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

[Interpreted] Welcome to our analysts and fund managers to the Analyst Meeting for the fourth quarter of 2023. For today, Thai Union has the Thammachart Seafood products out in front, we have our salmon sausages and [ happy ] rolls for you to try as well. Before you leave, don't forget to take our select tuna products home with you as the souvenir from our event today. For today's agenda in the first half, we will share our operating results, and we'll have a Q&A then we'll have a 10-minute break. And afterwards, we will begin with Thai Union Feedmill. I'd like to introduce our executives who are here today. The first is Mr. Thiraphong Chansiri, the CEO of Thai Union; and Ludovic Garnier, the Chief Financial Officer of the group; and Ms. [indiscernible], the Assistant General Manager of Group Performance and Controlling. And without further ado, I'd like to invite the executives to begin the presentation.

[Interpreted] Good morning to all of the analysts and the executives of the financial institutions joining us today. We're going to share our fourth quarter results with you and the full year as well. If you take a look at the numbers for the fourth quarter, you can see that our sales were the highest in the past year. And if you take a look at the numbers, the indicators, the various indicators, you will see that they demonstrate a recovery of the business that is quite clear. The first half of last year, we experienced a dropping in sales significantly due to destocking of students in every category. And in the fourth quarter, the high sales are mostly due to our frozen business. It's a seasonal thing and also the PetCare products. If you take a look at our numbers, we have grown quarter-on-quarter at 4.8%. And this is a growth for quarter-on-quarter from the third quarter. It is mostly thanks to the PetCare business that grew by 20-or-so percent quarter-on-quarter and also our first business that grew 8%. For the entire year, if we compare year-on-year, our sales went down by 10.3% due to 2022 being a high baseline. And our PetCare business year-on-year went down by 17%. Our frozen business went down by 13.3% due to the lower sales volume, it went down by 8.2%. Nonetheless, this was offset by value-added products and other businesses that continue to grow at 7.2% year-on-year. Our gross profit margin in the fourth quarter was at a level that is very acceptable at 17.8% compared to the year before, it went up by -- our gross profit quarter-on-quarter went up by 1.5%, but dropped down 7.9% year-on-year. This is mostly because in the last year, we had [ volume ], whether it's in terms of tuna due to the higher prices, which led to an impact on consumption and PetCare was the same, dropping in sales and our costs went up. And this impacted our profitability. Voiding profit went down year-on-year by 8.1% just a bit. But at the same time, our margin is in a good level at 6.6% in the fourth quarter. Our net profit compared to the year before, went up a bit quarter-on-quarter, it was up by 3.1%. And year-on-year, it was up by 0.4%, and this is mostly the net profit. The growth part of it is from the foreign exchange, we compared to the year before, we had a foreign exchange loss in the fourth quarter. And this is an overview of the fourth quarter for the last year. If we take a look at the next page, you will see that if we take a look at the bridge for net profit for last year in the fourth quarter, [ it was over ] THB 1.2 billion. If we restate this from our dilution from i-Tail, it will go down to THB 1.14 billion. And this is to compare to the fourth quarter for this year. You can see that our gain for foreign exchange was over THB 500 million and operating profit went down by THB 186 million. This affected our net profit, making at THB 1.243 billion. On the next page, this is a look at our numbers that are important from our announcement to divest our investment in Red Lobster. We have booked THB 18.4 billion, a onetime in the fourth quarter, and this is a booking of the impairment, 100% of the impairment. So there's no need to worry or doubt if there are going to be any other recordings of this, there will be no further recognition for Red Lobster. We have applied the IFRS at 5 and this is to discontinuing our operations for sale. And Red Lobster at the moment, we're in the process of selling and the sales price, if we have a gain, we will book it. If we don't have a gain, then there is nothing to put us in any negative or red territory. So we're not expecting to get anything much from the sales. So we don't need to expect any onetime gain from Red Lobster. Red Lobster is considered zero from this point forward since the fourth quarter of last year. And you can see that our transaction, this transaction even though the number was quite high, it's a noncash transaction and the impact on our balance sheet from0.65x, we expected it to be 0.84x. But after the fourth quarter, after we closed that, the number was at 0.78x only. So you can see that the balance sheet is still quite strong. And this is why TRIS has maintained our rating and has not adjusted our rating and we are still able to talk to our bondholders. It gives us leverage with our bondholders. We've been able to waive the exclusion that we've been able to exclude the impairment from the 2023 net income, and this has been well accepted. And there are 4 bonds. We have 100% approval for 2 bond sets, and we needed approval for the other 2. And so this is something that we've been able to get through quite well. And moving on to the next page, you will see that we are still able to continue to pay our dividends and at THB 0.24 per share. And as explained, this is a noncash item that is not impacting our business or our operations at all. Our business if we do not include the impairment from Red Lobster, then we still have profit despite the fact that compared to the year before, it is a bit lower, and it might be the net profit that is the lowest in the 10 years past. And you can see that overall, our balance sheet is still strong and we still have ability to pay our dividends continuously at the same rate. And on the next page, if you take a look at our new products, you can see that our business continues on. We have King Oscar, a new product, which is a Patte, it's in a tube form. And then we have a plant-based tuna product with Poland under the brand Goddess Laguna. We have Select in Thailand, which has launched a new shrimp-based product. Thammachart Seafood also has launched its salmon sausage and i-Tail is launching a new wet dog product known as Marvo. We also have awards and recognitions, as always. What's noteworthy is that we have been voted as the product of the year in France. And this is a product that we have promoted. The sourcing of this product, which is Douarnenez in Brittany in France, and it's been well received and something else that is important is that we have been accepted as a member of the Dow Jones Sustainability Index for the tenth year consecutive year. And sustainability is still something that we continue to focus on. On the next page, these are -- this is another -- other activities of ours. This is to protect the environment and to support the communities where we are located. It's part of our healthy living healthy oceans initiatives. And now we're going to take a look at the financial results. And I would like to hand things off to Ludo to report further. Thank you.

Good morning, everyone. Very happy to be with you today. So here on the financials, the key takeaways of Q4. So first of all, the Q4, the top line, we are back to growth compared to Q3, okay. So we are delivering with 4.8% top line growth compared to Q3. There are 2 key drivers, 2 key categories for this one, which are the frozen business and also the PetCare business. So if I want to focus first on the frozen business, I think we are growing by 8% quarter-on-quarter. This is kind of usual, the frozen business in Q4 is always quite strong. We have one good surprise which is a level of gross profit margin. We achieved an exceptional 14.3% gross profit margin in Q4. And [ Khun Yi ] will elaborate where it comes from. This is exceptional, you shouldn't expect this to happen every quarter. The PetCare also is really recovering. Since Q3, we have some positive momentum on the PetCare. Maybe some of you attended the i-Tail presentation last week, but we are back to growth here by 22% quarter-on-quarter and also the gross profit margin is exceeding 23%. So also very positive news coming from the PetCare business. The exit from Red Lobster, of course, this is one key event of the Q4. We did impair the whole impact, I will refer to this after just to make sure you understand the bridge we have been providing a bit earlier. But the key message for you is to say even after the impairment. Our balance sheet remains extremely strong, okay. We have a net debt to equity, which is far below 1. So we are extremely comfortable with this amount. We did receive very positive news from TRIS and also a very strong support from the bondholders. So overall, it went quite smoothly. One thing also that I want to highlight in Q4 is a very strong cash flow generation, okay. So for the whole year, we have been generating cash flow -- free cash flow of THB 7 billion, okay. Which is one exceeding 100% in terms of cash conversion rates. Very happy with this one. This is a result from different things. Our EBITDA, of course, is a bit lower compared to expectation but our CapEx was well managed and also the net working capital is really under control in 2023. If you remember in 2021 and 2022, we have been investing something like THB 14 billion in our net working capital, in '23, it's almost stable. So I think it's a very good news and it's a very good management. If I move to the 5-years picture. So here, you have the development on the net sales and gross profit margin. And you can see the last 2 quarters, the gross profit story is very interesting, okay. We are always in the range of 18%. So 18.4% in Q3 and then 17.8% in Q4. The top line is still dropping compared to last year, 10%. This is what Khun Thiraphong mentioned, on this one. But overall, the traction is improving, and we are moving in the right track. We just wanted to get back also and to provide a bit more color because, of course, our top line dropping by 12% is a huge change compared to 2022. So here, you have the key drivers for this drop. So we dropped overall by 12.5% over the whole year. There are different components in this one. There is a first component, which is the i-Tail business, okay. The year 2022 has been exceptional for i-Tail. In '23 the baseline is normalizing. So this is 4% at Thai Union level. The next one, we told you also we wanted to rightsize our U.S. frozen business. And you remember, the U.S. frozen business, this is our largest OpCo in terms of revenue, okay. So this is minus 2% for the top line in 2023. At the end of '23, we are not completely done with the rightsizing, meaning there will be some further impact in 2024, and we will elaborate in our guidance. But there will be again something -- a bit of negative impact coming from the U.S. frozen rightsizing, but we are very close to the end now. We have seen also some very strong deflation in the frozen business. The shrimp price went down. And of course, we had to adjust down our prices, and this is 1 -- minus 1.5% impact also from our sales. The freights have been normalizing in 2023. So we had to adjust also down our prices, and this is minus 1.4% in our top line. Then we have the box, which is called Middle East, okay. And Middle East, for us, it's a very important region. It's not a very profitable region for us, but we do sell a lot of volume to this region. And we have some countries like Egypt, where they have been facing with some USD shortage issue. They have some deflation of the local currency and they cannot have access to the USD. So because of this, we lost some business in '23 because of that and this is 1% at group level. And then we have the last box, which is all the other native for 2.6%. It's a combination of the packaging business, the ambient and all the others. But we just wanted to explain to you again they declined by 12.5%, it's a huge change compared to last year, but box-by-box, I think we understand the overall picture. Also in '23, we took some very strong decisions. And now we are really fit for growth, I will say. And we just wanted to recap what we have. There is no new news here, but just for you to understand what we have been doing. So first of all, we have been closing some operation. We have been closing one factory in Germany, we told you it was effective in Q2. 2023 is part of all, our Rügen Fisch, our ambient business, and we have been consolidating 2 factories into one factory. And we believe, moving forward, we will be much more efficient now in Germany. We have also been closing our frozen operation in China, okay. It's a very small operation. So we don't talk a lot about this one, but it has been the loss making over the past few years. And now we know we have some very specific action plan for each of the loss-making business. On top of this, also, we have been rightsizing some of our businesses in Thailand, like our supplement business, our domestic ambient business, our chilled business, also, all of them, we have been rightsizing the structure just to make sure that we have fit for growth. The last part on the right, the U.S. frozen business, we already mentioned about this one. This OpCo was performing a top line between $900 million to $1 billion of revenue 2 years ago, and now it could be between $600 million to $700 million. So it helps our top line at group level, but we believe it will be beneficial for our profitability because this business has a low profit. And then we have natural source strategy 2030, okay. A very strong analysis, what we want to do moving forward. And as part of this one, when we have different initiatives to review our cost structures, the way we want to operate to review also the loss-making business and when we want where are the avenues for growth, okay. We don't talk today about 2030, you will hear in the next quarters once we are completely finalized with analysis, but we can expect some more things to happen in the next years on this front. And the goal is always the same to be really fit to have a lean structure and to be fit for growth. And just an update beginning with freight prices. And we told you the year 2023 was excellent from this point of view, the freight prices have been normalizing much quicker compared to our expectation. There is, of course, one watch out in Q4 at the end of Q4. We released the Red Sea issue. In our Q4 numbers, we hardly have any impact, very small impact. Maybe we had a bit of delay in some of the deliveries, maintenance costing, gross profit margin, selling price, almost no impact because it happens really during the last 2 weeks of 2024 -- 2023. However, it's a watch out for us. Why? Because it means the lead time is expanding a bit by one or 2 weeks, okay. And you can see also the prices, you can see here the prices in January '24, they increased a bit, okay. So we are still very far away from the record high prices we had at the end of '21, beginning of '22, okay. Nothing comparable, okay. But watch out for us, we want to watch out carefully the situation. On the bottom, you can see some numbers related to the inflation. I think overall, we have some good news, okay. The inflation rates are trending down everywhere. You can see here in the U.S., also in Europe and also in Thailand, we even have some deflation in China but this is a positive news because it has been putting a lot of pressure on the business over the past few years. Just a quick update on the FX. You can see in Q4, the Thai Baht has been increasing versus USD but has been losing a bit versus Euro and GBP. But overall, we are kind of comfortable with these rates. On the fish prices, you can see the tuna prices went down very significantly in Q4. You can see the average is around $1,500 in Q4, and you can see also in January, something around $1,400, okay. Very positive news. We're extremely happy about this. We have been losing $500 in 2 quarters, okay. So this is brutal. And we always told you that when we are facing such a high decline on the fish price, our profitability of our ambient business is penalized, okay. Why? Because we have to adjust down our selling prices, while we are still operating, processing the fish, which is a bit expensive, okay. So it takes usually one quarter, 2 quarter and then after we get back to normal, we will elaborate on that -- on this one. The salmon price is still high. They're increasing again in Q4. This is normal. This is the high season. And you can see in Jan also, they are increasing. We don't expect to see the same inflation that we have seen in 2023, but the salmon price do remain high. And the shrimp price, you've seen they've been very soft for the whole year 2023. And in Q1, they are increasing a bit, but they are still in the comfortable zone. So just a quick update on Red Lobster. And I think this is the last time you will see this slide. So first of all, regarding the performance in Q4. The share of loss of operation is THB 450 million. The share of loss from the whole year is slightly exceeding THB 800 million, okay. So this is a bit higher compared to our guidance of THB 700 million that we gave at the end of Q4. So the losses are a bit higher compared to our expectation. A few things on this one. I think in terms of top line is doing okay. They are still facing some challenges in terms of profitability. Again, we are not happy with this decision, and I think it showed that we do the right decision to move away and to exit from the business. So overall, you can see over the whole year, the share of loss from operation was THB 800 million, THB 818 million, and the share of loss from the accounting was THB 400 million, okay. So the total contribution of operating loss [ minus share of ] loss for THB 1.2 billion. I just wanted to get back one second, if you don't mind, to the table that we had at the beginning. If we can get back to the Slide #6, please. Just to make sure that you understand this one. So here, you have 2, table. Okay. On the left, you have the Q4 numbers. On the right, you have the full year numbers, okay. So what we -- and we commented the full year numbers to make it easier. What we call normalized numbers, these are the numbers you should compare to. These are the numbers comparable with 2022, okay. You don't have any impact of the impairment in this column. You don't have any impact of IFRS 5, okay. So really, please refer to these numbers. In this number, you still have a share of loss from the loss in Q4, okay. So the THB 400 million I just mentioned, this is included in the line share of profit, okay. So this is really comparable to all our historical numbers. Please refer to this one. And this is what we call normalized numbers. And then we do 2 things. The first thing is we do fully impair Red Lobster, okay. And we mentioned that the impact is 18.4%. And you can see here, this is the 18.4% you can see, okay. This line should have been regarding the line other income, okay. Normally, in a normal business, okay. This is the one thing. We fully impair everything and the impact of the impairment is 18.4%. But then we do a second thing, which is we do apply IFRS 5, okay. What does it mean, IFRS 5? It means when we decide to exit or to discontinue one business, you can reclassify all your flying item in one specific line at the bottom. Why do we do that? Because in next year in '24 when we compare, you will compare with the baseline '23, which will be reclassified and where all the items which is Red Lobster will be isolated in [ line ] discontinued operation, okay. So you can see here, we do reclassify thanks to this IFRS 5, we do reclassify the 18.4% below, okay, at the bottom. And we do reclassify also the THB 1.2 billion share of loss I just mentioned. The whole contribution for the year of Red Lobster is being reclassified in this one. So the $1.2 billion is not an additional impairment. This is just the year we had a 12-month share of loss coming from Red Lobster, okay. So when you combine the two, this is 19.6% okay, 19.6%. You have two components, the impairment of 18.4% and then the share of loss from THB 1.2 billion, okay. There is one topic that we have not been able to reclassify, which is all the tax credit coming from Red Lobster. And we have very long decision with our editors. From my point of view, it would have been easier to reclassify also all the tax credits from Red Lobster in this line, discontinued operations. They did not accept this one, and the argument is to say we will use this tax relief in the future, which is indeed a good argument. But for the P&L comparison, it will pull you a bit next year, okay. So keep in mind, everything from Red Lobster is being reclassified to this line discontinued operation. This is what we call the [ zero ] line, except for the tax, okay. The tax is not being reclassified, okay. So I hope this is clearer with that. So I just get back to the number slide, I just have one more, 2, few more slides. So here, we talk now about the ratio. Here, we have some few good news, okay. First of all, the level of inventory is decreasing in Q4, okay. We told you this is really one of our focus. And over the whole year, the inventory are declining compared to last year and compared to Q3, which is good. You can have a look also at the net debt to EBITDA, okay. The net debt-to-EBITDA, the comparable number is 4.64x, okay. However, after the IFRS 5 reclassification, once you remove the share of loss from Red Lobster, the numbers become 4.19x. So I think it's a much better number, and the idea is to continue to improve further in 2024. The net debt to equity, as we mentioned, you can see it's increasing to 0.78x in Q4 but this is still a very comfortable zone. You know what we call the one between 1:1. This is our comfort zone. We don't have any issue being lower compared to this amount. So if I move to the net debt bridge, you can see the net debt has been increasing between '22 and '23, okay, from THB 47 billion to THB 51 billion. Again, the free cash flow has been quite good. In 2023, this is THB 7 billion. You can see the EBITDA was THB 11 million, the CapEx was really under control a bit below THB 5 billion. But the good news is you don't have any negative impact from the net working capital, okay. If you look at the same range for 2022 and the same one for 2021, we had a huge amount of our free cash flow being invested in the net working capital. In '23, this is not the case. We are stable. The ID 24 is to have a positive impact from that and to have a decrease of our net working capital. And then, of course, we have been paying all the taxes, all the interest and the dividend. This is normal. This is happening every year. And then we have been investing in 2023. We have been investing some additional i-Tail shares. It's not a new topic, we have been buying back also some Thai Union shares. But if you remove all these investing activities, then our net debt will be flat. If you remove all the investments we have been doing in 2023. But overall, very strong financial statements. And lastly, you can have some update regarding our debt. You have the key components by currency, also by maturity, by currency, there is no big change compared to last year is very comparable. And then by maturity, you will see there is one thing which is specific, we have the bonds we talked about, okay? This is THB 12 billion. We have to present these bonds at the end of December in current, okay. Why? Because at the end of December, we don't meet with the covenant criteria. We know that last week, we get the consent from the bondholders, okay? So this amount at the end of December is in current in March, it will be classified to noncurrent. It's a bit weird, it's a bit confusing from my point of view, but these are the accounting standards and we cannot do anything against that. And now we leave it to Khun Yi to go through the business performance.

[Interpreted] And now I'd like to talk about the business performance. From our group profit for 2023, the contribution from Ambient Seafood is 47%, and this increase in the year before, which was at 43%. And the frozen and PetCare, their contributions went down. Frozen is at 35% and PetCare is at 11% and value-added contribution is at 7%, which is the same as the year before. In the pie chart down below, you can see the split between our branded and OEM, you can see that for the Ambient Seafood, branded is higher than OEM at 57%. And OEM is only 43%. And for the other 3 groups, the majority comes from OEM. And if we take a look at the growth in terms of our product lines, to the right-hand side, you can see for our sales, it went down by 12.5%. And if we compare to the year 2021, it went down by 3.5%. And it's only frozen that went down by 19%, and this is a result of our strategy of rightsizing for the frozen business in the U.S. And the 3 other groups, their sales went up, Ambient Seafood went up by 8.4%, value added been up by 9.9%, and PetCare went up by 2.7%. If we take a look at the Ambient Seafood Group, RCLs for the fourth quarter at THB 15.069 billion but our sales are basically the same, but not that different from the quarter before. And our gross profit margin is at 7.4%. And you saw in previous slides, tuna prices in the fourth quarter, we were at about USD 1,500 down from the quarter before, which was at USD 1,800. And we'll see a reduction in the price in October, November and December and on to January of this year. And we can see the demand for OEM growing since the middle of the quarter. If we look at our gross profit margin, you can see that it's 17.4% again, and this is due to the drop in the tuna prices because we still have a stock for products at higher cost, and we need to adjust our selling prices to reflect the price of tuna at the current time. And this is information by quarter going back 7 years. If you look at the blue line, you can see the average -- and if you look at the other line, you can see the gross profit margin line. And in the fourth quarter of 2023 in December, the price was highest at USD 2,300 in October 2017 and it went down. And our gross profit margin went down to 14% due to the high due to the peak of the tuna prices. And for our ambient seafood overall, we have sales of THB 63.9 billion, and the gross profit margin is at 19.4%. This went down a bit compared to the year 2022. This is because of the [Technical Difficulty] continuing for 3 quarters. And we see the impact of OEM demand. Another factor that is affecting our sales for the Ambient Seafood segment is the freight revenue where we had impact from the normalization of shipping prices and in terms of our strategy, we'll continue to develop our products, and we're focusing on newer innovations. Do you continue to be a leader in the market? And for 2023, we continue to have product development in the U.S. and in Europe. And we have products under the brand, King Oscar, expanding in the U.S. market and salmon under King Oscar has it's higher sales at #2 in the market. Let's take a look at our cold storage in Ghana. It's all -- the construction is almost completed, and we're getting ready to open to commercialize in the next month and we expect a positive effect from this because we'll be able to reduce our costs. In our frozen business, the sales are at THB 12.05 billion. And the sales have increased by 8% quarter-on-quarter. And this is due to our salmon products that are selling well during the festive season. If you take a look at the gross profit margin, you can see that it went down quite high to 14.4%. This is an all-time high for us. For the entire year for the frozen business, we have sales of THB 47.03 billion going down. Sales dropped 17% year-on-year. This is due to rightsizing in the U.S. and it's a price deflation and the shrimp prices also went down by about 50% compared to the year before. There are also other products in the frozen business like crab meat and snow crab where the market prices went down as well after they reached their highest peak in 2021 and 2022 due to demand from the foodservice segment. In addition to our rightsizing in the U.S. that we talked about, we also have strategies to develop our other businesses, such as our feed. We have a portfolio rationalization and we have increased the contribution of the higher-margin products, and we've reduced those of lower margin. For instance, we have increased the sale -- the products for seabass feed which have a higher margin than other fish feeds. And the gross profit margin is quite high and acceptable at over 10%. And this is thanks to our rightsizing strategy. In terms of PetCare, we have a drop of 17% year-on-year in the sales for PetCare. And you can see a growth that is high thanks -- at 22.5% quarter-on-quarter. And this is a 2 quarters in a row that we're seeing high growth and the gross profit margin has gone -- is at 23.4%. The demand for our products that we're seeing returning in every market, whether it's from the U.S. or Europe and also other markets. We also have the strong effects, good effects, positive effects from our partners or joint ventures with them, our partnerships with them. And we are seeing more demand for the products that will be on sale in the next quarter. For the entire year for PetCare, the sales are at THB 15.06 billion, and sales dropped 30.6% year-on-year. The main reason is the lead time in the shipping, which has gone down, and it is normalized. So customers do not need to have a higher stock as they did before, and this has affected us in the first half of 2023 before we can see the performance improve in the second half of the year. In terms of our new factory, it has a trial run already, and we expect commercialization to begin in the beginning of 2024. After we finished construction of the factory, we expect our products to increase by 18.7%. And for the distribution channels, we have the products at Mr. DIY that has more than 700 branches, and we continue to expand in other sales channels. As for our value-added products, the sales were at THB 2.7 billion, and this is about the same as the quarter before. If we take a look at the volume, it went down by 17.8% year-on-year. And if you take a look at the year before that, the sales went up 7.3% in terms of sales. This is a result of increased demand for [indiscernible] and value-added, [indiscernible] and bakery products as well. And the gross profit margin was at 26.2%, which is at a very satisfactory level. The overall picture for the value-added and other products is at THB 9.9 billion, and the gross profit margin is at 27.1%, that went down a bit. Sales dropped by 5% year-on-year because of packaging and because of the ambient business. And we still have sales that increased thanks to our ingredient and value-added RTE products that offset the sales drop in packaging. The gross profit margin is at 27.1%, and we're seeing more positive impact because of packaging the products of steel and aluminum have gone down. In terms of culinary, we have our non-halal products. We started in October 2023, and we're going to -- we expect the halal plant to be completed by the end of March in 2024 and our production capacity to go up by 38%. We have our college in hydrolysate production line as well and should be commercializing in the second quarter to be able to handle or cater to the demand from new customers. ZEAVITA is still #1 in the market. And we just launched our plant-based tuna product under Laguna. And then we have our outlook. In terms of our outlook for 2024, we expect that our revenue will continue to grow, will return to the higher levels and we'll continue to develop in a positive way. In the first quarter, we expect softer landing. And nonetheless, our revenue will pick up in the second and third quarters. Our top line growth is a bit low at 3% to 4%. Our assumptions have led to these numbers. And they're not as high as you may want, but we have our raw material prices for tuna, which was at USD 1,800 per ton in 2024. We see expected prices to be at USD 1,700 per ton for tuna. In the first quarter, the raw material prices have gone down to USD 1,300. And this could be because of the chilled storage, they're full, they're at capacity. And this might be an impact from chicken as well. Production is adjusting upwards and the use of fish may not be as high as needed, but not as high to meet the fish that is being delivered to the ports. So the prices are -- we're seeing more pressure on the prices. And we believe this is a good thing. The prices of fish have gone down ,tune has gone down, and this means we can sell more, and we can increase production as well. And the second thing I'd like to point out is that the foreign exchange rate last year, we said it at 33%, 35%. Last year, it was 35%. And so our analysts, you may see -- you might decide what exchange rate you'd like to use and this will affect our THB profit numbers, making them lower, and we have our rightsizing which we will see the impact this year. These are 3 factors that have affected our target growth to. And our sales we've set them at the only 3% to 4% year-on-year. Even though our PetCare, we expect to grow by no less than 15%. Nevertheless, we will continue to try to be conservative so that we don't disappoint you. Our gross profit margin is set at 17% to 18%. And our SG&A is 11% to 12%. And our tax rate is increasing 0% to 0.5%, CapEx is in a lower range because we invested much already. If you remember, our CapEx is usually at THB 5 billion to THB 6 billion. But this year, it's only THB 4 billion to THB 4.5 billion. In terms of our production capacity, we have enough capacity for every category. Our factories are always ready and our dividend policy continues to be the same, at least 50% dividend payout ratio, and this is the guidance for 2024. Thank you. If anyone has any questions, you can raise your hand and post your question.

[Interpreted] Red Lobster in Thailand is still open. So if you're interested in going for a meal, you can. It will continue to be open. I'd like to ask about the value-added business. The new factory that you opened at the end of last year. Right now, what is the utilization rate? What percent? And what you're going to open -- the additional opening, will that -- how will it affect the utilization rate? And for this group, what is the outlook for 2024? What product will be the growth driver for your value-added business?

So maybe I can have this one. So here, I think you are referring to the new culinary factory that we have been building. We have different components in this factory. One of them was commissioned at the end of Q4, but this is at the end of Q4. So you almost have no -- very little contribution. I would say, in Q4 and you have some other parts that are supposed to be commissioned in Q2, okay. So in 2024, we expect to see some ramp up, but the impact will still be small also from this one. The key products that we will make here, it's a combination of very different value-added products and dim sum and a lot of things that we are producing also in culinary. So 2024, it will be a ramp-up, okay. It is the first time we will be running the factory. So we don't expect a lot of top line, bottom line coming from this one. But then moving forward, '25, we do believe really that in the long term, that we'll be a very strong component of the growth of our business, okay. But for the time being, '23, small contribution, '24 top line will come. It will not be fully utilized yet. So then it will grow up and then '25, you will have the full effect of the new factory.

[Interpreted] It's a new factory, so we need to audit domestically and also a foreign audit. So it will take a bit of time. And the production capacity for this factory will allow us to be able to produce more, 2x what we're producing right now. And our 3 older factories we had bought and put them together in one and this new factory will enable us to stress and elevate our business and our customers to be able to capture more global level customers like McDonald's, for instance, and the growth from -- you'll see growth in 2025 onwards. This is our plan.

[Interpreted] And another question I have is about the gross margin that you said at 17% to 18%. Can you break this down in terms of business groups? Where are you expecting the higher margin compared to 2023 or what business group, the margin be dropping from 2023?

I think no surprise. You had PetCare expectation last year, the PetCare gross profit margin will be one of the highest. We are expecting all gross profit margin to recover compared to 2023. The ambient business will recover compared to 2023, but not that much. One of the priority we have for 2024 in the Ambient business is to recover the volumes, okay. You remember, over the past 2 years, we had to increase a lot our prices. in '24, we have less pressure coming from the fish price, which is good. And in some countries, we may be able even to decrease our prices. So the priority is to regain some of the volume we lost in the ambient business. So we are still planning the gross profit margin for the ambient to increase a bit, but not that much compared to 2023. The frozen business, I think we told you we are very positive on this one, you can see over the past 2 quarters. The gross profit is very interesting. So it will grow further in 2024. Again, don't expect we are generating 14% gross profit margin every quarter. This is unusual, we have some reversal of inventory also in this Q4. So the target will be something between 11% to 12% moving forward. So improving also for the frozen. The PetCare you heard through the i-Tail analyst meeting, they are targeting '22 to '23, again recovering compared to 2023, okay. Value-added, there will be different components on this one. It could be kind of flat because right now, we have some negative impact at the beginning coming from the new factory that we have. We cannot expect to deliver the same kind of gross profit margin. So maybe this one will be kind of stable compared to '23. But overall, you could see 2023, we end the year at 17.1%, gross profit margin for the whole group. The guidance is 17% to 18%. Of course, we want to end up in the high range of the guidance. We don't want to have to end the low range of the guidance segment we want to be a bit also conservative here. But we are expecting all the businesses to recover in '24.

[Interpreted] The overview for 2024 should improve in every category, their raw picture. For the Ambient group, our volumes should grow and our production will increase 10% to 20% for the frozen business. And thanks to our U.S. rightsizing, our margin overall should improve. And for the PetCare business, we expect a growth as well because of growing sales and increased volume. Therefore, their production cost is lower as for TFM should also improve in the future. So every group every business of ours, we expect that this year, we will see a recovery. It may not be like in -- before COVID, but we expect to see an upward trend. Are there any other questions here?

[Interpreted] I'd like to ask about the target for this year in terms of your sales. Do you expect to see a 3% to 4% year-on-year growth. You mentioned a bit about the impact of rightsizing from your frozen in the U.S. And this year, will we see this in the first half as well? And have you factored in the sales that are disappearing from the U.S. from the frozen business? And the second thing is in terms of sales. I want to ask the CEO about the first quarter. It might be softer, right? Is this a [Technical Difficulty] cause, making it softer year-on-year? Because you have a 3- to 4 year-on-year growth target and you expect the sales to disappear for the entire year for the first quarter. Will we see the year-on-year growth yet? Or what factors are causing things to recover slowly. Does it have anything to do with the Red Sea?

So I'll take care of this one. So a few things on the sales. So you're right, we have an overall guidance, which is 3% to 4%. We do donations that are very exciting. Okay. It's very exciting. There are different components for this one at group level. First of all, the FX will be negative. This is our plan, okay. The average for 2023 was around 35%. Our budget assumption for the USD is around 33.5%. Just this change is costing us 1.2%, 1.5% of growth. Are we right for getting this to 33.5%? We don't know. We will see this, of course, next year, but this is a component which is there. There is also the price deflation, okay. The fish prices [ Khun ] mentioned this one, the assumption for the whole year for '24 is around 1,700% compared to 1,800%. I told you also we are planning to decrease our prices in some countries, if we can. There is one thing which is not improving. It's the situation in Middle East, okay. We told you in 2023 that we have been facing with some shortage of USD in some countries. We don't see that situation improving in '24. So for the time being, our assumptions for the Middle East is the situation will continue in '24, and then we either benefit from any upside coming from this one. And then the frozen business. We do most of the rightsizing already in 2023, okay. The vast majority is performing '23. However, we had some commitment with some customers for 2 years. So you will see some tailwind also from this one in 2024. So if I go by category, for the group is 3% to 4%. The Ambient will be, I would expect between 2% to 3%, slightly below in terms of -- compared to the overall group numbers. PetCare, you heard they are targeting 15%. The frozen business will be almost stable, okay. Why will it be stable? Because we would expect our U.S. frozen business to be growing a bit in USD, but to be almost zero after the impact of the FX, and then our Chile business and the Feed business should be growing a bit, okay. But the frozen would be kind of stable this is what we're expecting. And the value-added also will be growing a bit, okay. And this is why you have overall this 3% to 4%. Agree, it's not very exciting. We want to be conservative. Also, we missed the guidance by far in '23. So we prefer to be a bit conservative for 2024.

[Interpreted] For tuna in the first quarter, the prices have come down quickly. And so the sales prices have to go down first. And the volume it hasn't been impacted yet. So this is a timing thing. When the prices go down, then we will see promotional activities, more promotional activities, we'll see this in the second, third and fourth quarters. So in the first quarter, we're going to suffer a bit and I think that actually, things are better, but the first numbers we're not going to push too much because you will receive too high of a guidance. And then it will be too exciting, and then we'll have to adjust. So we have adjusted. So it's about soft. But let's wait for the next quarter. The first quarter has come down significantly. And we didn't expect the fish prices to come down so much.

[Interpreted] All right. It sounds like the first quarter, we see the sales impact, it might be because of the sales price. But I'm not sure whether the volume right now, if we compare with the first quarter of last year, what is it like? What's the comparison? And the second thing is your margin, you have a range of 17% to 18% for this year. The question is for the fourth quarter, the prices of fish have gone down, it's about [ 18 ] and so the numbers that you have for the margin, are they too conservative? Because in the first half of this year, we should see a margin improvement, thanks to the lowering cost.

I think, yes. So in Q1, we are planning to have a growth -- top line growth overall at group level, okay. However, it should be below this guidance, this is what we do expect to see. As Khun Thiraphong, mentioned our profitability will be a bit penalized in Q1. So when we say softer Q1, it's mostly from a profit point of view. But in terms of top line, we should target some growth to happen in Q1, but the growth rate will not be impressive, I believe it would be below our guidance. This is right now our expectation. And then after in the next quarters, Q2, Q3, Q4, you will see some continuous improvement on this one. And I think this is mostly related to our Ambient business. We told you when you have -- when we had one specific graph on this one. When the fish price is declining like this and in January, it continues to drop further, we had to adjust our selling prices straight, okay. But remember, we have depending on the location, 3 to 6 months of fish. So of course, we have to process this fish. So we're not processing straight, the cheap -- fish on this one. So this is just a normal impact on this one. There's nothing to worry. Q1 is always a low season for us if you compare historically, but we just wanted to give you a watchout on that from a profitability point of view.

[Interpreted] Operation capacity has increased already. Right now, it's increased. And you can see that it's not less than 10%. It's already picked up by the end of February. And we want to have more fish so that we can have more for sale. The price of fish right now, tuna is USD 1,300. So we want to buy more, we want to have more, but we don't -- it's part for us to find storage. It's difficult to find storage, even though we would like to has more fish, more tuna.

[Interpreted] And one more question about the Red Sea. The situation in the fourth quarter, it might have had a small impact. But up to now, we see the development of the Red Sea in terms of your sales volume. You have adjusted prices, including the freight cost. Can you tell us about that?

So here, the key impact for us from the Red Sea is just to see the delay to be a bit longer. So we lose one to 2 weeks, okay. We have our factories in [ Seychelles ] very close to this area and also some of our sales from Thailand going to the East Coast of the U.S. are going through that. So we see it's a bit longer. Yes, we lose one or 2 weeks. And yes, the cost has been increasing a bit. So yes, we have to increase a bit, our selling price is absolutely correct. How long will it last? These, we don't know at all yet. And again, it's really not comparable to the situation we have been facing 2 years ago. Okay, 2 years ago, it was a horrible situation, which last 1.5 years. Now it seems to be much more under control, okay. But it's a watch out for us, of course, because we know we could see that the situation can change quite quickly on this one. So here, we say nothing to worry for the time being, but we are middle of February. We don't see a drop in the volume, not at all. We don't see that happening. But just to watch out because we know it can move quite quickly with a global issue.

[Interpreted] My question is we saw 4 projects, new projects that will come in the second quarter, how much that we should estimate for the depreciation? Or are there like overhead costs that coming into second quarter onwards? Is that -- how much are we -- I mean you already factor in the gross margin assumptions for this year?

So I think for the PetCare, I think they did share the numbers. An impact of 200 million batches for the PetCare factory, which is the largest CapEx that we have, okay. And beyond those, it will depend exactly on the date of commissioning, okay. Something like the cold store is not commissioned yet, okay. So this will come a bit after. So I would assume it's something between THB 300 to THB 400. If you add all the 4 projects together, but you won't have yet the full year impact in 2024, okay. So it would be something between THB 200 to 400 million. It is part of the guidance, of course. Yes.

[Interpreted] And then in this assumption, do we have -- actually, because of we have to trial and for maybe one or 2 quarter do you have -- already have like the lineup of the customer demand in the second half of this year? Or should we expect like the commercial -- the real commercial run in fourth quarter this year. How could it be delayed for the revenue recognition from the external customer?

Yes. So we do have always a ramp up, okay. So when you open a new factory Khun Thiraphong mentioned, you have deep process. You need to have all the customers visiting the factory and then agreeing with the factory. So we are in this process. Right now depending on which project you are talking about. So you always have a ramp-up, like the culinary. I mentioned about, you start with very low volumes. And then quarter-after-quarter, it just keep increasing. So in '24, we won't have yet the full year impact of these 4 projects. We won't have, okay. But we'll have the beginning of the round up, okay. The PetCare will start, the culinary will start, also the cold store. Cold store is a different story. We don't produce, okay. We just have some fish coming into the inventory. So this could be up and running. We assume in Q2 or Q3 already. But on the rest, yes, you will see some pickup in the volume, mostly starting in Q3 and in Q4.

[Interpreted] Our cold storage is a cost reduction. When the coal storage is open, we don't have to rent. Our rent will go down. And for the other factories, we're moving on gradually. This is in our guidance already. We'd like you to know that our production capacity is sufficient enough. If there is any case where anything unexpected. For instance, we have higher sales unexpected, we are ready to increase our production capacity. But right now, for instance, the PetCare, the factory -- the new factory, their production capacity has gone up, but their guidance is at 15%, right, of growth. What if it goes up to 20% or 25%? In terms of capacity, it's enough. We have enough capacity to handle higher-than-expected growth or sales.

[Interpreted] What about Red Lobster, the case where they may -- the business may drop, the raw materials that you are sending them. Have you allocated -- are you managing your raw material sourcing for Red Lobster?

[Interpreted] For so many branches, 500 or 600 branches, we are only sending them shrimp and the value is not that high. It's not that significant because we're only selling the value-added items to them. And according to our plans, once we exit on Red Lobster, we will be able to sell to other brands more easily. So we will continue to look for new customers and at the same time, Red Lobster right now has no plans to reduce its number of branches. You said 150 to 200 branches will drop, right? No, that's not in their plan. The plans they have right now. The banks want them to continue on but in terms of selling the business as is we're doing that as fast as possible. So there are no plans.

[Interpreted] I'd like to ask a few questions. The first question is, could I have the assumptions for the fish prices for 2024?

[Interpreted] USD 1,700. As I told you, USD 1,700, that is what we said last year -- at the end of last year. And if the fish prices are at USD 1,700, then their gross margin that will improve. We know that in the first quarter, the gross margin may not be that great, but that's all right. If it's going to improve, when will we see the improvement? If it's going to improve, it will probably be in the third or fourth quarter. We have to take a look at the prices adjusting upwards. Right now, they're addressing downwards. So we're buying fish in a cheaper price. If you see the [ general ] prices go back up to USD 1,400, USD 1,500, that is when the margin will improve.

[Interpreted] Isn't it, right now -- right now, the price is at USD 1,300? Analysts, we had the market to USD 1,400, USD 1,500, we expect the gross profit margin to turn around, right? And the second question is about the tax for Red Lobster this year because of last year, I'm not sure if I understand correctly or not. The tax credit for Red Lobster, it's significant, sizable. If this year, you expect to sell off your shares, but you don't sell, will you still have this tax credit? What should the tax rate be for this year?

So in '24, we don't expect to have any tax credit coming from Red Lobster. We don't, okay. So we expect starting in Q1. We stopped recording any share of loss from Red Lobster and we stopped recording any tax credit, okay. Even if we said if we don't sell, we don't expect any more upside coming from this. There was a question with editors regarding what do we do for the 2023 tax credit, okay. This one are given. We have them, we own them. Nothing will happen even if we sell them, we are able to use them moving forward. The only point is moving forward and starting in Q1 '24 we don't plan to receive any more tax rate from Red Lobster, okay.

[Interpreted] And what if the revenue 6.5%, what tax will you have to pay?

[Interpreted] The tax will be, if it's abroad. If it's revenue from Thailand, we won't have to pay any taxes because we have BOI privileges. In the guidance, we already said that we expect the effective rate to be higher by 0.5%.

What is the interest rate?

Yes. For the tax rate, we assume we get back where we were before Red Lobster, okay. Meaning we have an effective tax rate of 6% to 7% overall at group level, okay.

How much tax rate, again, effective tax rate?

6% to 7%.

6% to 7%, okay.

This is an average of Thailand, where we have very low tax, okay. The U.S., where we have 25%. And Europe also where it is moving depending on the country between 20% to 30%. So if you look over the past few years, before all the tax rate from Red Lobster, it was always something between 6%, 7%, 10%, let's say, of the profit deferred tax, okay. So we do expect in 2024 to be back to a situation of tax expense, okay. The last few years if you look at the overall P&L, we have a situation of tax credit, which is very unusual, which was only linked to Red Lobster. '24 we don't have any more Red Lobster, so we don't have any more of this positive tax impact. So we get back to a normal tax expense situation.

[Interpreted] Coming back to the Red Lobster exit, I'm not sure when you sell Red Lobster, what's the situation right now? Do you have any interested buyers?

[Interpreted] Right now, we are in the period of preparing information, the data, the process is once we are ready, then we will hire an investment banker and the investment banker will find potential buyers for us, and there will be a bid process. And this will probably take 3 or 4 months, but this has no effect on us. Actually, we should stop talking about Red Lobster altogether because the full impairment is zero. We have it at zero. So once it's -- because it's already zero, and we don't expect any gain, we have not -- we have no provision for gain, it's a zero. So Red Lobster is done and over with. Just waiting for the sale to happen, but we do not expect any value to be gained, any significant value to be gained. So we'd like everyone to...

[Interpreted] I have one more question and -- 2 more questions about Red Lobster. The first is, I'm not sure if they have a cash flow problem. If they have a cash flow problem and they don't have any cash injection, their debtors will take care of the cash injection?

[Interpreted] No, it won't be us. We are a shareholder, that's all we are. And we have exited, we are going to exit -- we are not going to inject any more money into that into that -- into Red Lobster.

[Interpreted] And the second question is, if we sell -- if you can sell your share in Red Lobster, this will be a loss?

[Interpreted] No, there's no loss. There is no loss anymore. It's all done. There will be no next tax credit either. No, there will be nothing. Everything is zero. Other people stop eating beef, I'm stopping -- I'm going to stop eating lobster.

[Interpreted] And what about the freight cost? Is there a trend -- an upward trend for the freight cost from the Red Sea? Can we quantify if it goes up significantly?

[Interpreted] It has gone up. If you go through the Red Sea, it will go up and we have to -- I don't think there is anything significant when it comes to freight costs. I think everyone understands if we need to go through that route, then of course, you have to pay more. It was the same with COVID, all of the different routes have issues with the freight cost. And we've gotten through that situation. So we're not worried about the Red Sea situation right now. It's just that we're receiving the items more slowly by 2 weeks. And you remember that in the past, we had freight issues that were impacting us by months, but it's not as bad this time. So we don't have to worry about long-term impact from the freight cost.

[Interpreted] It's the -- time has only gone up by 2 weeks, but that increased cost, are you passing those on to your customer?

[Interpreted] Yes, we are adding them into the price.

[Interpreted] I'm from KCS. I'd like to ask about Page 17. On Page 17, we see the sales for the quarter, and the tone for the first, second and third quarter, the gross revenue is soft right? Is there any difference from before?

So here, what are you comparing? Because if you're 010957 comparing..

For the first -- compared to the first quarter of '23.

Oh, first quarter to last year. Yes. I think the first quarter of '23 was very soft indeed in the terms of top line, okay. You can see here declining by 10% and also the gross profit margin was exceptionally low also at 15.1%. So we do expect to improve, okay, versus this gross profit margin. Now if you look at bottom -- bottom line, we do expect to have a lower net profit compared to what we had in Q1. If you see below the OP, we have some positive news coming below the OP last year.

Sorry I cannot get you.

Top line should be growing in Q1. I mentioned that already.

Bottom line is lower?

Yes, this is the expectation. Yes.

Bottom line is lower. So compared -- because of the tuna price, tune price quite low in the first quarter. So is the main reason of the bottom line underperform?

That's correct. Yes. Yes.

Okay. So if we compare to the fourth quarter of this year, the sales of the OEM tuna is still higher than the fourth quarter, right?

Yes.

And the Ghana cold storage, is it able to help us to store more tuna?

It will help, but only starting in Q2. So it's not commissioned yet, okay. Q2 '24, it will help us. But as Khun Thiraphong mentioned, it will help us in terms of costs, okay. Because here, we consolidate some cold storage we are renting now to a coal storage that we own by ourselves. So we expect to be more efficient, okay. And to have more capacity also. But this -- the impact will start in Q2 '24, okay.

Are there any other questions? If there are no other questions, I now would like to take some questions from the online audience.

Going forward, what will be the investment basis of TU as a whole group? Is this more toward core business or given that Red Lobster leave a quite very scar on to your pilot decision assumption.

Not sure. Not sure I get it. Can you repeat again. Can you?

Okay. Going forward, that will be the investment basis for TU as a whole group. Is it more towards core business? Or given that Red Lobster left quite a heavier scar on TU pilot decision assumptions?

We will focus on our core.

Yes. No more restaurant.

Right. Big scar, yes. I'm not back.

Okay. In the second question, do you still see other investment plans within 2024, 2025?

[Interpreted] Well, as I mentioned today, all of our burden, we don't have much burden left. We're feeling quite light. We -- if we take a look at the balance sheet, we have room to invest. So we are looking for investment opportunities right now. And other than that, we have our 2030 strategy with the outside environment that is changing our production capacity that we have. We're focusing on increasing our productivity, increasing our capability in terms of competitiveness. We want to review our structure overall, our processes so that we can be flexible. And we want to be leaner, we want to be more competitive, and we're looking for opportunities. The opportunities that we're looking at are based on our core business. And this is what we are looking forward to.

Okay.

And the last question...

Can you comment on the impact on the global minimum tax rate implementation in full year 2023?

So here, we are analyzing. So you heard there will be some 15% minimum tax rate to be implemented depending on the countries, the time line could be '25, '26. We are discussing right now with the tax authorities in Thailand, okay. So there will be some impact with BOI, yes, likely to be. But we don't know yet what will be the format. There will be some formal compensation from what we understand. But so far, we don't have yet the whole view. Apart from Thailand, we don't have the exposure. All the other countries, now we have some tax rate exceeding the minimum tax rate of 15%. So we believe especially the only remaining country that where the regulation will have to change. But so far, we don't have yet the final picture. So it's still an analysis and more to come in the next quarters.

[Interpreted] And one more question. The trend for tuna consumption, how much growth are we seeing in the few years? How many percent per year?

[Interpreted] Growth in canned tuna will be, during COVID, it went quite high, but then it went down, it normalized after COVID and especially in the last year, due to the high inflation, the higher raw material prices that led to the selling prices all over the world in retail to go up by 2x. And so consumption has gone down significantly. We hope that the raw material prices that are cheaper right now will enable us to stimulate consumption. If you ask about the trends, then of course, we expect it to grow in single-digit numbers but it depends on the price as well, and also on the economic situation globally. Right now, it is volatile. It is fragile, and this will affect consumer decision-making. And if there are no other questions, and time is up. If you have any other questions, you can ask through our IR channel. Thank you very much for joining us. [Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]