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

Good afternoon, everyone. Welcome to Thai Union's Analyst Meeting for the Third Quarter of 2025 Results Announcement. My name is [ Malanyali Jadulong ], and I will be your MC today. First of all, I would like to introduce our key speakers. First, Khun Thiraphong Chansiri, President and CEO; Khun Ludovic Garnier, our Group CFO; and Khun Pinyada Saengsakdaharn, Head of Investor Relations. Today's session will take around 1.5 hours, including Q&A session and followed by a 10-minute break before we begin the TFM session. Without further ado, I would like to invite Khun Thiraphong to begin the presentation.

[Foreign Language]

Thank you, Khun Thiraphong. I'm very happy to be with you this afternoon. As usual, we will start with the 5 years picture. So here are a few things, I think, for you to keep in mind, and I think Khun Thiraphong mentioned this one. Very happy to see that we get back to organic growth this quarter. In Q1 and Q2, our organic growth was declining a bit, but here, we are back to growth. The GP margin also 19%. Even if it is declining a bit compared to last year, I think it's moving in the right direction. Since the beginning of the year, the gross profit margin is always very close to 19%, okay? And I think this is a very strong achievement, especially in this time where we have so much pressure coming from the USD or also coming from the U.S. tariff. So overall, very happy with this picture. Just to try to focus on the top line. So here, we have dark blue, the organic growth and light blue, the reported growth -- the FX translation, sorry. So here, overall, our top line looks decreasing by 1%. But if you remove the FX, again, this quarter, the FX impact is negative by 2.8%, then the organic growth is 1.8%. So it's not yet huge. Still, we are very happy, and I think it's a very positive development. One thing also I want to draw your attention to is on the volume, okay? We have a 3% or 4% volume growth in Q3, mostly coming from the Feed business. As Khun Thiraphong mentioned, our Feed business is doing extremely well. As usual, you have TFM Analyst Meeting right after the one from TU, please stay. It's a very booming business for the time being. Just a quick overview by category. In terms of Ambient, the reported sales declining by 3.8%, mostly coming from the FX. The volume are almost flat, but then we are facing also some softer demand from the U.S. private label retailers. But in Europe, we have been increasing our volumes. One thing I want you to keep in mind is right now, we have many customers in the U.S. They are still in the wait-and-see attitude, okay? You know there is a decision from the Supreme Court to come soon. We don't have a lot of hope behind this one yet. Some people are waiting what is happening. And also, I'm sure you heard at the beginning of last week that President Trump negotiating some new trade agreement with Thailand, and there is some discussion potentially to remove tuna from the 19% tariff. It's not confirmed. At this stage, it's only an MOU. It will have to be confirmed. So we do remain very careful. But of course, our customers, they know that, okay? So when they know that there is so many uncertainties, sometimes they just prefer to wait and see. Opposite situation for the Frozen. The Frozen sales here are growing by 5%. Khun Kwon will elaborate, but I think overall, we have many segments in the Frozen business who are doing well and especially the gross profit margin is very attractive for this quarter within the Frozen. PetCare. PetCare also is growing by 6% in Thai baht. If we were considering the USD sales, then the growth will be more 13% to 14%. So again, very happy with the PetCare development over the quarters. This is really growing back to growth. And you know we want this BU to deliver much more in terms of growth compared to the others. So I think this is also a positive sign for you. In terms of raw material prices, we have been facing a bit of inflation, okay? You can see the tuna prices went up to $1,550, increasing by 10% compared to last year and increasing by 2.6% quarter-on-quarter. That was expected. We told you at the end of Q2, we're expecting a bit of inflation to come in Q3 and also in Q4. But overall, no surprise on this one, but still a bit of inflation compared to last year. In terms of shrimps, also, we are facing some inflation, THB 153 for 1 kg. So here, again, a bit of pressure, but nothing exceptional on the shrimps. There is one anomaly here, which is the salmon price. The salmon price at NOK 69, is extremely low, okay? And of course, this is positive for us. We have different businesses, which are exposed to the salmon price. And here, we are fully benefiting from this one, especially in the Frozen business. So overall, no warning on this one. On the FX, we are kind of the same situation since the beginning of the year. We have been facing some constant appreciation of the Thai baht versus USD and all the other currencies. If you look year-on-year, the USD has been depreciating by 7.2% versus Thai baht. So this is massive. The euro by 1.3%, so this is more reasonable. The GBP by 3.7% and then the yen by 6%, okay? So we have been facing all along the year some very significant changes coming from the FX. Of course, this is penalizing us for our top line and also for our bottom line. However, for you to keep in mind, we are using some very conservative hedging strategies, okay? So the vast majority of our transactions are being hedged. So we are not fully impacted by that. Our hedging is preventing us from losing too much on this part. Quick overview on the ratio. I think, first of all, I will talk about the inventories and the net working capital. Here, I think the situation is improving. Overall, our inventory stands at THB 45 billion or 152 days. It's decreasing a bit compared to the previous quarters. It's moving in the right direction. The net working capital also stands at 133 days. And I think overall, we see some gradual improvement. The idea for us is to continue in that direction and to reduce further in the next quarters. In terms of net debt to EBITDA, you have seen some increase. We had 4.8. We told you because of the share buyback, also because in Q4, we did convert the PERP into traditional funding. We told you that we were expecting a growth to happen, okay? And we told you also in H2, we see some kind of plateau, okay, some plateau around this level of 4.7, 4.8. We told you also that next year, the priority will be to be put on deleveraging the company, no more share buyback and really generating some cash flow and improving this net debt to EBITDA to get back to our target range, which is 3.5 to 4 as quickly as possible. In terms of net debt to equity, we are at 1.1 in the high range of our guidance, again, mostly explained by the share buyback program. But overall, very strong balance sheet. I think there is no concern on that. Quick overview of our net debt. Our net debt has been increasing in Q3. So from THB 53 billion at the beginning of the year to THB 59 billion. The key drivers between the 2, we are quite happy regarding our free cash flow generation. We have THB 4.1 billion of free cash flow over 9 months. And the EBITDA is exceeding -- slightly exceeding THB 9 billion. This is okay. The net working capital, mostly because of the raw material increase, has been increasing by THB 2 billion. The CapEx are fully aligned with our guidance at THB 2.7 billion. But overall, we told you we are not happy with our cash flow generation in Q1. Now since Q2 and also in Q3, the situation has been really improving, okay? And we do expect also to be in the same direction in Q4. Of course, we have been doing some investments and some financing activities in -- over the 9 months, we did pay for the dividend, and we had also the share buyback for THB 4.3 billion. So these are the key drivers. One thing also I want to highlight here is the cost of debt, okay? The cost of debt last year on average was around 3.65% and now moving this year to 3.45%. So I think also it's moving in the right direction. Quick focus also and Khun Thiraphong mentioned this one, we have been doing a lot of refinancing. At the beginning of the year, we told you we have a very heavy agenda in terms of refinancing in 2025. We told you at the beginning of the year, we did a THB 5 billion with ADB. You know already this one. So here, we show you what we did in Q3. We did a blue refinancing by THB 19 billion. And we did a combination this time of loans and bonds, okay? So THB 10 billion for the loans and THB 9 billion for the bonds. Again, we are doing blue bonds, we are doing SLL. We continue doing the same thing and scaling up compared to what we've been doing in the past. We were very positively surprised with, again, the success of these transactions. Now we have quite a good track record from all the banks and a lot of excitement. We can see here, we are exactly where they want to invest, okay? So when we do launch this kind of project, we can deliver a lot of success. And finally, the amount we are able to refinance was higher compared to our expectation, okay? And the impact from this, we do expect there will be some positive impact, mostly next year in our finance costs. And we do expect our finance cost to be more in the range of 3% in the next years to come, okay? Again, a lot of credit to our treasury team, Yongyut, who is here also. A lot of success on this one, and we want to continue in this direction. We do really have a lot of recognition from that from all the bankers. There are some bankers here in the room today, very strong recognition from that, and I think we want to continue in that direction. Another good news I wanted to share with you is regarding to the Pillar 2, the minimum tax. At the beginning of the year, if you remember, we told you a few things. We told you, first of all, the key challenge for us is Thailand. okay? In Thailand, we are exporting 90% of our products, we are benefiting from very positive and very favorable tax scheme, okay? You know the whole idea behind this Pillar 2 is to get to a minimum tax rate of 15%. In Thailand, we are quite far away from this rate. So at the beginning of the year, we told you we're expecting the impact to be around THB 250 million, 2-5-0, for the whole year, okay? We have been revising down in Q2 and again in Q3, okay? In Q2, we told you between THB 100 million and THB 150 million. Now it would be very likely slightly below THB 100 million, okay? And the key explanation from that, there are multiple explanations. The first one is our profit is a bit lower compared to expectation, which is not a good reason, but we have to acknowledge that. Overall, our performance is not in line with our guidance. That's point number one. Point number two is to see also the tax expense is a bit higher compared to expectation. We have in some businesses in Thailand, some BOI coming to maturity, coming to expiration. And I think we did not really budget in the right way for that. And this is why our ETR, our effective tax rate, is a bit higher compared to our expectation. So lower profit and ETR, which is a bit higher. And this is why we do believe now for the full year, the impact will be more in the range of THB 100 million, okay? For your information, this is a very dynamic calculation. It's a very technical one, the first time we are doing this. So we missed a bit of background, okay? So it's a very dynamic calculation. We are also considering a few options for the end of the year where potentially we could reduce compared to the THB 100 million impact -- this impact, but it is still a point we are discussing right now with our advisers and auditors. But the one thing for you to keep in mind is the impact will be lower compared to our initial expectation. I think this is a very positive news. How sustainable will it be for '26 and the years after? I would expect the impact for the next years to come to increase. Why? Because we do expect our profit in Thailand to increase, and we do expect that we will benefit again from all the BOI incentive schemes, okay? So don't take it for granted that forever, it will be this amount of THB 100 million. But I think it's a very positive development. And now we'll hand over to Khun Kwon for the view by BU.

Thank you, Khun Ludo. [Foreign Language].

[Foreign Language]

Thank you very much for joining us today. And we will now take a 10-minute break before we begin the TFM Analyst Presentation. Thank you, everyone, for joining today.