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

We want to welcome our analysts and bankers to our analyst meeting for full-year 2022 results. I will be your MC for today, for today's event. We're going to show you CV debt it's outside available for you to try. And the topology-peptide product. CBIA is a strength of ours that allows us to benefit from our ingredients. Today, we have a chef to prepare [indiscernible] and the chefs are using the traditional method. And we have a smoked macro for you as well, for today's agenda, we're going to present our earnings results and we have a Q&A session as well, Horta Union, and then that will be followed by TFM and then [indiscernible], and then we will have lunch together. I would now like to introduce our executives who are here today to present. The first is Mr. Thiraphong Chansiri, President and CEO of Thai Union, and Ludovic Garnier, our CFO; and Ms. Ratinan. And without further ado, I'd like to invite our executives to begin.

Good morning to all of our analysts morning. This morning it seems that we still are waiting for many to join us. Perhaps it's too early in the morning. And I understand that many may show up a bit later today because they're more interested in listening to the results of ITL. I'd like to report our earnings results for the fourth quarter and for the entire year and our outlook for 2023. In the fourth quarter, our sales were quite high, almost THB 40 billion. In the past year, our operations for pet care, the Fed care unit were exceptional, growing by 34 or so percent. Our canned seafood also grew by almost 13% year-on-year. And in 2021, which was also a strong year for us, we outdid that. As for our frozen business, we experienced a drop, especially in the U.S. We have a drop of 13.1% year-on-year. In terms of our gross profit, our margin is at 17.3% and if we consider the restructuring in Germany, our -- if we exclude that, our growth is about 19-or-so-percent. Our operating profit in the fourth quarter has grown by 21%. Our SG&A is at 11.3%, which is more normal. It's returning to pre-COVID levels because of the improved freight costs. And for some of the routes, the costs have gone down to pre-COVID levels. And our freight costs have gone down -- have improved by about THB 320 million. We also have lowered expenses in other areas as well. So that has led to a strong operating profit. Our net profit for the fourth quarter has gone down by 36% year-on-year, mainly due to the foreign exchange, which was very volatile in the fourth quarter. And we also sustained an impact from our share of loss from Red Lobster and our preferred share value adjustment as well. So our net profit is at about -- the numbers you can see on the screen there. We have record-high sales for 2022. Our sales are at about THB 156 billion, growing 10.3% year-on-year. And our share price, we don't need to talk about that. Let's just skip over that because it's not the best, but it was -- yes, it was beyond our control. And our highlight is our net debt to equity. You can see that from the end of 2021, it was 0.99x. At the current moment, after our IT IPO, our overall financial status and net -- in terms of net debt to equity is 0.54x, which is very strong. And I am confident that we are ready, whether it's in terms of new investment or regardless of what the situation globally will be like. Our financial status, we're not worried about. For the entire year, where there's our gross profit, which has gone up by 5.8%. Our operating profit has gone down 2.5%, and our EBITDA has gone down 13.7%. Our net profit is down 10.9%. Nevertheless, there are 2 items that I see as one-off items as our preferred shares for Red Lobster and the closing of our Germany facilities. If we add these back in, our net profit has not gone out at all compared to 2021. So for the entire year, we have done quite well. We're not very worried about anything. We do admit that what we have to improve on is our frozen business in the United States. We had a loss of -- a major loss there at about $60 million. And this year, this should normalize. And the market was weak for branded products in Europe. And our operating results there went down by about EUR 20 million. If we look at our fundamentals of our company at this moment, our net profit should go up to about 9 billion or 10 billion already. And we hope to see a record net profit, a new level very soon. And I want to -- this is what I want to share with you. On the next page, as I mentioned, our adjusted net profit, if we were to look at our Red Lobsters preferred shares, the THB 900 billion that is part made before as well as our Germany -- German factory facilities, if we add those back in, we're actually looking at an adjusted net profit of RMB 8 billion. On the next page, we'd like you to take a look at our dividend policy. We're still continuing to pay -- to follow that policy. The DPS was at RMB 0.44. Our yield, we're not -- our share price was low, but our yield is at 5.4%. And this is -- we just received approval from the Board. We've also received approval for our treasury stock and this was approved earlier, it's THB 3 billion. And at the beginning of January to the end of June, we're going to have our share repurchase program. On the next page, let's take a look at our targets for 2025. Overall, we are still on track, whether it's in terms of our group EBITDA, where we want to reach $450 million to $550 million. In 2021, we already exceeded USD 400 million already. So by the year 2025, we are not worried about reaching our goal. Our organic growth for our main or core businesses, we're looking at 3%. And we actually believe we can achieve 5% or so. Sometimes, we are facing weaker exchange situations. So 3% is not a concern for us. And our productivity, we've achieved 3% for the annual conversion cost improvement. Our productivity, our policy includes continuous investment capital expenditure. We're going to continue to improve our facilities, our warehouse. We're going to seek further automation. We have reduced our labor by about 30% to 40% in Thailand in our shrimp facilities, and we're going to continue on this path. Looking at the fourth item, our revenue from innovation, we will achieve 10%. At the moment, we are at about 7%. And I'm confident that we can exceed this goal. We can exceed 10% by 2025. This year, we have decided to open up an innovation center, one more center in Holland at the mechanic and university in Food Valley. And at the moment, we are in the midst of planning our management there. And we believe by the end of this year, should be ready to focus on branded ambient food and also focus on the late-stage development. Here in Thailand, we're focusing on the early stage or research, and this is what we'll continue to pursue. The fifth item is our turnaround or divest loss-making businesses. This is something we have continued to do. Last year, we closed our chilled factory in Poland, and we also closed Rugenfisch in Germany. So these are our continuing efforts. We have a dashboard to monitor our nonperforming or low-performing businesses. And if the turnaround we could either turn around or divest these. But rest assured, we are closely monitoring these. And the sixth item is we're going to invest $500 million into new or adjacent businesses over the next 5 years. This can include our culinary plant, which is going to be completed. The production will be completed by the end of this year. We also have our protein Hydrolite plant, which will also see the completion of its construction at the end of this year as well. So we are very focused on continuing to invest -- continue to invest. We're going to focus on costs more. And for our new businesses, we're going to look for businesses of growth potential, for instance, pet care ingredients, alternative protein, these are areas where we will continue to grow. On the next page, our seventh item is grown pet care. We want to see a growth of 3x of the GDP. In our fee business, we're looking at a turnaround at the moment, and we believe it is on the uptrend, and you can hear the information from Type mill. There are some raw materials that they're still struggling with, but they will provide more information. The 8th item is scale up our ingredients and culinary businesses. We will continue with this effort as well, and you will be seeing more information and more results towards the end of this year. By 2025, in the ninth item, our new and adjacent businesses are going to contribute more than 1/3 of EBITDA overall. From 2022, we have achieved 1/3, thanks to strong growth and margins from ITL. Our packaging business is not one that we talk about much. We don't talk about that much, but it has strong operational results, especially in Asia Pacific can. Today, it has expanded in Thailand, and most recently, it is manufacturing hands for Sea shells as well. This is the first step for our packaging group the first step abroad and they've done very well in sea shells. And so we're looking at other opportunities in other countries. As for our printed materials, Thai Unigraphics has done well in the past 30 years. It is looking at flexible packaging right now, a joint venture with Star flex. In the tenth item, SeaChange in the third, we're going to launch our SeaChange 2030. And the new topics in our scope are climate change. We've already expressed commitments for 0 emissions in terms of greenhouse gases by 2050. And we are in line with other leading organizations around the world. And as you know, last year, our company was chosen to be first in food products, industry index by Dow Jones Sustainability Index. Looking at the 11th item, our commitment to move to sustainable packaging. By the year 2025, we are on track. We've achieved -- by 2025, we will achieve more than 80% of this target, especially in terms of our branded business, whether it's reusable, recyclable, or compostable packaging, we continue to move forward in our efforts in this area. The 12th item we're going to continue on with is sustainability-linked financing or blue financing. We have already converted 50% of our long-term portfolio to Blue Finance. And our next goal is 75%. And in the future, we see 100% Blue Finance. And lastly, we have driving synergies and profit contributions from our strategic investments, whether this is our joint venture in India, with RBS, or Avanti, we are investing in Mara which produces Augie Oil in Canada. We're going to continue to work with them, we're investing in Iceland. It's not a big investment, but they produce cloud liver, canned cod liver where -- which is a product that has a high demand. It's the Oscar brand, and we own 50%. We have a shareholding of 50%, and we plan to increase that to 75%. So it's not very big. But in Iceland and Norway. These are areas -- these are the 2 countries that have cod liver there, this was a cod liver. And in Iceland, our market share is more than 30% of the global industry. And lastly, we have our CVC, we've invested in a company known as Algoma, which produces ingredients from Augie Oil as well in France. And we have invested in Jellygen, which produces its start-up in Scotland that manufacturers jelly fish-based products Collagen, those are CVC investments. We have flying-spark as well, which produces insect protein, and it has begun its operations, and we have facilities in type that we're starting operations there. And we also have Alchemy, which produces ingredients for diabetic products. And this is what we continue to pursue. Jellyjen, we're looking for opportunities to use Jellyfish in Thailand. There are many opportunities, and we're in the process of studying this and working with the team in Scotland. On the next page, this is Kitao. It has been very successful. And we have -- it's the largest IPO of THB 21 billion. Thai Union is the largest shareholder at 78%. And we will continue to stay at this level. We don't plan to sell off any of our shares. We want to unlock the value of this business, and it has strong operational results and this is a look at our investments, whether it's ITL, which is worth THB 73.5 billion for Avanti in India, which is at THB 5.35 billion and Taiyuan female, which is at 2.5, almost 3 billion. Thai Union's investment in these 3 companies is a total -- is more than the value of Thai Union itself. So this is the information I want to share with you to provide a clearer picture. We already mentioned some of these. We have a minority investment. We've invested in Mara. AG, we have 50% shareholding, and this is -- we're a major shareholder now. Our joint ventures are in India with RBS. We have a joint venture in terms of cold storage with JWD in Samaan. And we have a strategic partnership with shrimp age or the company known as ISH. This is for alternative protein. And our global portfolio, as I mentioned earlier, we closed our plant in Lubeck. It has been finalized, and we sold our facilities in Poland as well -- and gelatin, I already mentioned this, so I'm just going to skip over this slide. In terms of our Sea Change efforts, we continue to strive -- you could be a leader in our seafood space. Sea Change is what differentiates us from our competitors. Sea Change is what will enable us to develop our relationships with our partners, especially the leading companies around the world. This is our strategy that we will continue to uphold. These are just some scores I want to share with you. We have been invited to be a member of DJSI. This is our ninth year. We ranked #1 in 2022 and right #1 in 2018 and 2019 as well. These are our bankers or achievements. We continue to support the local community wherever we have investments, whether it's in Ubuntami. We donated products to those impacted by the flooding. We also are working with the foundation in the states to educate students about food waste and nutrition, we have become an official partner of the British Paralympic Association as the protein partner. This association only chooses one partner in each area. We are the single protein partner. And we have received numerous awards. And then you can just take a look at the documents that you've been given to see the awards. And here, this is about our upgrading from stable to positive by the Japan Credit Rating Organization. And MSCI has given us an ESG score of A. So these are our latest results. And I'd like to hand things over to Ludovic to provide the financials.

Many thanks. Good morning, everyone. Very happy to be with you today. Just wanted to deep dive a bit on our numbers in Q4. And first of all, as usual, we'll start with our 5-year track record, okay? And I think this is one of the pictures where we are very proud. You can see over the last 5 years, we have 12 quarters in a row of top line growth. I think this is a very strong achievement. The gross profit development also is very strong. We told you 5 years ago, we had 11.6% that was horrible that was in Q1 '18. We told you at that time, we focused on really improving our gross profit margin. And now, we have seen over the past 3 years that we are always exceeding 17%. So we are already in the 17% and 80% range, okay. Of course, in 2022, we are a bit impacted. We had a small dilution compared to last year. But the context -- you know the context of inflation, logistic cost crisis. So I think we can be very proud of this performance overall in terms of gross profit. Bottom line, of course, you can see a bit of more volatility. You can see in Q4, we have a drop by 36%. In Q3, it was the opposite situation. We are growing by 31%, but overall, very proud about this journey and this 5-year trip on this one. We have also some good news to share with you on the logistic costs. And I told you it was for me, it was a headache since 1.5 years. So this is excellent news here. We have, first of all, the costs are renormalizing, so we are getting much closer compared to where we were before COVID. That's very good news. You know that we are very exposed, especially for the cost of a container from Thailand to the U.S. The second good news is the lead time. The lead time is also improving a lot. So we don't need that much time now to export from Thailand to the U.S. We are still facing some inflation. Don't get me wrong. Okay, in '23, overall, we are still expecting some further inflation to happen. We have some good news on some packaging, some ingredients, but also some further inflation is expected to happen again in packaging, in ingredient and also in raw materials, I will talk to you about that, okay? So all which have been -- what we have been implementing in '22, we'll have to do the same again next year. We'll have to negotiate some price increase with all our customers. We have to be very efficient and to work towards more automation in our factories. And I think we'll have to reduce our net working capital. Our network capital is too high for the time being. It was explained because the logistic crisis what they have, but now that it is normalizing that will have a positive impact for us in terms of net working capital. So now, if we focus on the raw materials, you can see the tuna price has remained high during the whole year. Very often, we will tell you we have a comfort zone which is between 1,300, 1,400 to 1,700. During the whole year 2022, the Skipjack has been around 1,600 to 1,700 during the whole year, okay? And it was coming on top of the inflation coming from the other packaging and ingredients. We do expect the fish price to remain -- the tuna price remain high next year. And this is only the skip Jack, but we have also some other species like the Yellowfin or the Abaco, which are also very high, okay? So it's, of course, for us one of the challenge because this high inflation on the raw materials is coming on top of some further inflation coming from the ingredient in packaging. Simon, you've seen these prices. We have seen some record-high prices. So hopefully, in '23, we can see some kind of normalization. The shrimp price went up. They have been kind of normalizing, but increasing a bit, but you can see over the last 3 quarters, they are within the range of 150 to THB 160 per kg. Just a quick quarter also on the FX. Of course, you'll see a very strong volatility on the USD in Q4. I do remind you, at the end of Q3, we were at AUD 38 for $1, okay? And we went down to 34% and even 33% in January. Now we moved up a bit. We are between 33% to 34%, 34% to 35% right now. But this is one of the key factors. We have been beneficiating from the USD deterioration in Q1 to Q3. In Q4, we have the opposite situation, and this is why the key driver for our FX loss in Q4, and I will elaborate a bit further. GBP and euro, they have been depreciating compared to the previous quarters, no change compared to Q3 on this one. So next slide, we try to explain to you the FX loss. It's a bit unusual for us to have some FX costs below OP. So we try to simplify. And sorry, I know it's very technical and complex. So first of all, if we look at the table, okay? On this table, we try to isolate 2 impact coming from the FX. We have the first one, which is including the line sales. We call this line sales adjustment, okay? We told you we always hedge the vast majority of our operation, okay? So we do record the impact of the sales hedging in this line of sales, okay? This is the first time you can see in Q4, it was negative by 822. We have a second big impact, which is below the OP, a line called FX game, and the amounting in Q4 is THB 468 million. Here, we do record the pure translation effect. We have some AR, which are denominated in AP, of course, which are denominated in USD every quarter, you have to revalue positively or negatively. So in Q4, I told you we started from 38% in terms of closing rate at the end of Q3, and we ended up the year around 34%. So this is a key driver why we have some FX loss below the OP, okay? The surprise is also our sale adjustment, including the sales is also negative. Why is it negative? You can see here on the graph on the top right, you have 2 lines, okay? The orange line will be the spot rate on average. And you can see it has been really increasing until the end of Q3 and then really decreasing in Q4. And then the blue line will be our hedge rate, our average hedge rate. And in fact, you always have a time line between the orange line and the blue line. So the blue line will always follow the orange line, but with something like 3 to 6 months delay, okay? Because when we do some hedging depending on the businesses, ambience frozen on average is 3 to 6 months, sometimes it could be up to one year. But the blue line, we've always had a bit of delay compared to the orange line. But this is why we have such a negative. You can see in Q4, the blue line is really below the orange line. And this is why we have such a negative impact on our sales adjustment in Q4. The good news you can see, of course, is that not December, they are crossing each other, okay? So the orange line will be decreasing further. The blue line will increase a bit further. So we can expect some more positive news to happen on this part for the year 2023. I think overall, on the FX, we told you we don't try to speculate. We never try to speculate because we have mostly an OEM business. So again, we do hedge the vast majority of our operations. So we are not to be exposed, except if in 1 quarter, you have some drop by THB 4 for $1 or some increase also. Here, we can be temporarily exposed, but I do expect over the next 2, the situation to really normalize. Just to focus also on Red Lobster. We told you also in the beginning of '22, Red Lobster is our key challenge in terms of operation. You can see from the numbers, this remains our key challenge in terms of operation in the U.S. So here, the share of loss on the operation, THB 344 million, okay? Last year, it was EUR 147 million. Keep in mind, last year, we did receive some proceeds from the U.S. government 3 in Q4. So you need to add back something like THB 100 million before tax. So the real number was lost by EUR 247 million in Q4. So we are deteriorating compared to last year, yet the gap versus last year is improving, okay? In Q2, in Q3 and Q1 also '22. We told you the gap versus last year was really huge. We are suffering from Omicron in Q1, the very strong inflation. I think we have been doing all our price increase. We told you we did increase a lot our prices in Q2 and also in Q3, and now, this is effective. Now, we have one challenge, which is a gas count. The gas count attracting more people in the restaurant is, of course, a challenge when you have been increasing your prices and when the country is facing some recession. So the situation is still difficult here. All the other line, the share flows from the lease is the same as usual. The other income, we did not record any preferred interest. We told you that was the case for the whole year 2022, and all the rest remain kind of stable. We told you that we have some covenants at Red Lobster. We have different covenants, 2 of them. First one is liquidity. I think we don't have any issue. In terms of liquidity, the cash situation is okay at Red Lobster, but we have also some EBITDA covenant. So here, Red Lobster has to deliver a certain amount of EBITDA for their quarters. Okay, this is a challenge. Of course, even this performance, this is a situation which is challenging, and this is why we write down that the covenant situation is under pressure at Red Lobster. Remember also that we did provide a guarantee 65-megawatt guarantee in Q3 last year 2022 to Red Lobster, so here if Red lobster is not able to repay the interest for the loan or is missing some of the covenants, then the guarantee could be caught out by the lenders, okay? Just for you to remember, we had a debt which is around $260 to $60 million at Red Lobster. So this is roughly -- this guarantees recovering roughly 25% of this one. So moving on the initiatives. What are we doing? The idea is the price increase are already effective. We did increase also some specific items in Q4, but we didn't do global price increase. The idea is always to try to bring the COGS down, okay? So we have been working on the costs, removing some items on the menu, to really bring all the COGS down. We have been also working on a lot of marketing. One explanation is the deterioration of the performance compared to last year. We have been restarting our marketing expenses. Just for you to remember, in 2020, we cut our marketing expenses to a very low level. This is not sustainable for such a plan. In '21, we started to increase a bit, but in '22, we really increased again. So this is part of the explanation. We want to do much more activities. You know that Red Lobster model is to do a lot of promotion. Right now, they have a lot Red lobsters. You have the picture here on the top right, which is one of the key promotion activity that Red Lobster is doing in Q1. Q1 for them, it's very important. You have Valentine's Day. You have also the land period in the U.S., and this is where we see really an increase of the gas count. This is not new. This is happening in Q1 from calendar year is always a very high season for roster. So the idea is always to cut the expenses to try to be more efficient and more lean in terms of organization. We had also some changes in the structure, in the top management. We did share that with you already in Q3, and this is still active. Something new that we did also in Q4, we did close some of the restaurants. If you know Red Lobster every year, usually, they are closing 1 to 2 to 3 restaurants every year. In Q4, we did close 16 restaurants. So we tried to be a bit more dynamic. It's not an easy operation. Why? Because we have very often some 20-year lease contracts. So we are kind of stuck sometimes with very long lease tires. So it's always a trade-off between the lease fee in the net you would have to pay if you want to stop earlier the lease and also the losses coming from the operation. But this is new. I think it's also a good message for the whole organization that we are really pushing to turn around the business. The idea is real to turn around the business. The situation is very challenging, but we are determined to turn it around. So the guidance for 2023. The loss for 22 was THB 1.2 billion for the whole year, very close to what we achieved in 2020. Very clearly, we're not happy. We're not proud about this for the idea is to reduce the loss at least by 50% in '23. So the share of loss from operation is targeting to be at THB 600 billion for 2023. The impact from the lease accounting adjustments should be improving a bit. It was EUR 422 in. In the year '22, now it will be a bit less than THB 400 million. And remember, the amount will decrease until 2030. And after 2030, it will become a positive amount just for you to remember. The preferred interest, we have a lot of discussion on this one. For the time being, our assumption is to say we do expect the interest rate in the U.S. to continue to increase again in 2023, okay? Maybe it will be a bit less compared to 2022. But for the time being, we prefer to be conservative, so we assumed in our own forecast, no interest from the preferred share from lobster in 2023. We will see how the situation is moving on the interest rate. If we have some good news, maybe it will be possible for us to record anything. For the time being, we prefer to be conservative, and we do not have anything in our guidance from that. I think another good news to share with you is we will end up in 2023, 4 major CapEx projects. And you can see here, we talked already about this one in a few quarters. You have the culinary new factory that we are building in Thailand, the new protein and collagen factory also in Thailand, the Pet Care extension. All the 3 are in Thailand. The last one is a cold storage that we have in Ghana. The 4 investment combined is THB billion investment, THB 5 billion. It's like a yearly CapEx for us. So these are some really major projects. Of course, we had a bit of delay in the setup, but it's under control. And we do expect the commercialization to happen during the year 2023 for all of them. You will not see yet in 2020, a lot of impact coming from this one because you have some ramp-up. You have some commissioning period yet. We are very happy about this one, and this is moving in the right direction. Just a quick one also on the ratio. Of course, you can see here the impact coming from the ITLIPO. We got EUR 21 billion additional equity, EUR 21 billion lower debt on this one. So the net debt to EBITDA is really dropping at 3.67. And very often, we tell you our own internal target is to be between 4 to 4.5. So I think this is a key change. Our balance sheet is extremely strong at the end of 2022. The net debt to equity also our target is to be between 1 billion to 1.1%. Now we're at 4.54,good development here. Of course, we have a bit of negative impact on the ROE and the ROCE impact. Our equity has been increasing. You can see. So that's why the ROE is dropping to 11.1% and the ROCE at 6.8%. I think we have a bit of more work to be performed on the net working capital. You can see we have some improvement overall, it was THB 56 billion at the end of Q3. It went down to THB 53 billion. But I think the normalization of the logistic flows will really help us. We want this number to decrease compared to where we were in 2022. It's too high, so we get a very clear guidance to all our businesses to see this one dropping on this one. Our net debt bridge, you can see we have a strong EBITDA in 2022 at THB 13 billion. We are a bit lower compared to last year, but we are in line with 2020 year. Our CapEx at EUR 5 billion is fully in line with our guidance. It's under control. It's a net CapEx. Remember, we did a little bit of assets like in -- Poland, I can't -- mentioned. We had a dividend, which is THB 4.4 billion, and then we had the THB 2.6 billion proceeds coming from ITLIPO. There is one box that we don't like, which is THB 7.2 billion net change in net working capital, okay? So this is the key impact we had again to face in 2022 with an increase of our net working capital. We want to see some positive impact from this in 2023. Of course, it's not easy to achieve when you are facing some inflation, but this is clearly our direction. Very quick one on this one. We can see here the overall situation by currency and also the maturity, the maturity has been improving overall. We have been repaying some debt with some proceeds from the it. You can see also the exposure in terms of fixed fraught interest rate. We have a vast majority, almost 65% of fixed interest rate. So we are still a bit exposed to the increase of the interest rate. But overall, I think it's fully under control. And now, I hand over to Koji to go through the business performance.

Thank you, Ludo. I'd like to show you that our core businesses are usually 3. But since the fourth quarter onwards, we have 4 categories. And this is -- you can see that our value added in pet care. So you can see how our value add in the Pet Care have grown. Our ambience food is still the majority at 42%. Frozen and chilled has dropped compared to the year to 2021. The contribution is down to 36%, and Pet Care is doing very well for our total group. In 2021, it was a 10% contribution. And in 2022, it grew to 14%, and value-added and others continue to grow as well, and their contribution is now at 7%. For the full year, you can see that we have diversified our businesses significantly even though there was a period where some of the businesses were softer, but overall, our top line has reached a new high of THB 155 billion. And our value-added others are at 33%, quite strong, MPC 76% and percent increase. Let's take a look at our Ambient Seafood now. You can see that in 2022, the growth was a good number compared to the fourth quarter of 2021 is grown by about 13% or so. And we adjusted prices -- we have higher selling prices. And for some countries, sales have dropped temporarily. For instance, Germany, U.K. and Italy. But in France and in Asia and in the U.S., this has -- we've seen growth there offsetting that drop in the other countries. So our MPC sales are still healthy. Private labels are 21.5%. We have our portfolio adjustment and some of our customers have switched from buying banner products to buying our OEM products in some periods. For the full year, you can see that our ambience seafood has grown very well. Even though last year, we had recessionary concerns and inflationary concerns with our ambient seafood we're seeing strong demand. And this is protein that is not expensive compared to other kinds of protein. And our canned food or pouches, those are shelf stable, that can be kept for long periods of time, and consumer behavior has changed from eating out to cooking in. And they saw our ready-to-cook and ready-to-eat products are doing very well. In the past year, Chicken of the Sea in the U.S. was rebranded a major rebranding in 20 years, and we have modernized the logo. It is more attractive to consumers. It looks cleaner as well. It's easier to read. We have also redesigned the website to make it user-friendly customer-friendly. And in 2023, after 2022, we faced inflation and high raw material costs. We expect in 2023 to adjust our prices higher in this early part of the year, we believe we will be able to cope with the increasing investment costs. Looking at our frozen business, last year, in 2022, it was a soft year for the frozen products. And this has been offset by strong sales in Europe. We saw a drop, particularly in the U.S., offset by strong Southern Europe and the volume dropped mainly from our feed business decline. If you look at the fourth quarter, the gross profit margin, we have a significant recovery from 6.4% or 6.6% to almost 9%, which is almost normalized. And in this year, our margin for Frozen will be a key driver. For the full year, the sales have dropped because of the drop in volume, even though we did have some favorable exchange incident, what TU is doing is we're trying to uplift our margin by increasing new products, whether they have higher margins, which are ready-to-eat and ready-to-cook. Looking at the right-hand side, you can see examples of these from Red Lobster. These are new frozen retail products that have been launched in the U.S. in over 5,200 stores. They are available off-line and online. You can go to Red Lobster, the website to see these. And this is to capture a new customer base as well and also cater to our existing commanders demands as well. As  from the end user, we are expanding to premium dining, whether it's hotels, restaurants or catering, we are partnering with leading restaurants to launch campaigns like BabcPlaza; and Tamachad itself, Tamachad seafood has new products. There's Japanese soyas and Teriyaki saws. And this has increased the product line that is available for our customers. And I may not see much about paid care because we will have the PetCare session later on today. But we want to show you that the sales have grown significantly by 34% or so. And this is thanks to the higher selling prices and a greater volume of 32% and our gross margin is at 23.3%. Our guideline was 25%, but we had the one-off impact from our recruitment expenses at about $66 million. And we also had higher labor costs from the minimum wage increase. The growth is in line with the fourth quarter. It's gone up by 48% year-on-year, and we are on target. Progress of the March or gross on margin, which is about 26%. We are looking to uplift our margin for the PetCare as well. We're going to launch new products, functional benefits that have functional benefits, for instance. And in the fourth quarter, they have also established a new company in China and in the Netherlands. And as you know, in China, that is the fastest-growing pet care market in the world. We have partnered with 2 online platforms there. And in the Netherlands, this is to capture more of the European market because they have a high contribution to pet care globally. And  there's our ESG focus, and we're looking at sustainable packaging. And lastly, our value-added business. This is a mix of many categories. The biggest category is packaging and value-added and also value-enhancing new value-enhancing businesses that we have just started, which are supplements, alternative protein and ingredients, for instance, the sales for the fourth quarter dropped down a bit from the fourth quarter of 2021 because of the product mix and our gross offer margin is still strong at 27.3%. And the majority of the contribution is coming from packaging. The demand is high for this and TU itself, we have increased our exports to Poland and seashells and we have adjusted our portfolio according to customer behavior from large cans to smaller cans. This is our full year look. We're still growing 15.6%. Gross profit margin is at 28%. And the key drivers are packaging, as you can all see on the right-hand side, we have expanded our exporting to Poland and to Sea shell. We have -- the products are focusing on convenience and sustainable packaging and for the value-added business, we're going to have a culinary plan that will be finished by early this year. And this will handle our value-added products ready to eat, and some rice noodle [indiscernible], and our various sauces. We now got once our culinary facilities are ready, this will support our business and improve our production capacity. These are value-enhancing businesses that we just launched. The first is the ingredients, which has grown quite well. We started with Tuna oil and expanded to salmon, cod liver, and vegan Elgi Oil, we have invested in Mara in Canada. And last month, we joined hands with algorithm ingredients and the subsidiary of Mara, which is producing omega-3 for MicroAge, and this is to be a replacement for fishmeal. In terms of Zeta, it grew very well last year. It's on target, which is THB 200 million per year, and they have a goal of more than 70% growth this year. And we have partnered exclusively with Watson. We have partnered with Lazada and Shape. And in the past month, Zeta was listed in 1 in more than 12,000 branches of 7-Eleven. We have collagen whitening, anti-acne products, and the pouches are $49 per pound. So we'd like you to try those out. In 2022, the growth may not be that significant yet because the market is still looking to grow, but we are focused on alternative seafood. We have shrimp and crab. That's where we're going to start without alternative seafood. We're going to cocreate with our own brands, what OMT meat or John West in the U.K. and we're going to build partnerships through our CVC investments, whether it's Alkami, Algoma, for instance. And this is what will drive our margin for TU. And in the last part, I would like to invite [indiscernible] to provide the guidance for 2023.

In 2023, for the management, we continue to be conservative. We will monitor the economic situation globally, whether it's in the States, in Europe, for instance, our sales, our guidance is at 5% to 6% year-on-year. And we're going to be looking at the Thai buy value. We're looking at our base is THB 35 at the end of the year last year. And we have a mark down below. You can see that we have an impact -- estimated impact on our top line of 0.7% to 0.8% for everyone to U.S. dollar change. Our guidance for gross profit margin is 18% to 18.5%. We are still confident that we can develop to our -- we can reach our 20% target by 2025. In terms of SG&A, we are looking at freight costs, which have lowered. So our guidance is now 11% to 12%. As for interest, the interest rate, we believe it will increase from 0.5% to 1%. This is our cost of funds because of the rising interest rates around the world, our CapEx will be RMB 6 billion to THB 6.5 billion. And our dividend policy, we will continue to be at least 50%. That will be our dividend payout ratio. What will help us to achieve better operational results will be mainly our frozen business in America. We believe that it will normalize within this year. And from last year, if we look at from last year, we're looking at USD 60 million more. In Europe, we believe we will reach our target. We're looking at EUR 20 million. These are the buffers that will help our operational results. In terms of our net profit, it should grow more than our top line growth because we have room for improvement. We have significant room for improvement. The raw material increases the tuner prices, we believe it will be at a level that is not worrisome. Currently, it's at $1,600, and the prices are dynamic. And in the first quarter, the raw material prices are low. And in the second and third quarter, they will increase. And in this year, the prices started out quite high from the beginning of the year. And this is the -- one of the reasons in its remarked remarks about a softer first quarter, mostly from first the higher tuna prices Consumers may stock our products, higher stock of products at home, whether it's our ambient or frozen foods due to the just logistics. So they are ordering more than usual to prevent a shortage. So in the first quarter, we're looking at a lowering of stocks because the freight costs are normalizing. And at the same time, the higher fish prices in our first quarter have led our customers to take a wait-and-see stance. This is the dynamics of the prices. And our first business, it's -- I don't see anything that that we need to worry about. In terms of PetCare, we'll hear from our PetCare group later on today. They have plans to have double-digit growth, continuous double-digit growth and their margin, they will maintain a high margin to reach the targets that we have set. For 2023, I see this as a year that will be a good one compared to last year. Last year, we faced 2 or 3 issues and those that impacted our operational results, making them not what we wanted. Thai Union in 2021, we had THB 8 billion in profit. In 2022, even though it was a year personally for me, all of us here, the managers were under management, we're not happy with the year. But our top line grew by 10%. We are strong. I think what we've presented it shows strength. We want the -- our analysts to see that we have our strengths. We are ready to handle any situation that we're faced with. We don't want you to be concerned with the raw material prices going up and going down, prices go up and go down all the time as it's part of life. So there's not much to discuss yet. As for the Thai ban., sometimes it's been a 28% or 29% to the U.S. dollar. It's now down to about USD  32 dollar and analysts, the Thai bodes appreciated is too strong. I just want to reemphasize that whether -- no matter how high the but appreciates Thai Union will survive. And we will be the last if it's so strong, the tapas so strong, we will be the last standing. The raw material prices don't worry that they will run out. The prices of the raw materials, it's -- the prices are 1,200 to 1,800 that's the range. So this is an acceptable range. Our investments in automation, our margin continues to improve -- at this moment in time, our financial status is so strong. Our financial position is strong. So we're quite confident and our IT IPO is a successful milestone. We are ready to look for new investments. And we are reactivating our M&A team to be more active, and we want to take a look at what is -- what we should invest in, what would be worth investing in? What would lead to a good return. And so that's what I'd like to share with you. If you have any questions, please, we're happy to take you entertain your questions.

If anyone has a question, you can raise your hand, and our team will take a microphone to you.

I'm Charti Phrawphraikul. I want to ask about Red Lobster. A bit more, if you could explain this year. your loss will go down by 50%. Can you share after this year and onwards, do you think when will it break even and what year will at breakeven? And what are the criteria, if it doesn't reach this breakeven goal what will you consider? Are you going to consider exiting the business? Or how are you going to deal with this problem in the future?

We've told you all along, and you can see that Ludo here has shared information with you. He's been very transparent, very detailed so that all of you can see the real picture because the real situation, let's not consider the breakeven. Let's just get past the third and fourth quarter for them. And we've said many times USD 60 million EBITDA in the third quarter, 30% in the third quarter, 30 in the fourth quarter, added together, it will be 60%. That's what we want to achieve first. We don't have many more months left, and we'll see what happens. So let's take a look at the trend. It's getting better. We're monitoring it very closely. We have daily monitoring. We have to get past this milestone first. If we can achieve an EBITDA of $60 million for the next 2 quarters for quarter 3 and quarter 4. And our next goal will be the entire year at USD 80 million to USD 100 million. Our breakeven rent last year will be at about 120 plus. And if we can achieve that, our options are not many. There's the exit option, selling out. We're selling off, that's clear.

Thank you very much. And I'd like to ask about the preferred interest rate for Red Lobster. In the future, are we looking at a book of booking of profit or you're not going to book the interest here anymore?

You recall the prior interest. It's a fair-value calculation, okay? So every quarter, depending on the interest rates, you do on fair value calculation, of course. You've seen during the year 2022, the interest rate went up. So basically, the fair value did not increase. So it was not possible for us to recover anything. Right now, you see from our guidance here for 3, we do expect the same to happen, okay? Because we do expect the interest rate to continue to grow again in 23. It's a bit conservative, okay, in terms of Intesa assumption. You know also that in '22, we were expecting something like THB 1.2 billion in from this, we get nothing. So of course, we prefer to be a bit conservative in 2023. So right now, we are seeing no preferred interest. But if there is some improvement on the interest in the U.S., we may be able to recall something in the future. But right now, our guidance for '23 is no preferred interest.

I'm [indiscernible]. Your PetCare, you're going to let them talk later today. Your guidance for sales of 5% to 6%. If we take a look at the Ambient business, last year, it was 13%. Your sales growth of 13% this year, what numbers are you looking at? What are your numbers going to be? And in terms of frozen last year, it was minus 2%. What about this year? You want to recover from what you discussed earlier. What are you looking at in terms of sales growth?

Dynamic categories for us would be bed care and value added, no surprise next year. So they will be the key driver for the 5% to 6% on average. I think the ambient we are still putting for some growth also next year, but in '23. In '22, we do achieve already a very high top line. Of course, part of this one is coming from inflation. We don't expect the inflation to be that high in '23 compared to '22. So you will lose a bit of effect on this one. So still genetic some growth on the ambient, but it will not be exceeding this guidance for the ambience. Frozen is a different story. We told you in 2022, there was this normalization impact in the U.S. We are rethinking also a bit of our business in the U.S. We are reconsidering that we want to be active in all the categories we are doing right now in the U.S. So we are doing right now songs to say which one are we profitable, we want to invest. You have also the cost of the net working capital, which is increasing. So we are doing some kind of rationalization. So we're not planning for a high growth in terms of -- for the whole frozen category next year. So that should be the lowest in terms of growth compared to all the other categories.

So the frozen business, we're now looking at the top line, we're looking at the bottom line. And in the states, our company, we don't want to see more growth. If it grows anymore, it's already $1 billion, it might be too big. Right now, we're reviewing every business that they're doing, and we want to do rightsizing. That's our aim.

And could you explain -- so the frozen business is looking at minus 2%. And looking at target for sales growth, you're looking at the margin last year, it was about 7.7%. And this year, it will have increased. Will it get better from what you said the first in business in the U.S., it should recover. Is that right? And so can you provide guidance on your gross margin for the frozen business this year? How much will it be? What percent?

In 2023, for the business to really recover. I think we will not be able to get back yet to 2020 numbers in terms of percentage, but we will normalize. -- mediation will happen in Q1 and Q2, you can see really in Q4 '22. It is improving compared to Q2 and Q3. We do expect continuous improvement in Q1 and in Q2 '23. So overall, over the whole year '23, we do expect a strong improvement of the gross profit margin. Beginning this was one of the key driver for our gross profit to go down in 2022, and we want to see this one improving. Again, the key factors are the Frozen business in the U.S. You will hear also our feed business, our feed business has not been doing well in '22. We want them to improve in '23. We have also in this north business in Europe, our Chile business has been impacted by record high price from Salmon in '22. So we do expect for the components the Fluent business to really improve in '23. At least one maybe watch out, which is our frozen business in Thailand has been extremely successful in '22. We want to deliver the same performance, okay? And that would be kind of a challenge because the performance was extremely high in the year '22. But the key driver would be really the frozen business in the U.S.

Okay. Regarding to the sales by quarter-quarter in frozen products in the first quarter of last year, it's the lowest one sort of thing. In the first quarter of this year, we will be a lot better than last year.

I think what Kontron mentioned is, overall, we do expect in all the categories, some sales which are a bit softening in Q1. What we can see is we have one good news, which is all the logistic costs are improving, that lead time also is improving. But the impact is right now of our customers, they want to decrease their safety inventories. And right now, in all categories, they have some inventory. So we do expect to have overall a softer Q1 in terms of sales, but we catch up after in Q2, Q3, and Q4. We do expect it to be only a one-time during the whole year. And this is why for the whole year, we are targeting for this 5% to 6% in top growth.

Okay. Go back to Red Lobster. Could actually, the first quarter should be the best quarter for the year. Do you think this quarter, Red Lobster will have a profit or not?

So in Q1, you're right. Normally in terms of sustainability, if you look at the track record, it's always the best quarter. Again, we have many promotions, the lobsters is happening during that time. We have the vantage today tied, we do 3x a normal day. We have the land period. So we do expect to have a strong EBITDA. This is one of the key challenges we want to face -- are they going to be profitable? We don't know yet. We will see on this one, but the numbers are very encouraging, okay? But it's a challenge over the next month and quarter to confirm and to deliver the EBITDA that we have to deliver as per the covenant. It will definitely improve the equation is tell breakeven. Definitely, it will improve compared to the last year because we had Omicron in Q1 last year.

Look at the first quarter or third quarter last year, it got to be better because last year, it was hit by COVID or -- okay?

Are there any other questions?

I'd like to ask about the new investments before this, you're lowering debt. So can you share what you want to -- what regions you want to invest in and what businesses you want to invest in, I would appreciate if you can provide more information.

Of course, today, the Ambient and Frozen businesses, those are -- we're not interested in those. If it's lower margin, we're not interested. We're looking at businesses that have great growth potential like PetCare, our pet care team. What potential do they have? Second is the Ingredients business. We have invested and we have partners, and we're going to review what we should do, what more we should do. We have the flavors, and ingredients. These are things we'll look at and also our related culinary businesses. We don't have a clear answer for you right now, but I wanted to know that we are starting to look at these very seriously. After the past 3 to 5 years, those were not -- these were not priorities. But today, our M&A team has been reactivated and they will review the businesses that will be considered interesting, that would decide on what is interesting, and that's how we will proceed. I'd like to ask for EBITDA for Red Lobster, if we look at 2021 to 2022, what are the numbers for EBITDA?

Specifically, the EBITDA numbers. I think it was kind of a surprise for [indiscernible] to share some stuff. Usually, we try to avoid. It's one of our specific components, and we never disclose any specific components like this. Sorry for that.

I'd like to ask about the gross margin targets. They are better than last year, right? The drivers, which segments do they come from? And what is the gross margin improvement for all of your sectors? Is that what you're looking at? Or is there anything that's special?

So here are a few things. First of all, we are expecting some improvement from all categories. The key one will be the frozen business, okay? The frozen is really the one which was dragging us down in '22. We do exec normalization. Again, in 23, we don't expect to be back to normal, normal during the full year, but we need to be on good packs on this one. Would you expect the ambient to improve care, you will hear a bit more from the team and then value-added, we are planning from further growth. Keep in mind also that in our numbers in '22, we had the impact of the restructuring that we did in Germany, okay? We don't expect to have some large string happening next year. So that will be a negative one-off, which will not impact us next year. So they will be all the key drivers across all our categories.

Normally, we achieved 18% to 18.5%. That's normal for us. So this is not a force margin that requires much from us, in fact. And what has done well, what is normalized and we have the one-offs. We don't have any more of that. So we're looking at this level for gross profit margin.

And I'd like to ask [indiscernible], you said earlier, I wasn't sure if I heard you correctly or not. You said the operations that disappeared, and we're going to normalize them from the U.S., the frozen business at USD 6 million, and you have your OEM branded EUR 20 million in Europe as well. You can normalize the numbers this year. What are you looking at raw materials, which were odd before, but they've normalized? Or is there something you're going to do to bring -- to lead to normalization?

From Cotton to say right now, our frozen business in the U.S., it's our largest operation. It's a $1 billion type of sales, very close to $1 billion. So this one, we are really reviewing the categories. And we say we are ready to downsize it the business, okay? Because the top line is very strong, but the bottom line is a pure trading business. The bottom line is not very strong. And of course, in '22, Contango mentioned, we had some losses happening in the frozen in the U.S. So this is really this business that we want to review. We will go next month to the U.S. The whole management team of Optane will discuss specifically about this topic. So this is a key operation. In terms of ambiance in the U.S., they have been doing well in 2022, we don't want to change anything. In terms of PetCare, they have been doing extremely well. So it's only the frozen business in the U.S. where we say, okay, we want to review all the categories and we want to see if we want to continue to operate in all of them or not.

The frozen business is normalized because last year was very unusual. In logistics, there were issues logistical issues. People in the market. Everyone was stockpiling. And in 2021, it was a very good year because it was on the uptrend. And on the uptrend, people bought and bought, and then in the beginning of the year, the market crashed. And so we believe that from this point on this year, we're going to be looking at a more normalized situation. There won't be any hoarding. Our partners have ordered so much and the entire market, they're behaving the same way. The raw material prices due to inflationary pressure, it had an impact. So this is based on normalization. There's nothing out of the ordinary we're running out of time. So if we could have one or 2 more questions.

And I would like to ask a little bit about the inventories. So I see that approaching Q4 the inventory position in the days has dropped. And I just want to see what are the key drivers to such drop in 4Q and some forecasts going into 2023 about the working capital change.

I think you are correct in Q4, you see a drop of our inventories. You are trying to do this already since Q1 and Q2, okay? We are not happy at the end of Q3 to have this very high level of inventories, EUR 56 billion for us is pretty unusual. I think we did identify the few businesses where we had too many inventories. The Frozen business in the U.S. was one of them. Europe also was another one. in Q4, we managed to decrease our inventories there. So we have been selling some of inventories in the frozen business in the U.S. is dropping. Europe also has been dropping a lot. We're expecting a bit more, but this is happening. And I think also our Perales have been very strong. So the inventories also in terms of pet care have been dropping in Q4. We shared also at the logistic timeline are improving. So here, basically, our customers need less safety stocks, okay? So in terms of one of the driver. We don't need also the same safety stocks because overall, the logistic situation is improving. At the end of '22, we are not back to normal yet. We are on the way to not to normalize everything. So we do expect the situation to continue again in '23. We will benefit from further normalization on the logistic flows. We told you also that the lead times decreasing, there will be less safety stock required from our customers but also from ourselves. And we are not yet at the end of the story for U.S. business in the U.S. and in Europe. So there will be some further improvement there. So that will be the key driver. Of course, we need to adapt our production facility, and this is our rollout day-to-day role to always try to adapt our manufacturing footprint and to make sure that we are running the operations very efficiently.

And one last question, please. Sorry, can I ask one more? On Red Lobster? Yes. So there are now currently USD 260 million of debt on Red Lobster. And as we all know, you have provided $65 million guarantee back in August. So do you foresee any increase in rent loss of debt in 2023? And also, under what kind of conditions you would consider or you would consider like increasing the guarantee to Red Lobster?

So here, for the time being, we are not talking about increase in net debt. I think the cash situation at Relapse is quite good. So there is no plan to increase further the net debt over the next few months. We have some cash forecast from them. We'll get this one, they would be able to pay the interest. There is no issue with this one. Again, there is no issue in terms of liquidity. The trigger point will be they're not able to pay some interest to the lenders. As I mentioned, it is very unlikely to happen, but they have also to meet certain criteria. Could you mention this one over the next few months. They have to deliver this one and the they're a bit stretched considering their recent performance. And indeed, if they don't meet with these criteria, then the lenders may be able to call for the ground to be executed. If the grant is executed, it means that union will have to provide $65 million to Red Lobster. Red Lobster will use this money to repay a portion of the tent, okay? So at the loss side do not change anything. But so far, in terms of cash and liquidity, we don't plan for any change in the short term at Red Lobster. Of course, we watch out very carefully the situation. You understood this is still the key, the key concern in terms of operation for us.

Question from online and online questions, here.

I think that it's a good question. I think you've seen in our P&L that in the full year 2022, we had a tax credit, not a tax expense tax credit, a very unusual situation. Why? Of course, the key explanation are the losses coming from Red lobster. You can see here the fact that we did not record any preferred interest also are Red lobster, and also our frozen U.S. operations have been generating some losses. So all of this has been generating some tax credits, and they are basically offsetting the tax expenses that we get in Thailand or for Europe from our normal operation. I think for '23, we don't provide specific guidance, but we will get back to a more normal situation. So we do expect some -- to have some tax expense happening in '23. You can see from Red Lobster. You can already try to estimate the tax credit. They will be decreasing coming from the U.S., and we told you also the frozen business in the U.S. We are not planning for any loss next year. We are planning to be at breakeven plus next year. So the amount of tax relate should reduce. Our operating profit should improve. So we get back to a tax expense situation overall, which would be kind of our normal 5%, 6%, 7% that you have seen over the past previous years before 2022.

That should be up for the questions and Thai Union Group. We'd like to say thank you to the analysts today and the fund managers and all of the bankers joining us. Thank you again, and we'll have a 5-minute break, and then we'll have the ITC session. Thank you.