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Earnings Transcript for TBVPF - Q3 Fiscal Year 2021

Operator: Good evening everyone and thank you for joining the Thai Beverage FY2021 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, Miss. Namfon Aungsutornrungsi, Thai Bev's Head of Investor Relations and the Member of Thai Bev's senior management team. Thank you.
Namfon Aungsutornrungsi: Good evening, ladies and gentlemen. Welcome to Thai Beverage 2021 ended 30th of September 2021 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 2021 results. Then we will open the line for Q&A with our management team here. For the summary of our results, total sales revenue of the company for the year ended the 30th of September 2021 was 240,543 million baht, a decline of 5.1% when compared to last year. This was due to the impact from the COVID-19 situation which was more severe than last year. Net profit was 27,339 million baht, an increase of 4.9% year-on-year. This was due to positive change impact from last year non-recurring costs and deferred tax utilization related to be a business restructuring of 2660 million baht. The board of directors has proposed to issue a dividend of 12,559 million baht or 0.55 per share, which is higher than 0.46 baht per share of last year. The pay-out ratio for the fiscal year 2021 dividend is 51% payout ratio. Please note that the interim dividend was paid in June 2021 as 0.15 baht per share, and the final dividend will be 0.35 baht per share. For the highlights of this year, the company's spirits business remains resilient in the 2021. Despite the closures of entertainment venues and restaurants, and aspirants are mostly consumed via off trade channels. The business generated sales revenue amounting to 115,055 or 52 million Baht or 1.9% decrease year-on-year. Taking into account 1.8% decline in total sales volume, the spirits business delivered stable net profit of 22,138 million baht along with an improvement in the net profit margin. The company's business record sales revenue, amounting to 99,157 million baht in 2021 a 7.2% decrease compared to the previous year in view of lower beer sales volume due to the strict COVID-19 control measures in Thailand and also in Vietnam. Total sales volume decreased 11.1% year-on-year when including SABECO sales and decreased 4.4% year-on-year when according the SABECO sales, the net profit of the company's beer business declined 11.4% year-on-year to 3119 million Baht, however, beer business in Thailand reported an increase in net profit from cost saving initiatives. The company's non-alcoholic beverages business generated sales revenue, amounting to 15,205 million baht in 2021, a decrease of 6.6% year-on-year due to a 7.6% decline in total sales volume. The net profit from normal operation Rose 51% to 548 million Baht year-on-year as a result of cautious cost management by reducing advertising and promotion expenses, as well as controlling administrative expenses and excluding the margin of insurance claim on property damage from fire incident of Oishi beverage factory recorded in the previous year. The Company's food business recorded sales revenue of 11,280 million Baht in 2021, a 14.4% decrease year-on-year, mainly due to impact from the government imposed containment measures to contain the virus spreads, including restaurant closures in the shopping mall, and the prohibition of the dine in services. The business undertook active mitigation measures such as in enhancing home delivery and takeaway options, and by managing costs prudently, nevertheless, the decrease in sales revenue led to a net loss of 488 million baht for the food business. The company's international business recorded sales revenue of 57,394 million baht in 2021 an 8% decrease year-on-year. The decrease was mainly due to an 11% decline in beer sales, following the lockdown and strict social distancing measures in Vietnam. This was partially mitigated by a 5% increase in revenue generated by the international spirits sales due to the growth in contribution from Scotch whisky and also Chinese spirits. Now, we will open for the call to any questions on our results. Operator, please help open the line for Q&A.
Operator: Thank you. First, we have Thitithep Nophaket. Please go ahead.
Thitithep Nophaket: Hello.
Ueychai Tantha-Obhas: Hi Thitithep. Go ahead.
Thitithep Nophaket: You can hear me, right. I have a few questions. Maybe I go one by one if that's okay with you. Number one, can you update us on the situation in Myanmar? It doesn't look good, both in terms of the violence, the riots and then also that COVID. How was that, say I was in Myanmar during the past six months and your will on future sales growth would be appreciated.
Ueychai Tantha-Obhas: You want to go one by one, right. I’ve asked Prapakon to respond to your -- the first question.
Prapakon Thongtheppairot: So Thitithep. Actually on Myanmar, the questions relating to COVID, I mean things in the past few months, we start to see that Myanmar have returned to normal in terms of COVID cases of drops and the vaccination rollout actually done quite well. Interim staff, we also have full vaccination rates and that's even provided by the government. So that that's something that -- not of concern. The concerning topic that everyone's operating in Myanmar today would be probably the economic environment, the banking system and how cash or banking system operate due to instability of the government. I think that's just the risk of being in Myanmar for every businesses. For our business, we remain profitable and in fact we close the year. In local term, I will touch on the low foreign currency in a bit. But in local currency term, we closed the year actually for the grand royal business net profit after tax higher than last year. So we remain very confident. We have no eating receivable issue. In fact, our eating receivable report it's actually healthier than before all these financial, all this economic environments in stable government because I think we since the beginning of the year we decided we put even more control on eating receivable because that to prevent the risk of not be able to collect our revenue on sale, so that's check. And the foreign currency itself has been fluctuating, but start to get stabilized since October. The currency was running around 1300, 1400 Baht per U.S. dollars. And then to about May, June, July, it went all the way exceeding 2000 Baht. The government had put in quite a number of extreme control and asking, asking the exporter to convert the dollar back into cash in local currency, so that start has stabilized the foreign currency. And the latest is that the foreign currency start to stabilize allow 1007, 1008 and that's about just about where we budgeted for the year. We think that anything below 2000, it's still bearable level of FX I mean it's not possible to expect the currency to remain in that level before. So I think all-in-all we remain confident, there is important material risks that coming with the FX rate being higher. So I think all the producer in Myanmar have started to incorporate a price increase into the segment or the segment that can increase price would increase price, we also incorporate in our budget some price increase. So we are moving toward that directions to basically absorb basically pay for the raw material price upward. I think in terms of the sale, it's not so much soften a bit, but I think due to the economy, but I -- we believe that there are certain consumer preference over toward alcoholic beverage brand that doesn't relate it to the current government. So with that shift in demand, or the producer that are privately owned, just like us, I mean in Myanmar and a real private sector own have benefit from the spill over effects of that demand. So all-in-all the answer on Grand Royal is that we were in a good position given the all the risks involved in Myanmar we remain very confident with our business.
Ueychai Tantha-Obhas: Thank you Prapakon. Thitithep, your next question, please.
Thitithep Nophaket: Yes, I have a follow up questions on Myanmar. Before the cool, Myanmar wasn't attractive; I guess in terms of GDP growth, it's pretty steep. And I believe the FDI foreign direct investment was one of the driver of the GDP growth. But after the core, I highly doubt if they can still if they would still enjoy the same level of FDI. And without GDP growth, would you change your outlook on Myanmar market? I'm talking about in the next three to five years, do you think that it would still be a growing market like it was in the past three years?
Prapakon Thongtheppairot: Well Thitithep, I think it’s our view you have to take it from a different kind of risk perspective with a Thai company and Myanmar is a neighbourhood country. We see that as an integrated market into the future. So, it is the place that we will continue to invest at the right opportunities. In fact, when there is risk and there are certainly more opportunities. We actually think that there will be more opportunity in the next two years available for us to expand over the long term. So, we do not think that we will write off this country in terms of growth. We think that give it another year we will be more stable and there will be foreign investment but maybe from a different segment of the world or maybe different geographic part of the world that I going to invest in Myanmar.
Thitithep Nophaket: Right, okay. Okay. And then my second question is on the commodity price. Especially the -- and then the gas price because I believe you used gas in your class for the factory. How much would they be concerned about these prices? And, do you think it's going to affect your gross margin going forward?
Ueychai Tantha-Obhas: Yes Thitithep, this is Ueychai. Since cost push is relating to or be it spirit or be in food. So I’ll take these questions. We have to admit that this year the course not only commodities but packaging, gasoline and all, one of the critical problems for all businesses here, but this is we put all this on the table and discuss this almost every meeting anyway. So, I think we have to, we already sort of commit to the board our budget, and then we found out that the cost push will probably have a chance to jeopardize our P&L, but we sit together and then work to mitigate that. Cost on the commodity price, I think we the moat, and then molasses, we still happy about it, because I cannot tell all my secret, because we some of them, we have forward buying and then which probably last until many months ahead of time. So that one we do not have any concern. The one that the other one is packaging, and packaging, as you know that in our alcoholic beverage business, the highest costs will be on the bottles. And then we are talking about how to manage the percentage between returnable bottles and the new bottles. Of course, we have aim to increase the returnable bottles percentage, because that is controllable and manageable by our team. And then with that, it can help mitigating a loss cost push a lot. And of course, the way the remaining gap, we are considering our price increase, I think it's on the drawing board for all the brands, or sorry, all the BU, which we believe that that can really close the gap, which mean that we probably have to increase the price on our key products here. So bottom line, yes, there will be problem on the cost push, but the management will focus on it. And then we can assure you that we will be able to manage it. Okay, and then really sort of stick to the commitment that we have with the board and the chair holder in terms of our plan. Thank you Thitithep.
Thitithep Nophaket: Right, thank you Ueychai. I have the follow up questions on that. You know, if you pass it on to higher costs to consumer by raising the price, but then the demand in the market now it's still quite weak because of COVID. Mainly, we're using the higher price to affect the volume.
Ueychai Tantha-Obhas: Of course, we also consider that seriously. But we probably have to manage to the level that is acceptable, okay. We don't want to increase the price and to jeopardize the volume and market share, definitely. So the level of price increase will be different. And we closely monitor the consumer acceptance. It could be down to the details of by SKU. Okay, so we are sure that we can move up the price, of course that we not plan to lose any volumes from this price increase programs. It’s going to be tough, but we cannot avoid it, because cost push is not only in Thailand, but I think all over the world. So I think everybody have to face that and how we manage that. You probably can hear from the news. Even the big beer international beer, they have put in the headline that no more cheap beer, which mean that everyone have the same problems. And then they've had to move up. Yes. So bottom line is we will move up very carefully. And then we will consider timing and also down to the SKU, which will not all the brand will probably not be increased like 5% for all SKU. No, it has to be able to work by the SKU. Okay. Thank you.
Thitithep Nophaket: Alright, thank you. And then my last question. Thai Government gradually relaxed lockdown, I think starting from September and starting from November, they allow the restaurants to sell alcohol, it doesn't have . And then I think the activity of Thai people start to go back to the normal gradually. Should I, is it fair to expect that in the first quarter of fiscal year 2022 the sales of your product in Thailand to improve Q on Q, is that a fair statement in your view?
Ueychai Tantha-Obhas: Yes, it's with forward looking. But anyway, it's true that restaurant is open and allowed to drink. But you please remember the, the pop bars and everything will not be open until 16th of January. That's still there's still a problem with us. The opening of the bar and restaurant actually benefits our food sector the most, because as you can see now department store and everything they allowed to dine in. Definitely the food will benefit from that. But for the alcohol, I think like beer and brown spirit, we probably have to wait until January 16 to go full blown. But as you know, our spirit business, mainly on white spirit, big big chunk on white spirit, which is home consumption, that’s why our spirit business, we need to be very resilient.
Thitithep Nophaket: Right. Okay, okay. Thank you very Ueychai.
Ueychai Tantha-Obhas: Thank you.
Operator: Thank you. Next we have from UOB Kay Hian, Llelleythan Tan. Please go ahead.
Llelleythan Tan: Hi, thank you, Ueychai. Hello?
Operator: Yes. Hello. Hi. We can hear you Llelleythan.
Llelleythan Tan: Hi, I guess I had three, three questions. I think the first two were already asked by the previous analysts, so maybe I'll just go to my to my last question. So with regards to the beer IPO. So I understand it's been it's been postponed or might be caught off. But could you share some updates on the beer IPO?
Ueychai Tantha-Obhas: I’ll ask our CFO to address that. Could Sithichai respond to your questions.
Sithichai Chaikriangkrai: Sithichai, CFO. Yes, I know that because we make announcement on 16 December this year for the dip in IPO due to the COVID. But now the situation even in Thailand and Vietnam recover. So now we are gathering all the -- our all the LA and auditors back for the office and then to restart again. Yes. So whenever we have any significant mid announcement doing and now to the stock market, but we definitely have to do this to be success on this one. By the timing you can see on the announcement to the stock market.
Llelleythan Tan: Alright, thank you for your answer. So I have just had one more last question here if you don't mind for the simple question. So for the beer, beer business creates the net profit. Could you share what is the percentage split between Thailand and Vietnam?
Namfon Aungsutornrungsi: Hello, hi Le Tan, in terms of the split between Thailand and Vietnam, actually, we do not disclose for Type F growth. For the beer we include everything together in just the beer segment. We do not disclose separately. Sorry about that.
Llelleythan Tan: Okay, fair enough. I think I'll jump back in the queue and move on. Thank you so much for answering.
Namfon Aungsutornrungsi: Thank you.
Operator: Thank you. Next question here from Morgan Stanley, Divya, please go ahead.
Divya Gangahar Kothiyal: Thank you very much. So I had a couple of questions. The first question was just on the spirits business. If you look at the implied fourth quarter revenues, they are down about 19%. And the volumes also seem to be down 19% year-on-year in the fourth quarter, despite the beer business, at least on the domestic front looking more stable. So could you comment on you know what happened on the spirits business in the fourth quarter, that seems to have impacted margins also for the spirits business? So that's the first question. The second question is on Thai beer. Just wanted to get a sense on how the market share has been for the fiscal year 2021. And how's the performance of those new launches that we had mentioned earlier this year on Cold brew and Espresso. And just a follow up on the first question that was asked on price hikes. I mean has taken any price hikes yet or has nobody actually moved in the Thai beer market? And just the last question would be on you know, just your comments if there's any noise on excise tax changes, that we should be aware of it or any regulatory changes in Thailand or in Vietnam? Thank you.
Ueychai Tantha-Obhas: I think Bob, can you can you address the first questions, Prapakon. Second questions will be Lester. Third question we don't, we have to check.
Prapakon Thongtheppairot: Divya. So Thailand, sorry that spirit business generally. Generally, so in majority of it now over 90% from Thailand and in quarter four the slowdown by COVID impact in terms of consumptions really hit hard because I think since the government have the lockdown in in April, May it start to show up in terms of consumptions and the government provide less support into income support to the, to the people who have the jobs as well. So in Q4 that, that started to show and I think it's just a very slow quarter for us. So that's what we see, basically. In terms of managing it, we have basically look at it from the overall and full year basis. And I think we'll, we'll look at the number on full year basis. We are reporting a good net profits and EBITDA for the year comparable with the year before. So I think what we'll just want to see, from that perspective, think from this Q1 currently, we have put in place, some gradual price increase. And so in the October November, we start to see some factor loading that coming back in in Q1 number. And looking forward to the opening of the segment, I think, on the ground, we are getting information that even though the government is saying that people shouldn't be cannot allow to be drinking on their pop-in bars and on premises in many locations. But it seemed that, people generally start to disobey and they start to drink. Because I think people have it's getting to New Year's and people probably have enough of it. It's not something that we encouraging but it's just we see that on the ground. And if that's happening, the consumption of alcoholic beverage about the portfolio that delivered by our company will probably get some benefit. Right after the New Year if pop-in bars open in January, we will start to see a lot more pickup into a brow -- sale as well.
Ueychai Tantha-Obhas: Lester, please.
Lester Tan Teck Chuan: Hi, Divya. This is Lester here. Let me let me go to your three questions one by one. The first question you asked was about market share for last year. I'm very happy to report that we picked up share. This is in spite of a lot of cost savings in our AMP as what Namfon mentioned earlier, so the share pickup was mainly due to better use of resources and better execution on the ground. So that part we picked up close to two percentage points in the market over the year. Your second question was about Espresso. This one not as good news, as as I would like to report. Basically Espresso was is mainly sold in the modern trade channel in the convenience stores. And so the success of the Espresso variant really is dependent on how well convenience stores to and you see that last year in the market, the convenience segment took a big hit. In fact, there were a lot of closures of stores. So we kept activity to a minimum for Espresso. But what I would like to report is, Espresso was also done was done for two reasons. One was obviously to excite the market with new products, new exciting products. And the second is when we launch new products, we would like them to be higher margin. So while Espresso being a higher margin item did not did not do so well as due to the market. I'm happy to report that Cold Brew our next higher margin item actually did well. And our share continues to climb. I think we are approaching the other brand and the market that is sold in a green bottle also, so our shares coming up against them. And we hope to surpass them in the near future. And your third question was about Boonron , have they had any pricing increases? At the moment, no. We have not observed any price increases on their end. Obviously we do keep a very close eye. I think both of us keep close eyes on each other. And again, we will move accordingly. But at the moment on their end, no, no price increases yet. Thank you.
Ueychai Tantha-Obhas: Thank you. Divya, I didn't get your third question. The third big questions. Would you repeat it again slowly?
Divya Gangahar Kothiyal: Sure. Sure. The third question was just any information on you know, x or any talk about excise tax changes in Thailand or in Vietnam, or any other regulatory changes related to the sector that we should be aware of?
Ueychai Tantha-Obhas: I will respond on the Thai side. I think the government has already increased the secret tax. And then as normally these the spirit and beer were coming, but we didn't hear anything yet. As I always mentioned in every time we have a we have these kind of sessions for these questions, tax increase is unavoidable. Okay. We do not, we cannot influence the government. But our track record, we always manage it well. And every time we have a tax increase, is our opportunity to move up the price to cover the tax plus slightly more higher margin. Okay. Because a normal day or normal situation if you move the price, come the consumer complaint. But with a tax increase, I think we can we can do a bit of that. And then don't get any, complaint from the consumer. So bottom line, we don't know. Okay, the government has already increased the cigarette tax. In the past it’s only few months after, then they announced the tax increase for beer or spirit. They haven't done that this time. So quiet. But we'll follow up closely, our eyes and ears closely to this matters. For Vietnam, I don't have any idea. Bennett, are you there? Can you give -- okay, can you respond that please?
Bennett Neo Gim Siong: Okay, I will do that thanks, Ueychai. Okay, for Vietnamese all there's always a rumour that excise tax will increase and the government wants to increase tax collection. But for us, we have been working as an industry as an industry within lobbying or talking to the government to ask to tell them that we shouldn’t increase excise tax. And we are very hopeful that there will be no tax increase very, very hopeful. Having said that, even if there's a tax increase, I think we have demonstrated that in the past, we always are able to pass on to consumers. And we never pass it on to consumers. And just four factor then we in fact, I mean, we just increase to just announce increase or price to December, sometime in November, our price will increase. So that would even indicate even if there's an excise tax increase coming, but I just want to reconfirm again that we are very hopeful that there will be no tax excise, tax increase in the coming year. Thank you.
Ueychai Tantha-Obhas: Thank you, Bennett. Thank you Divya for your questions.
Divya Gangahar Kothiyal: Can I, can I just have one clarification from Bob on the spirits business? Because I'm still struggling to understand that why the fourth quarter was as weak as it was? But could you comment on this October, November you mentioned that there's some price hike that's been taken, like when exactly was this taken? And how's the volume? Have the volumes improved in the fourth quarter -- in the first quarter, or are they still pretty lull? Because typically I mean spirits have been resilient, it doesn't get impacted so much from COVID related restrictions. So just wondering, what's the latest update on spirit volume? And when exactly what's this price hike taken and how much? Thank you.
Prapakon Thongtheppairot: Okay, Divya, let’s separate the two and go one price increase? Another one is the momentum or consumptions in the market Okay, the consumption in the market have started to suffer from the longer shutdown by the government. So the consumption start have some problem in Q4, that's what we see. And more so in the brown spirits front but not so much in white spirit side. But the relaxations of the socio distant and lockdown start to get better in October. Okay so that one take note and like our company, Thai beverage, we came back to the office in the middle of October, and we came back in full in the first week of November, we are now back in office. So it's not like, work from home. It's not, that doesn't work for us anymore. So that’s just to show this is happening, we start to see traffic jam in Bangkok. That's a good, good thing and bad thing. But the pollution is a bad thing. But when you see a traffic jam in Bangkok, that's mean, your back, that that's happened in a past years, since COVID arrived. So we start to see that. So we believe the economic activity have returned in October and November. We start to slowly come back, and the government now relaxing and have more tourists arrival, and also have program for domestic traveling as well. So at the moment, as we speak, we start to see a lot more moving back to normal. Okay, so the only thing that's not back to normal, it's just the pop-in bars and that are not allowed to open right now. And it will be after the New Year. The rest of the thing we see it's back and people on in the provincial side start to have more money and they will start to consume, FMCG products, consumer products like us. Okay, that's from the economic front. So absorbed consumer front, in terms of Q1 that we see. In terms of price adjustment, we have been planning this. In fact, the planning of some adjustment price increase have been postponed due to COVID for a while. Before COVID, we have price increase adjusted to our brown spirit right before COVID arrived in April last year, April 2020. Believe it or not, it's less than two years ago. So that may have been kept delaying, and we start to roll this out in October this year, gradual rise increase adjustment in our white spirit portfolio. So that we believe that the in the past 18 months, we do not see any drop in the demand of white spirit and therefore justify the change in price that we incorporated in, we are confident that over the long term, looking out one year, two year that is not going to impact our long fuel consumption. So how confident we are in to have a price increase. And the price increase will help also pay for obviously, a lot of commodity price they've been pushing up and some of molasses from the last crop that are quite expensive for us has also factored in, start to factor in into our P&L and our cost of goods. Okay, the outlook for spirit in Thailand, the outlook for raw material, especially molasses in this crop are much much lower, it's about 20% lower than last crop. So this crop we expecting a lot more sugar from sugar cane, the harvesting will start in early December this year. And we understand the forecast that there will be about 20% more in harvesting sugar. So therefore there will be 25% more supply and molasses and bring down the price. So I think that factor in nicely with our cost of goods being under control. We also start to see, especially in the last quarter, higher level of used bottle in both Ruang Khao White Spirit and Hong Thong Brown Spirit. So I think we probably can push that up a bit further this year to help mitigate those costs increase from glass bottles that meant some -- that some other gentlemen have mentioned earlier. Okay, so that's hopefully answer the Q4, the last bit is that last year in Q4, last year in Q4, we had trade promotions on our White Spirit in July, the first month of the Q4. So the overall volumes you see in Q4 last year, it's a bit elevated slightly due to trade promotions. We did not have it in this quarter because we think it's not necessary. And we're monitoring the level of inventory and I think towards the end of September the level of inventory have moved down to a level that we think is it's suitable, therefore we roll out those gradual price increases. So long answer, but I think not, we not worry so much about it. It's under control. Thank you.
Ueychai Tantha-Obhas: Thank you Divya for for the questions.
Divya Gangahar Kothiyal: Thank you Bob.
Operator: Thank you. Next question, we have from CLSA, Horng Han Low. Please go ahead.
Horng Han Low: Hello, everyone. Very good evening to you. Thank you for taking time to speak to us this evening. Are you able to hear me?
Namfon Aungsutornrungsi: Yes, we hear you.
Horng Han Low: Thank you so much. Thanks. I have a few questions. So please bear with me. The first question I have is, with regards to your promotional activities in FY 2022. How different do you think FY 2022 is likely to fit into promotion activities will be compared to FY 2021. And you see that dollar benefit on AMP spending to the similar or it could increase according to revenue? The second question I have is with regard to the gains in market share in the beer business? Do you see a possibility when your competitors will be more aggressive than AMP to regain market share? And if so, will you also react by increasing your AMP spending? I do recall your market share again has been quite consistent over the last one to two years. And the third question here is to do on beer. Do you have any plans to hike the prices in beer? And if so when would it be? Last question here will be in regards to spirits. I do recall one of the reason behind the resilient spirit performance was because I think some of the rural workers have returned back from city areas due to the COVID pandemic. And that is one of the drivers behind the spirits consumption in rural parts of Thailand. Now let's assume that Thailand is in the early phases of a long reopening over the next one to three years of full reopening in this scenario, where most of the some of the rural workers returned back to get jobs in Bangkok city, how would you see this very performance to be in terms of sales volume? That's all I have. Thank you so much.
Ueychai Tantha-Obhas: I will respond on the AMP questions. You asked whether these going forward, we are going to spend more. I cannot give you the exact answer because we depend on the situations. Definitely if situation allowed, we will have to come back and spend a bit but we already learned a lot during the COVID period that which one which kind of activities is work for us, which kind don't work for us. So it will be very, I think I can say is going to be very prudent, okay in the future. But hope actually, I hope that the situation getting better. So we can have the activities and really competing with the competitors. Of course, I think that we can think like this and the competitor will probably think the same and this is a fact of life. Okay. So that but I mean, to conclude we don't know -- we have to evaluate the situations. We wish, we can spend, we can do some activities and then get the consumer excitement and all that. And we believe that the competitors will not be still you know, and then you cannot just pretending that oh, they won't do anything at all. I think we are now competing hate to hate. Okay, because we gaining 2% market share. Of course they won't sit still.
Horng Han Low: Okay, understand.
Lester Tan Teck Chuan: Hi, hello, this Lester here. I just add a little bit here. The AMP Ueychai just mentioned, as well as covered a little bit about how competitive competitors will react to try and get the share back. As Ueychai mentioned, it is a fact of life, working in a competitive market, both sides will try and take share from each other. Hopefully, we will not use money as the tool to buy share back or to buy volumes back. What we've been very fortunate with in during the COVID period was that because of the lack of activities, it gave us more time to actually take a step back and review all the activities, all the AMP activities that we do. We’ve broken down into all 14 activities that we do. And we worked out an ROI for each category of activity. And we now know which activities do give us the best returns and which ones actually make us lose money in running these activities. And those are the ones that we will stop. So when you ask about will we spend more? Hard to say, but what I can say is, we will definitely spend more prudently. And that money that we spend will be more effectively used to get returns in the market. I think that is clear that every part that we spend will work harder for us to get volume and to get shared from the competitor. Your last question was about price increase. This was answered, the first round already Ueychai also mentioned that we will monitor cost increases, and also monitor what the competitor is doing in the market. And we will have to balance it all all together. Because we while we want to cover any increases in our cost of goods, we also want to have to balance that with potential volume losses if the price increase is too high. So it is a balancing act. At the moment now, we are still in the review period. As and when prices go up too high, we will have to seriously consider a price increase when the time is correct.
Horng Han Low: Got it. Thank you.
Ueychai Tantha-Obhas: Thank you. Thank you for the question.
Operator: Thank you. And the next question is from….
Horng Han Low: I'm sorry, I was referring to that. I think the question is we got to the spirits performance. If someone's able to address it becomes performance can be should Thailand return to fully opening within their ability some of their resilience over the past one year…
Ueychai Tantha-Obhas: Yes. Okay, you're right. Last year, when COVID arrived, I think we see worker migrations; two part, foreign worker left. Myanmar, Cambodian left, they went back. I think also the Thai workers or staff from more tourist area really more tourist related area Bangkok, Chon Buri, Pattaya, Phuket they are moving back to the northeast. And that's what contributed to, to a higher level of proportion of sell in those area, in a rural area where we also have strength in term of distribution. So as we expected, the as the economy returned, service sector will open up, we'll start to see the better consumptions in tourist now, which we are excited to see in Chon Buri in Phuket. We start to see a lot more of consumptions. And so, it is anticipated and we have, have the team ready for the returns. In the past year, we see a lot of decline in the channel or modern traits, like in the that macro, those two channel, but are we anticipating those channel will have higher proportion of sale returning back. So that's something we also have the strength in term of distributions in that channel as well. Okay, so that's something we are anticipating and be ready for that.
Horng Han Low: Sure, thank you. Thanks for the clarity. Appreciate it.
Operator: Next question is from Credit Suisse, Nicholas Teh. Please go ahead.
Nicholas Teh: Thanks for taking my question. Guess three questions for me. Wanted to ask to clarify what you mentioned on the IPO earlier, if I heard it correctly, that you've restarted the process now and brought back the financial and legal advisors but timing is still uncertain. The second question is on the forward buying on the malt and molasses. How fast forward if you can roughly tell us have you bought for it for? And then the final question is just on SG&A. I guess over the past one to one half year during COVID and AMP spend has come down. But in terms of other kinds of SG&A are then permanent savings of cost cutting that you've done during this period that would keep SG&A low even as we reopen?
Sithichai Chaikriangkrai: Sithichai, ThaiBev’s CFO. Normally you know that all the FALA they don't want to spend too long. Normally the process since last time we compete the offering Satilla we compete is come to update the FY 2021 or even the quarter performance on the FY 22. So I think it doesn't take long. Normally for FALA maximum they do is about all the they have no job to do.
Ueychai Tantha-Obhas: Nicolas on the forward buying I cannot tell you exactly. But I can hint we can sleep well for the next six months.
Unidentified Company Representative: I think that's referred to mole, I think for molasses. Molasses in Thailand, there's no forward buying because it's a -- it's an annual crop. So it is something that is awesome. All mostly domestic and crop based on the sugar plantations crop harvesting. So we generally buy right before the harvesting period, which is about now and therefore that's why we have provided some indication that molasses prices have come down substantially from last year because we anticipating and the industry and is anticipating more about 20% more sugar harvesting for this this annual period.
Ueychai Tantha-Obhas: Your last question about potential outfit and whether we can save more SG&A. I think we find any opportunity to save but we will not save until it's hurt our future will have in future operational performance. So there are some, but I think the key one is AMP.
Nicholas Teh: Thank you.
Operator: Thank you. Next question from UBS, Permada Darmono. Please go ahead.
Permada Darmono: Hi, good evening. Thank you so much for the opportunity. I have a few questions. So in terms of the Spirit sales in Myanmar, if I look at the financial disclosure in the sales in other in other spirits, it’s up 5% year-on-year. Given the weakness in Khao, and the situation in your Myanmar obviously, that's an impressive performance. Can you provide some color how you managed to increase sales in both in bought in Baht turns and volume terms?
Prapakon Thongtheppairot: Part of the sale outside Thailand or international markets are also covered by our scotch whisky business. And in our whisky business, we have done very well this year. I think it's also part of European economy and U.K. and Europe economy returned back to normal. So that's helped with the demand. In Myanmar, the I mentioned earlier, net profit in the local currency have increased for the year. So we adjusted for the exchange. We are looking at the numbers and flat interval profitability cost cutting, higher level of control and higher efficiency in plant management, our direct raw material price within our control. So volumes are down to about 5%, 6%, 7% not much for the annual period, so that's why we managed to have a higher profit for the year. So basically there's no secret to how to run that Myanmar business at this environment. It's about making goods and collecting the money. So it's because as we show in credit so we are as mentioned, we are paying we monitor our aging receivable. We're tightening it even more so at the moment.
Permada Darmono: Thank you Bob. So I'm assuming that would it be fair to say that the driver of the performance in spirits sales in other it's more of the U.K. and Europe from Scotch versus whisky rather than Myanmar?
Ueychai Tantha-Obhas: That's, that's great.
Permada Darmono: Okay, secondly, on the beer margins if I can sort of ask and Lester. The investor feedback on the big typically it's like investors are finding it hard to predict or forecast what is the sustainable margin of the Thai beer business and it's encouraging to hear your initiatives on focusing on higher return from in advertising and promotion stem. But can I ask a actually, you have an explicit kind of margin target for, for the company on a sustainable basis. And also, with respect to tourist spending on beer pre-pandemic, what is the contribution from tourists spending typically on beer sales in Thailand?
Lester Tan Teck Chuan: Yes, hi, Permada, Lester here. Just asked -- to talk about a specific target for beer margins, no particular target, what we do is we do benchmark other beer players and around the world. And, and we try to reach those kinds of margin levels. Obviously, we are mainly a mainstream player, where you do see other international beer companies, they do have an extensive premium portfolio. So we know it will be difficult to match them, but we want to be as close as we can. So the target for us is to always be improving our current margin levels to move them up. So a couple of ways, obviously, one is to sell more premium margin products. At the same time, we also want to lower the costs and make our spending more efficient. So that is the plan. So no particular target in mind that we set in mind.
Permada Darmono: And tourist spending, in terms of the tourist spending contribution historically, pre-pandemic on beer?
Lester Tan Teck Chuan: We don't keep track of how much tourists spend on our beers. Although in the tourist areas, again, the bulk of our volumes come not from the tourist areas, but in the traditional trade and the rest of the country. I cannot -- the volumes that we get from the tourists are not smart, not large. But again, they're not they're not small either. So, but they're not major enough to affect our total volumes. Again, like I said, the bulk of our volumes come from the traditional trade in the in the traditional areas of the country. But we will take as much as we can from the tourists when they when they do come back. Thank you.
Permada Darmono: But you'd be able to see the fluctuation symptoms that their sales from like areas of Phuket and Chon Buri and all of that, right, like between pandemic and pre-pandemic and without even trying to measure it, you'd be able to see roughly.
Lester Tan Teck Chuan: Yes, we are we do see that the southern area where most of the tourists areas, that the tourist islands are Phuket, Krabi, among all those areas. The southern region is actually the smallest of all the regions in the country. So while we saw a drop in the southern region, what we tried to do is was to pivot away from the tourist areas into the local areas, even in the south. So but the south is the smallest contributing area in the entire country for us. Not particularly big.
Permada Darmono: Got it. Thank you very much Lester. And if I may, Bennett on Vietnam, we've received a bunch of, or we're checking the situation there that essentially around 20 out of 53 provinces. And now in level five in terms of highest stress. You mentioned earlier in your quarterly briefing as well. The reopening by the government is quite cautious. What's the situation from underground right now in terms of on-premise reopening? And how do you see it in terms of going back to normal in Vietnam?
Bennett Neo Gim Siong: Hi, Permada.
Permada Darmono: Hi.
Bennett Neo Gim Siong: If I were to sum it, I think the Vietnam is learning to live with COVID. That's the first thing. They will not go back to the kind of draconian kind of lockdown anymore. We believe that, because the economy needs to be running. So that's the first thing. If you see as in any country, that living with COVID the cases come down and we start opening up then the cases rise again. However, because of better vaccination rates, the cases that require ICU oxygen are less. So I think we are going through that stage where Singapore has been through and many other countries been through. So the cases are now sadly to keep up. But they I think they are very controlled in the sense that the government will not lock down the entire province anymore. They probably look at what look at districts to lockdown if any right now. So we've seen a bit of lockdown here and there. But it's very limited to just districts, lockdown is not the entire province. So in a way we see a consumption coming back. In fact, we can see people coming out, you see people dining out more and consuming alcohol already. So I believe that this is going to be a gradual recovery. And it -- I would say you chart the straight line all the way to July, when from now to July, I think you will get better and better barring any big surprises that the investor in second half of July will see, more or less, what we see in 2018, 19. And if you ask me, then probably hopefully at 2023, you will be back to 2019 level. So in a way, it's coming back, I see people out. I see people drinking and people getting jobs, they're able to afford to buy alcohol. So that's good news for us.
Permada Darmono: Thank you, Bennett. And last question to Ueychai is around. We are seeing push from Kentucky Fried Chicken to move into plant based meats. Recently, one of the companies recover corn, for example, they said there's going to be a joint statement of collaboration between corn and KFC across Asia and Europe, on plant based meat in Thailand as well like meat zero, obviously it's around and so forth. Any plans for KFC to move into plant based meat nuggets. And secondly, as well on Ham, like the pizza company has pizza campaign right now containing hands any move towards food containing ham or drinks for that matter?
Unidentified Company Representative: Yes, thank you. This is . Actually, we do have the plant based chicken nuggets and also chicken pop. Okay, and we do actually test in our labs, and starting in, if I'm not wrong in August or September, okay, it's doing pretty good. It's a local plant based meat. We got a very good feedback with the RPR communication and also people would like to try. Okay, so we are having that in our current plan and probably we will roll out pretty soon. Thank you.
Permada Darmono: So the supplier is local, is that right?
Unidentified Company Representative: Yes, yes, it's local.
Permada Darmono: Okay, great. And with respect to ham, any move toward cannabis containing beverages or food?
Unidentified Company Representative: No, not yet on that plant.
Permada Darmono: Okay, great. Thank you so much for answering my questions. I really appreciate it. Have a good evening. And of course, good luck for the fourth quarter of the calendar year.
Ueychai Tantha-Obhas: Thank you.
Operator: Thank you. Next question from Bayard Asset Management, Deepinder Bhatia. Please go ahead.
Deepinder Bhatia: Hi, can you hear me clearly?
Ueychai Tantha-Obhas: Yes.
Deepinder Bhatia: Great. Thank you. So, the question I have is really around the free cash flows being generated by the company currently and the dividend policy as I understand that 50% payout ratio. Could you give some medium term vision into how you see both cash flows evolving the policy as it currently stands, debt reduction, investment, either organic or acquisition based opportunities. If you could just please try and tie together some of these different strands, all of which are somewhat interconnected. That would be great. Thank you.
Sithichai Chaikriangkrai: It’s Sithichai. So you can see that we are strongly committed the payout not less than 50% been subjected to cash flow. So now for our you know, that target now we are high gearing, but while we still commit 50% because we have the pen to the leverage. The level is for the -- we need to make announcement for the vehicle IPO and now we are on the investor back to do it again. And we believe we can deliver they come to loaded on that one Are there any big investment calendar we have no any big investments at the CapEx, you can see the FY 2021 our CapEx, very low, not big. Normally, our CapEx 4 million to 5 million. But this year, that's about 2 billion to 3 billion only. That's why we had to be careful. So we can pay dividends. And they have to make the level of to deliver the thing not too high then.
Deepinder Bhatia: Understood. So as you look around at acquisition opportunities, are there any that are of interest? And if so, what would be some of the areas that you might consider for inorganic investment opportunities? That's sort of my follow up part one. And then as to follow up part two, can you please give an idea, even though we are in somewhat of a lower volume growth scenario, currently post COVID during COVID and post COVID. I just want to understand the capacity utilizations that are currently in place at the current point in time and how much further capacity utilization is available, before you may need to have any specific capacity increases or CapEx increases over and above the level that we are seeing currently? Thank you.
Sithichai Chaikriangkrai: Sithichai. Normally, we have so many good relationship with order on the bank, investment bank, commercial bank, but the method and oversee the half the purpose are so many M&A, but they are consider whenever we have any comment, we make announcement to the stock market. But now no focus on organic side only for the capacity to know the -- Pisanu Vichiensanth to answer.
Pisanu Vichiensanth: Hello. For the capacity, we are using just around you know, 50% to 60% of our both our DC release and Beverage. So you know, for the big CapEx is not you know, it's not in the near future for sure. Thank you.
Deepinder Bhatia: Understood. My last follow up here, if I may, really quickly, based on the scenario that you're describing capacity utilization in place, dividend payout and debt reduction. It should seem that in not the distant future, your debt levels may be really quite, quite healthy. They're already well supported. But they may be even quite a bit significantly stronger. I understand that dividend payout is a board matter. But just to understand and get a little bit of visibility and vision into how you're thinking about either re levering maintaining a certain leverage or increasing a payout policy or share buybacks. Could you give us a little bit of a longer range view here, in the absence of any major acquisition, how that would evolve? And here I have not even brought up the beer listing I leave that aside in the current conversation. But even on a organic basis, your debt levels will be very healthy. And I'm trying to understand is there a target levels you would like to maintain at and how you see the payout ratio or share buybacks as some other form of capital return evolving in that scenario? That's my final question. Thank you very much.
Sithichai Chaikriangkrai: Okay, my target that level net debt to EBITDA less than four, net debt to EBITDA less than four, these are my target level. But we would like to keep healthy, healthy, you know that. Now going forward, in the USA now this may be that we started tapering the QE, and maybe another year or two year they will start to increase interlace. So have to be careful this one. But whenever we have a need to utilize our healthy I would think we make announcement.
Deepinder Bhatia: All right. Thank you very much. And good luck for the rest of the year and beyond.
Sithichai Chaikriangkrai: Thank you. We need that.
Operator: Thank you. Next question from Philip Securities, Paul Chew. Please go ahead.
Paul Chew: Yes, thanks. Just two questions on the series business. Typically, after you make a price hike for white spirits, I was just wondering what has typically been the past behavior of consumers or is it limited impacting. I guess there are no legal alternatives, that’s my first question. And can I just trouble you again just on spirits so what can help the rural economy, especially in the northeast, to help support the spirit consumption? Just a general, macro question? Thanks. These are my two questions. Thank you.
Ueychai Tantha-Obhas: So in terms of price elasticity for white spirit, it's actually not in the it's not very high. I mean, we seen that on the price increase, demand will catch up quite quickly. And with the strength of demand in the past 18 months, we see we're confident that although the consumer price will rise, it will not affect our volume by that much. So I think it's a good payoff in terms of price increase with this slight decline in volumes near term. So in terms of what would drive the north eastern consumptions or even rural area, it's just general economy. I think the return of the service industry to tourism industry generally, would allow Thailand as a country to have a higher GDP. So I think the rest of the segment, we think is quite normal. I mean, agricultural is it's seasonal. And so I think that's, that's all the comments we have on this.
Paul Chew: Okay, thank you.
Operator: Thank you. We have a follow up question from CLSA Horng Han Low. Please go ahead.
Horng Han Low: Hi, hello, everyone. I just wanted to have one question, because on my regards to the timing of the beer IPO, I understand the IPO was postponed early this year due to COVID. And if you look at the situation now, we are probably in the early phase of recovery from COVID. And Tobacco if you looked at the market share is just starting to improve and get better. So there is clearly earnings recovery potential, but it's going to take quite a bit of time for it to materialize, given how volatile the macro environment can be. So the key question I have is, why this now, why not later when the economy or consumption spending patterns are better? Second, second question is with regards to the cash proceeds is management looking for it to use more for M&A purposes or to de-leverage? Thank you.
Ueychai Tantha-Obhas: Ueychai here. So we see that you can see Thailand. We used to have more than 20,000 case a day. Now they do to about 5000 cases a day. So and Thailand, opened the country for tourists. We have to unlock a lot of vaccination, first dose 70% to 80%, second dose about 50%. Even in Vietnam, they can’t control the COVID. But you know now to say that now U.S. or the world, the capital market, they start to taper the QE. I say we're lucky that that's the non-increase interest. So on my view, it's good time to restart the IPO. You wait another year or two year COVID is a normal life, the normal other business. You have to make a vaccination, you have to make a third note, you have to make any protection for this one. But if another -- one or two here in the U.S. start to increase intellect, you will increase the delays difficult for you to sell IPO because the people who like to invest in the debt capital market that had exactly you. So I think it's a good time to learn the equity capital market IPO now it's better than to wait. If you see that and said hey, we'll make product none any new opportunity for the make any investment that fits to the shareholder but major is the de-leverage.
Horng Han Low: Okay, sure. Sorry, if I didn't hear you wrongly, I think you're talking about potentially look looking to improve the balance sheet of the casualty tray, and not so much for M&A purposes for the cash proceeds.
Namfon Aungsutornrungsi: Yes, correct.
Horng Han Low: Okay, thank you. Thank you, sir. Good evening. Thank you for the clarity on the question. Thank you.
Operator: Thank you Okay the next follow up question from Morgan Stanley Divya. Please go ahead.
Divya Gangahar Kothiyal: Thank you. Just a couple of numbers that that were missing from the earlier explanation. Could you give us the mended average price hike that has been taken for the white spirits business? And also, what's the current return rate for bottles versus where we were historically before the bottle change? And the second is on the beer business. Could you just tell us a split now between bottles versus cans for both Thailand and Vietnam? Thanks.
Ueychai Tantha-Obhas: In terms of price increase UPL. In terms of white spirit price increase DPR asked me six months from now or haven't finished it. So it's, it's still a trade secret at the moment. So until we then probably finish it in the second queue. So I think after our first six months number, when we have the call I will answer that questions. In terms of the used bottle return, it’s have especially white spirits since have increased to very close to the optimal level. Last year, I think our used bottle for large and small running around 30%. This year we are running around sorry 20% to 25%. This year, we are closing in about 40, 45. So we think that about 55 to 60 will probably require high optimal level. So we still have about 10%, 15% more to go in terms of optimizations of used bottle.
Lester Tan Teck Chuan: Hi, Divya. This is Lester here. To talk about the pack split for beer in Thailand. We are mainly a bottle market 87% about 87% of our total volumes are bottles, 12% cans and then the balance 1% is showing draught beer in casks. So we are primarily a bottle market. I think this is this is why we focus so much on getting used bottles back because it really drives the our cost down when we use higher amounts of used bottles from the market. Thank you.
Ueychai Tantha-Obhas: Can Bennett respond on that…
Bennett Neo Gim Siong: Yes. So for Vietnam in the past, I mean, market is about 50%, 55%, 60% can. During the pandemic it has gone up to above 70%. And primary because the on trade outlets are closed. So the lockdown is -- lockdown with trade in these bottles. Even then more than 70 and we expect them to come down over time when the on trade orders start to open. So we are going back towards the 60s we believe in the coming year or two. Thank you.
Divya Gangahar Kothiyal: Thank you. Thank you very much for the clarification.
Operator: Thank you. There are currently no questions. As there is no further questions, we will now begin with closing comments. Please go ahead. Miss. Namfon Aungsutornrungsi.
Namfon Aungsutornrungsi: Thank you for joining Thai Beverage conference call tonight. And if you have any more questions, please feel free to contact IR department at ir@thaibev.com. Thank you and have a good night.