from the end of the year to beginning of next year. But however, yes, we do believe that the PetCare performance will improve. We do expect that the gross profit margin especially was a bit low. It's very high, of course, but it was a bit low compared to historical track record, and we do expect to normalize this in Q4. Keep in mind that the numbers we have been disclosing for the PetCare and value-added and we are still growing a lot in Q3 despite all these -- despite this closure from 1 factory. So we do believe we are quite happy with the situation. And again, some challenges in our supply chain, but we are able to manage and to face this situation.

Okay. Now we don't have more questions.

No one is raising their hand?

[Operator Instructions]

No hand raised. Any more questions we may have?

Before ending the session, Ludo, would you like to leave any message for the investors?

Maybe just a quick one. In summary, again, we are very happy with Q3 performance. We are facing some challenges, not only Thailand but all the businesses. You have seen the container shortage, of freight costs, the inflation. We have some challenges we face such in Q3. We have some others in front of us, but overall the momentum is really strong for the company and for the group in all our activities. We believe Q4 will follow the same trend. I think we are very pleased, especially with the bottom line. The fact that we have achieved in 9 months almost the same performance than last year over 12 months is very encouraging for us, okay? So we believe the momentum is good. We want to push. We want to achieve a record high year for the whole year 2021. We are very confident. We are working right now on the plan for '22. There will be some challenges. This is life. But there will be also a lot of opportunities for our business, okay? That's it.

Okay. And this concludes the virtual earnings call for Thai Union Group's Third Quarter of 2021 results announcement. Thank you very much for your time and interest in participating in the event today. And we would like to invite you all to join Thai Union Group's Analyst Meeting tomorrow morning at 10:00 a.m. Our CEO, Khun Thiraphong, will also host the event with the company strategy and key development updates. If you have any further questions, please feel free to contact our IR department. We wish you have a good day and night. Thank you very much.

Thanks to all. See you. Bye-bye. See you tomorrow.