Earnings Transcript for TBVPF - Q2 Fiscal Year 2022

Operator: Good evening everyone and thank you for joining the Thai Beverage First Half 2022 Results Call. All participants have been placed in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will be given at that time. I will now hand over the call to the presenter, Ms. Namfon Aungsutornrungsi, Thai Bev's Head of Investor Relations and the Member of Thai Bev's senior management team. Please go ahead.

Namfon Aungsutornrungsi: Good evening, ladies and gentlemen. Welcome to Thai Beverage the first half 2022 ended 31st of March 2022 financial results conference call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the conference call tonight, I will start with a summary of the first half 2022 results. Then we will open the line for Q&A session with our management team. For the summary of the first half financial results, total sales revenue of the company for the six months ended the 31st of March 2022 was THB142,942 million, an increase of 8.9% when compared to last year. This was due to an increase in sales revenue of business segment. Net profit was THB18,3565 million, increased 14.2% compared to last year. This was due to an increase in net profit of beer, non-alcoholic beverage business, food business, and associated companies, which is partly offset by a slight decrease in net profit of spirits business. Thai Bev's Board of Directors agreed to propose an interim dividend payment of THB3,768 million or THB0.15 per share, the same as last year. The company remains committed with our full year dividend policy of not less than 50% of net profit after deducting of our specified reserve, subject to our investment plans and as the Board of Directors deem appropriate. In the first half 2022, the company's spirits business generated sales revenue of THB65,186 million, a 2.1% increase compared to last year. Sales volume increased 6.4% year-on-year. The spirits business reported net profit of THB12,816 million, a slight decrease of 0.4% year-on-year due to an increase in cost of goods sold. The company's beer business recorded sales revenue amounting to THB51,939 million in the first half, a 14.7% increase compared to the previous year. Thanks to the measures to contain COVID-19 have been relaxed, total sales volume increased 5.5% year-on-year when including SABECO sales and increased 2.8% year-on-year when excluding SABECO sale. The company's net profit for the beer business show a satisfactory increase by 62.2% year-on-year to THB1,377 million. The company's non-alcoholic beverage business generated sales revenue of THB8,204 million, an 8.1% increase year-on-year. Total sales volume rose 7.5% year-on-year, mainly due to the increase in sales volume for our drinking water and ready-to-drink tea, partially offset by a decrease in carbonated soft drink sales volume. Net profit for the non-alcoholic beverage business rose 31.5% to THB438 million. The company's food business recorded sales revenue of THB7,688 million in the first half, a 30.6% increase year-on-year. Following the resumption of dining services, net profit increased significantly by 261.5% year-on-year to THB272 million. This was mainly due to an increase in sales as well as managing distribution costs and administrative expenses prudently. The company's international business recorded sales revenue of THB36,867 million in the first half 2022, a 24% increase year-on-year. The increase was mainly due to a 29% increase in beer sales. As a result of the relaxation of COVID-19 restriction in Vietnam and a growth from on sales in China. The international spirits business reported sales revenue growth of 3%, driven by Myanmar market. That is the summary of the first half 2022 results. Before we start the Q&A section, I would like to note that for regulatory reasons, management will not answering any question respect of the proposed spin-off of BeerCo Limited. Instead, please refer to Thai Bev's announcement on the 5th of May 2022. The announcement included certain information about the BeerCo Group that allow -- that allowed Thai Bev shareholders to better understand the scope of the proposed spin-off and the listing of BeerCo. Certain information about the BeerCo Group is also included in today's presentation materials for purposes of updating the information previously provided about the BeerCo. However, in this conference call, management will only speak about the Thai Bev Beer segment, which is different from the BeerCo Group. Management may not respond to questions relating to the BeerCo Group for regulatory reasons. We will now open the call to any questions on our results. Operator, please help open the line for Q&A.

Operator: We will now begin the question-and-answer session. We have got the first question from Sylvania , HSBC. Please go ahead.

Unidentified Analyst: Sure. Thank you very much management for the opportunity and thank you as well for the presentation. My question is with regards to the spirits business. It seems that as the economy reopens in second Q, this time, it appears that salesforce momentum is slowing down. Can management talk about what to expect in terms of outlook going ahead in terms of spirit business, should we expect further slowdown in the spirits business? That's my first question. My second question is with regards to the performance of brown versus white spirits, can management make some comments around that? Thank you.

Unidentified Company Representative: In terms of the six months spirit volumes reported is actually one of the highest since we listed, so actually the momentum is doing -- our sales are doing well. And in terms of profit, we actually have a flat profit compared to the quarter -- same period before because we have experiencing some cost -- from raw material that basically pressure us to have some price adjustment that have been in this first half of the year. We have completed the price adjustment in the white spirit space that should allow us to maintain our profitability. In the Q2 price adjustment in the first six months, meaning the first half, there are some additional loading and increasing in sale in white spirit, so the products mix have shifted to be more white spirit as a percentage than brown spirit because of the price increase in white spirit that causing the trade to stock up and therefore, reducing the weighted -- more like a weighted gross profit margins of -- with -- in the first half. The first half have experienced some lag in the brown spirit sale. I think this is happening throughout the industry, including beer industry as industry as a whole and brown spirits are experiencing some decline because of the -- in the first half, we -- the country experienced a lot of COVID infection, so social distant have been restricted. We are expecting -- however, we are expecting the second half, the brown spirit consumption will pick up because of the opening of the trades, opening -- returning of the tourists. And as we seen in the news the past few day, the operators meaning the Pub and Bars Associations of the -- operators requesting the government to allow them to open. They've been closed for I think more than a year, close to a year. So, I think with that opening, they will allow social gatherings and allow for a better brown spirit sale in the second half.

Unidentified Analyst: Got it. Thank you very much.

Operator: Thank you. Our next question is from Thitithep Nophaket from Kiatnakin Phatra Financial Group. Please go ahead.

Thitithep Nophaket: Hi. Can you hear me? Hello?

Unidentified Company Representative: Yes, we can hear you.

Thitithep Nophaket: Can you hear me? Yes, hi. I have to two question. Number one, if you look at the sales in bath term in the past six months, beer seems to be doing better than spirits for both in Thailand and in Vietnam. Spirit is not doing that badly, but then it's still negative via loss into margin. But usually between beer and spirits, spirit is more resilient than beer. Why has beer performed better than spirit in the past six months? That's the first question. And then second question, can you update us on the raw material situation on molasses? And then how the price inflation for the freight wait, for the gas, for the affect your gross margin going forward? Thank you.

Operator: Speakers, please go ahead to answer. Thank you.

Unidentified Company Representative: Thitithep, when beer better than spirit, then you ask question; when spirit better than beer, then you ask question again. But anyway, the thing is because beer we have the Vietnam market also, Vietnam market -- markets opened before Thailand. And then the growth in Vietnam is quite significant this second quarter. For spirit majorities in Thailand and the opening of the market is lower, as you can see that the pub and bars and thing do not open up to today. Okay, they probably will consider opening very soon because it's a lot of pressure from the operator to the government. So, that's hope. Hope next quarter, we grow at the same percentage in detail. Thank you.

Thitithep Nophaket: Okay. thank you.

Prapakon Thongtheppairot: Thitithep, this is Prapakon, I will answer about the molasses costs. Actually

Thitithep Nophaket: Right.

Prapakon Thongtheppairot: Because this is related only to Thailand, because our raw material which is molasses for spirit and molasses and linked to sugar cane, sugar refinery, so, those are the crops and those are industry data that you can see that this crop, I think the sugar industry, the crop for this year is much better than last year. Last year was one of the probably worst year of sugar crops in Thailand. So, this year the sugar crop have increased by almost like more than 40%, 50%, almost 40% than the year before. So, -- which means the molasses that we purchased for this -- from this crop, price are lower than the year before, but the raw material cost and term of that coming through into a cost of goods that you see in the first half year here is actually relating to the molasses from last crop, not this crop. So, this crop that we bought in -- actually is still in a work in process and finished good ready to be sold. So, we are expecting the -- because of this is the fact that there are small molasses in the industry, so our molasses costs are lower currently than the year before. Hopefully, that answered the molasses expectation. And because of the industry also, the sugar industry also guarantee the price for the farmer in the next three years. So, the sugar industry are expecting that there will be more sugar cane crop in a year for the next few years as well. So, we are expecting that next year that's what the industry is expecting that there will be more molasses and therefore, price will come under pressure on the lower side.

Thitithep Nophaket: Right.

Unidentified Company Representative: Well, Thitithep, this is speaking. You asked about the malt, I can inform you briefly about that we are lucky in the way that we have carryover stock from the last years. So, I think we are lucky. And I want to give you an added information is that we never rely on the barley. Another way we call it malt from Ukraine and Russia. We don't have the courses over there. Okay, thank you.

Thitithep Nophaket: All right. All right. Thank you very much. Just one follow-up question. I try to separate the beer sales in volume term in the first half of the between Vietnam and Thailand. I just like to confirm that my calculation is correct. According to my calculation, beer sales volume increase both market in Thailand by about 3% year-on-year and in Vietnam is about 7% year-on-year. If you can confirm that my calculation is accurate?

Namfon Aungsutornrungsi: Thitithep, yes, it increased for both market and when we report, we report the sales volume inclusive vehicle and exclusive vehicle , you can work on the increased amount from those numbers that we report.

Thitithep Nophaket: Right, okay. Okay. Thank you very much. That's all the question I have. Thank you.

Operator: Thank you. Our next question is from Nicholas Teh, Credit Suisse. Please go ahead.

Nicholas Teh: Hi. I just had a couple of questions that we just want to follow-up on the raw materials for the malt stocks, just wanted to ask how long that would last? And in terms of the molasses, did you mention that because of the -- I guess the higher volume -- or the higher crop this year, that the price was lower than it was in even 2021 or even 2020? And then just want to understand in terms of the price guarantee, so just one -- so if the price comes down, basically, you as Thai Bev get to buy the cheaper price and then the government pays the farmers the difference between net price and the guaranteed price? That is all. Thanks.

Namfon Aungsutornrungsi: Hi, Nicholas, in terms of the forward-looking for the malt price, sorry that we cannot give you a guidance on those. For molasses, Prapakon will help you to explain to you.

Prapakon Thongtheppairot: Nicholas, I think from molasses. Let me just clarify what we've referring to the government sorry, is sugar refinery industry a guaranteed price purchase for raw sugar and -- like raw sugar cane from the farmer for the next three years, which mean it gives a farmer a comfort level that they will have a good fixed price going out. That's why the farmer will be willing to keep growing or keeping the sugarcane because the sugar cane in Thailand's crop that switch between sugar cane and tapioca and others, so which means if I am corn, there are three crops, so you can switch between corn, sugar, and tapioca, but normally, it takes about three years for the farmer to recover those. So, whatever the government -- if the sugar refinery -- sugar industry, giving some guaranteed price, so there will be more farmer -- more number of farmers convinced to stay in the sugar by growing sugar instead of switching to corn and tapioca. So, that's what I meant. So, therefore, giving that outlook, we are expecting there will be more sugar in the next crop. The crop of sugar in Thailand start in December and end around April of this year -- of each year, so that's why -- we are in May, that's why we can say that as of end of April, just last month, that sugar -- these crops have provided more sugar and more sugar cane -- more sugar and more molasses than the year before because the year before was a really low years, okay. And from what I said about the price guarantee for the farmer, which means there will be more sugar and therefore, by definition, molasses is sugar byproducts, there will be more molasses as well. And therefore price of molasses should be kept low or lower than this year.

Nicholas Teh: Okay. Thank you. On the malt, I wasn’t asking forecast, I was just asking if I heard correctly, you said you have -- you still have some stocks, so I just want to understand how much -- how long do those stocks last?

Namfon Aungsutornrungsi: Hi, Nicholas. We also cannot tell you how long -- by forward because then it will -- you will know how long we have it forward that that is something that we cannot provide Sorry.

Nicholas Teh: Okay, that's fine. Thank you.

Namfon Aungsutornrungsi: Thank you.

Operator: Thank you. We have got one from Llelleythan Tan, UOB Kay Hian. Please go ahead.

Llelleythan Tan: Hi, thanks for confirm --. I just have one question. So, saying that there is some pressure in cost and inflation and whatsoever, so I'm just thinking -- the question just asked -- sorry, I just want to ask whether -- are there -- there'd be any future price adjustments for metric or beer or brown spirits, because I understand that white spirit has already been a -- there is really a price adjustments for the white spirit, so basically, I'm just trying to ask is there any price adjustments for beer and maybe brown spirit?

Namfon Aungsutornrungsi: So, hi Llelleythan, you mean -- what your question is about future price increase? Is it right? Is it for future price increase?

Llelleythan Tan: More or less, yes.

Namfon Aungsutornrungsi: Is it for future price increase, this is something we normally we don't disclose.

Llelleythan Tan: Okay, okay. sure. Thank you.

Bennett Neo Gim Siong: Bennett Neo from Vietnam, just to reiterate that we already increased price December last year. In April this -- December last year, so I think we also increase in December this year -- April this year. so, we did make the price adjustments already.

Llelleythan Tan: Okay. Thank you.

Operator: Thank you. Our next question is Horng Han Low from CLSA. Please go ahead.

Horng Han Low: Hi. Thank you so much for giving me the chance to ask questions. I would like to know a little bit more in terms of A&P spending given that the economy and Thailand has already begun to reopen. You are also expecting tourists to return back to Thailand. Can we try to understand in terms of A&P spend, how do you see this trend as a percentage of sales tracking over the next few more quarters or next one or two years? Some clarity and this will be appreciated. Thank you. In terms of A&P spending given that the economy in Thailand -- reopen, you all are expecting service to return, come back to Thailand, we try to understand in terms of A&P spend --

Namfon Aungsutornrungsi: Hi, Horng Han, did you hear? Did you hear it clear from Vietnam, sorry?

Horng Han Low: No, sorry, I thought I heard -- repeated myself, my apologies. Hello? Hello.

Operator: Bennett, can you -- Hi, hi. Hello. Give me a second. Let me just reach out to the speakers.

Horng Han Low: Sure. Thank you.

Operator: Hi, Bennett, are you there? Good now, fine. Would you like to say a few words?

Bennett Neo Gim Siong: -- difficult to answer. Of course, if the economy picked up and situation allow, then we would consider sort of increase the A&P just to make sure that we maintain our brand equities and all that, but it's difficult to answer because, for example, right now Thailand, the pubs and bar are not open. And then the government still have some regulations. So, we don't know when will they totally open, but if -- the bottom is going come coming back and that situation is better. Of course, as a brand company, we need to put money on -- behind the brand. I mean that's my general answer for both -- any market.

Horng Han Low: Sure. Thank you. Can I follow-up with regards to pricing? I understand that there was an earlier question to Thailand and whether you'll be considering price increase, maybe we could shift gears a bit and look at some of your competitor. Can we try to understand in tepid in raising prices so far this year? Because I understand that you did raise price one sometime in March? My question is particularly for beer, specifically for beer side, which I think you raised in March, just frankly nobody has any other private as well? Thank you

Lester Tan Teck Chuan: Hello, hi this Lester here. I think in -- yeah in -- with regard to price increases, we always try to monitor the market situation as well as our internal situation with regard to pricing with our -- sorry, our material pricing. So, this time around, yes, we did increase our prices in March and there was some competitive movements around the same period as well.

Horng Han Low: Okay, got it. Thanks for the -- something that contested the industry, the industry together as well. Thank you.

Operator: We have got Philip -- sorry Paul Chew from Philip Securities. Please go ahead sir.

Paul Chew: Okay, thanks so much. Just two questions on the spirits business. I just wanted to confirm the second quarter volumes was up 4%, revenue was I think flattish, so can I just confirm that this is just because of the product mix -- this higher contribution of white spirit. this is my first question. The second question again on spirit, could you give us -- which month did you increase the price for white spirits? Thanks so much.

Prapakon Thongtheppairot: Okay, yes -- one sec, it is a product mix in a second quarter. The small more white spirit sale, actually very high double-digit and we do have a lower brown spirit sale compared to the same quarter before. So, that's a products mix, that's why it contribute to a slightly lower profit while the sales is higher. The price increase for white spirit, we actually increase -- have the volumes for the large bottle was increased back in November and the small bottle was increased in February, we split -- it's actually split it off in two quarters.

Paul Chew: Okay, that’s it for me. Thanks so much.

Operator: Thank you. We have got a follow-up question from Nicholas Teh, Credit Suisse. Please go ahead.

Nicholas Teh: Thanks for taking my question. Just a quick one in terms of the price increase that you've done this year already, can I just check how much it was for beer and for spirits?

Lester Tan Teck Chuan: Hi, hi Nicholas, this is Lester here. For beer, we raised prices differently across the portfolio, but generally they were in the low single-digits.

Nicholas Teh: Okay. we do increase --

Lester Tan Teck Chuan: Nicholas for white spirits, we -- the price increase is roughly around 4 %to 6%, so that depend on the -- this unit size, the SKU it will be increased. But only on white, we did not increase brown spirit. The last time we increased brown spirit price was at the beginning of the COVID, which is considered to be the first and a second quarter of year 2020 -- fiscal year, about three years ago.

Nicholas Teh: Okay, got it. That’s 4% to 6% for white spirits, right?

Lester Tan Teck Chuan: 4% to 6%.

Nicholas Teh: Okay, got it. Thank you.

Operator: Thank you. As there are no further questions, I will hand over to Ms. Namfon Aungsutornrungsi. Please go ahead man.

Namfon Aungsutornrungsi: Thank you for joining Thai Beverage conference call tonight. If you have more questions, please feel free to contact IR department at ir@thaibev.com. Thank you and have a good night.