Q4 2017 Thai Beverage PCL Earnings Call
Nov 24, 2017 AM SGT
Y92.SI - Thai Beverage PCL
Q4 2017 Thai Beverage PCL Earnings Call
Nov 24, 2017 / 10:30AM GMT
==============================
Corporate Participants
==============================
* Namfon Aungsutornrungsi
* Prapakon Thongtheppairot
Thai Beverage Public Company Limited - EVP
* Ueychai Tantha-Obhas
Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director
==============================
Conference Call Participants
==============================
* Cecilia Mak
* Chalinee Congmuang
Macquarie Research - Analyst
* Juliana Cai
RHB Research Institute Sdn Bhd - Research Analyst
* Nicholas Teh
Crédit Suisse AG, Research Division - Research Analyst
* Nico Yosman
* Thai Wei Ying
UOB Kay Hian Research Pte Ltd - Investment Analyst
* Thitithep Nophaket
BofA Merrill Lynch, Research Division - Research Analyst
==============================
Presentation
------------------------------
Operator [1]
------------------------------
Ladies and gentlemen, good evening, everyone and thank you for joining the Thai Beverage Financial Year 2017 Results Call. (Operator Instructions) I will now hand over the call to the presenters, Ms. Namfon Aungsutornrungsi, ThaiBev's Head of Investor Relations and the members of ThaiBev's senior management team. Thank you.
------------------------------
Namfon Aungsutornrungsi, [2]
------------------------------
Good evening, ladies and gentlemen. Welcome to Thai Beverage's Full Year Ended the 30th of September, 2017 Financial Results Conference Call. I am Namfon Aungsutornrungsi, Head of Investor Relations. We will start the call today with a summary of the full year 2017 result. Then we will open the line for a Q&A session with our management team here. Before we start the summary, our financial results, I'm glad to inform you that in September 2017, Moody's upgraded ThaiBev's credit rating based on the improvement in our financial profile. The upgrading is one notch higher from Baa3 Outlook Positive to Baa2 Outlook Stable.
For the summary of the fiscal year 2017 financial results. In 2017, beverage industry in Thailand was mainly affected by the slowdown in consumption during the mourning period and the implementation of new Excise Tax Act. The new act changes the base of excise tax calculation from last wholesale prices to recommended retail prices and impose tax on sugar content in non-alcoholic beverages. Agents and retailers were alarmed by the new excise tax, which is effective in the middle of September 2017, resulting in higher purchase orders before the excise tax increase. We have adjusted our product prices to cover the cost from both new alcohol excise tax and the first-ever sugar tax on non-alcoholic beverages.
Total sales revenue of the company for the year ended the 30th of September 2017 was THB 189,997 million, a decrease of 0.02% year-on-year, attributable to a decrease in sales revenue of beer and non-alcoholic beverages business due to the effects for mourning period. Net profit from normal operation was THB 26,184 million, an increase of 4.6% compared to last year. This was due to an increase in net profit of spirits both F&N, FCL and a decrease in net loss of non-alcoholic beverages business. We recognized F&N's fair value gains on financial assets of THB 8,497 million in this year. Including this fair value gain, the company delivered net profit of THB 34,681 million, an increase of 38.5% when compared year-on-year.
The board of directors has proposed to issue a dividend of THB 16,824 million or THB 0.67 per share. This is the payout ratio of 65%. Please note that the interim dividend was paid in June 2017 at THB 0.2 per share and the remaining dividend will be THB 0.47 per share.
In October 2017, International Beverage Holdings (Singapore) Limited has acquired an aggregate 75% interest in the shares of Grand Royal Group. This acquisition is part of ThaiBev's spirits product group's expansion into Myanmar. With its high quality type [resale] products and strong distribution capabilities, Grand Royal Group will be the main driver of the spirits business in Myanmar going forward. For the year ended the 30th of September 2017, spirits business generated sales revenue of THB 109,297 million, increased by THB 2,798 million compared to last year. Total spirits sales volume rose by 2.7% because agents and retailers were alerted by the implementation of new Excise Tax Act resulting in higher purchasing orders. Net profit of the business in this year grew by 2.1% to THB 20,420 million.
Sales revenue of beer business for the year ended the 30th of September 2017 was THB 57,326 million, decreased by 4.7% compared to last year. This was attributable to continued effects of the mourning period and economic situation. Nevertheless, beer's gross profit increased by 6.4% from a decrease in bottle and raw material costs. However, an increase in A&P costs, its net profit decline by 4.1% to THB 3,130 million.
Non-alcoholic beverages business reported 2017 sales revenue of THB 16,777 million, slightly dropped by 0.9% compared to last year. This was due to a decrease in sales volume of some products despite an increase in sales volume of drinking water and ready to drink tea. However, cost efficiency caused a decline in packaging cost and advertising and promotion expenses. As a result, net loss of the business improved by 45.5% compared to the net loss of last year.
Although on-trade consumption has not been fully recovered yet, the food business was able to register a sales revenue of THB 6,742 million, increased by 1.5% due to opening of new restaurants. Moreover, net profit grew by 18.2% to THB 104 million as a result of an increase in selling price, cost efficiency and a decrease in depreciation.
Sales revenue of international business for the year ended the 30th of September 2017 declined by 15.8% compared to last year. This was impacted by a decrease in sales revenue of beer and international spirits. The negative growth in beer was mainly due to the slowdown in ASEAN sales despite positive sales growth in some markets such as Singapore and Cambodia while the decrease in spirits sales revenue was mainly from the weak sterling and a decrease in sales from OEM brands. We will now open the call for any questions on our results. Operator, please help open the line for Q&A.
==============================
Questions and Answers
------------------------------
Operator [1]
------------------------------
(Operator Instructions) Our first question, Thitithep Nophaket from Phatra Securities.
------------------------------
Thitithep Nophaket, BofA Merrill Lynch, Research Division - Research Analyst [2]
------------------------------
I have 4 questions. The first one is about the retail price adjustment after excise tax increase, I noticed that you have already raised the spirit price and then the bottle green tea price, but not yet the beer price. Can you clarify your plan on the price, are you going to pass on to the higher capital consumer? That's the first question. Second question, I assume that you will have to drawdown new debt to acquire the brand [Yum] and also the KFC store in Thailand. So I assume that the debt ratio would go up, would you consider changing the dividend policy? Are you seeing differences starting now to maintain the 65% payout ratio? The third question is that the mourning period has come to an end, should we expect marketing expense to go up in the fiscal year 2018? And then the last question, can you update us on the potential impact of the new Chang into the white spirits, the Tawandang white spirits? Thank you.
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [3]
------------------------------
We've been (inaudible) here for the beer business. For beer, in terms of the recent excise high, we actually did increase our prices with spirits, (inaudible). We think the retail price, this is very much net to the retailers to manage it. So if you go to the traditional sales conduct with prices, we adjusted (inaudible) we are not really stunned when we say that (inaudible). The next thing we wanted to find out is, in terms of moving marketing spend for this year, I think the royalty percentage that we are comfortable with, the company is just trying to find, yet, we have seen increases in very much the same percentages that we have been getting in the past 2 years. The dividend portfolio of (inaudible) and the process of KFC is still in a quiet season. This is (inaudible) compared to our EBITDA and equity, it's not big. So I believe (inaudible) dividend payout, not less than 50%, but we will see -- but not really see the problem, but it does with compare with that. It is not less than 50% payout ratio.
------------------------------
Unidentified Company Representative, [4]
------------------------------
And the fourth question relating to white spirit competitors, the Tawandang. I think as of now, we have yet to see any significant sale impact. We have yet to see a repeating consumption for that particular brand that you mentioned. There are some distributions in the market, but not a lot based on our intelligence, our data that we have. And most of the consumer or the retailer are seeing quite some in line with each other that normal times that some consumers drive and don't have a big (inaudible). So that's kind of where we are. I don't think it will be something at this point raise a level a lot to us.
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [5]
------------------------------
Thitithep, this is Ueychai. We are monitoring the distributions of the Tawandang closely, since it has started to distribute. We -- out of the 270,000 outlets that we have a direct call, less than 20,000 outlets have Tawandang. So still very small, not significant. So the impact at the moment is not big.
------------------------------
Thitithep Nophaket, BofA Merrill Lynch, Research Division - Research Analyst [6]
------------------------------
Right. (inaudible) I didn't quite catch you, the line was breaking. So how many percent of the [PFIs] increased that you have raised?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [7]
------------------------------
60% roughly --.
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [8]
------------------------------
Price increase wasn't there.
------------------------------
Thitithep Nophaket, BofA Merrill Lynch, Research Division - Research Analyst [9]
------------------------------
Yes, for the consumer?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [10]
------------------------------
You know, consumer, 43%. 43% right?
------------------------------
Thitithep Nophaket, BofA Merrill Lynch, Research Division - Research Analyst [11]
------------------------------
Either for the trade or for the end consumer, I'm trying to get the potential impact on the sales volume.
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [12]
------------------------------
The increase was about close to 3% to 4%. In terms of currency (inaudible).
------------------------------
Unidentified Company Representative, [13]
------------------------------
Thitithep, consumer price will vary in the different channels. So that will be -- we pushed the price up by -- to cover the cost and everything by 3.5%, 3.7%.
------------------------------
Namfon Aungsutornrungsi, [14]
------------------------------
Okay. So it is a lot better. So eventually I mean, the total consumer price, quite a bit of it is very much left to the retailer, in terms of the margins and what they enjoy, and that varies for the channels.
------------------------------
Operator [15]
------------------------------
Our next question, Wei Ying Thai from UOB Kay Hian.
------------------------------
Thai Wei Ying, UOB Kay Hian Research Pte Ltd - Investment Analyst [16]
------------------------------
I have 2 questions. In terms of beer, can you give us color on the competitive landscape, and how do you see market share going to FY '18? And are you seeing any price competition for beer? And my second question is for the nonalcoholic beverage, can you share the market share for the different segments? Thanks.
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [17]
------------------------------
Okay. In terms of the competitive landscape, yes, we remain very much the same. We still have (inaudible) quite active in the market. The rest of it means internal and a little bit of Tiger. Activity has actually increased ever since the end of the mourning period. Yet, we are not -- just thinking of the new [craft beer or cold or smooth] beer. And that's actually very, very small. I think they are targeting the (inaudible) in the market, but at the price point of above THB 60 for the (inaudible). So with that we will probably reach the target (inaudible). Otherwise it has been very much business as usual. But likewise on that end, we have also upped (inaudible) activities. So we are also trading in the market, beating the necessary different consumers. In terms of market share, fair to say that, that we remained quite since constant since -- of course, I told in gross margin. We were down slightly in the September, but we went up again in October. So fair to say that, we have kind of remained constant over the market.
------------------------------
Unidentified Company Representative, [18]
------------------------------
On the second question, [Lessa] can you answer Lessa? Are you in the line?
------------------------------
Unidentified Company Representative, [19]
------------------------------
Yes, I am. I mean let me take this question here. Asking about the market share, the different (inaudible) the 2 market leading brands, Crystal water is #1 in Thailand. So it hovers between 50% and 51% of the market. And green tea, Oishi is the #1 green tea in Thailand. And this one is moving -- steadily growing around [6%] of the market. Est Coke we hover had about 10% of the market, while Est flavors, the complex flavors for the Est range grew that significantly during the year. We used to be at about 9%, 10%, and this year we showed up to 19% at the last meeting. So generally those are the straight readings for the nonalcoholic.
------------------------------
Operator [20]
------------------------------
Our next question (inaudible).
------------------------------
Unidentified Analyst, [21]
------------------------------
I just have 3 questions. My first question is, can you maybe talk a bit about the gross profit margin for beers in Q4? Why this margin is confident, is it due to the new Ruang Khao Silver bottles? And my second question is, can you maybe share a bit more color on, when are you launching this new Ruang Khao Silver product. And my third question is, with respect to concrete distribution for the year, does it help improve at having Ruang Khao Silver product in terms of (inaudible)?
------------------------------
Unidentified Company Representative, [22]
------------------------------
Prapkon, can you take the first question?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [23]
------------------------------
Q4 margin has increased -- improved and compensating this (inaudible).
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [24]
------------------------------
Bob, can you take the first question? Q4 margin is increased (technical difficulty).
------------------------------
Namfon Aungsutornrungsi, [25]
------------------------------
In terms of the cost of goods sold under fourth quarter, it's not because of the wrong COGS, they were [stabilized], it's not impact under cost of goods sold, it's mainly because of the product mix in that quarter. And [Ruang Khao] we just launched it in November.
------------------------------
Unidentified Analyst, [26]
------------------------------
A bit on the product mix?
------------------------------
Namfon Aungsutornrungsi, [27]
------------------------------
Yes.
------------------------------
Unidentified Analyst, [28]
------------------------------
You'd agree on the product mix that the lower gross profit margin in spirits this quarter?
------------------------------
Namfon Aungsutornrungsi, [29]
------------------------------
Can you repeat the question?
------------------------------
Unidentified Analyst, [30]
------------------------------
You agree on product mix that caused the lower gross profit margin in spirits?
------------------------------
Namfon Aungsutornrungsi, [31]
------------------------------
We didn't breakdown in terms of the brand. Yes, as for this one -- it's very low because of the product mix but we cannot in deep in detail about which brand and what is the proportion on that.
------------------------------
Unidentified Analyst, [32]
------------------------------
Okay. Another question on the on-trade distribution. I think when we met in Singapore earlier, you said that you guys trying to improve the on-trade distribution reach for beer. So what of selling this new product in terms of on-trade distribution.
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [33]
------------------------------
Okay, let me answer this. You are referring to Ruang Khao which is a white spirit product. It is not and it should not be viewed as an add-on to distribution on-premises on beer because on-premises beer distribution probably have the highest in term of distribution among our alcoholic beverage products because beer easier acceptable to a variety of the on-premises consumption from a night outlet like pub bars, half restaurants or even food service restaurants and general restaurant by that definition. So when you compare to spirit, the existing [bars consumptions] would have lesser distribution for it than beer in general and that's just a market we form. Now the new products Ruang Khao Silver is a premium white spirit which generally do not have market presence in on-premises because white spirit have historically been an off-premises product that consume at home or out of home but not in the restaurant itself. So what we have done in term of launching this product is to try to improve market presence of white spirit in on-premises consumption but these are low energy on-premises consumption. So on-premises consumption you have the low energy type, the high energy type. So the high energy type generally are described brown spirit/beer where the low energy type do not have neither white or lesser brown but no white but a lots of beer are distributed. So to answer to it, the on-premises penetration is still small for Ruang Khao Silver but it's a good start in term of having an access, creating consumer access to white spirit on on-premises in the low energy type outlet. Hopefully, that answer to your questions.
------------------------------
Operator [34]
------------------------------
Our next question Cecilia Mak from One North Capital.
------------------------------
Cecilia Mak, [35]
------------------------------
I have more massive questions, actually for the (inaudible) volume and operating leverage, could you maybe give us an idea how the Thai beer market can be eventually or at a steady state because if I compare the other countries, the Thai beer market actually have a very low profitability compared to the other country relative to the degree of consolidation. I'm just trying to see, now that you have turnaround or improved your beer, what is the steady state or what is the [boost high] if possible? And sorry, my second question is, how much more scope is the premiumization in general for most of your products, beer and as well as non-alcoholic products? Thank you.
------------------------------
Namfon Aungsutornrungsi, [36]
------------------------------
(technical difficulty) Hi, Cecilia. I think in terms of -- when you talk about the margin of our business in the alcohol, you need to -- when you compare with the global peers, you need to take into account that when we report, we include our excise tax in the sales. So you need to compare with the net sales after tax. If you mention about our beer business, I think in the [rest when you compare with global peers, we are quite the same range] of Heineken and Carlsberg now.
------------------------------
Unidentified Analyst, [37]
------------------------------
Excuse me, [Cecilia, this is Min] here. I think when you refer to the beer margin, are you looking at the margin that we've given to you like 7.9% or what sort of margins are you looking at because if you remove --
------------------------------
Namfon Aungsutornrungsi, [38]
------------------------------
I'm sorry, could you -- you're breaking up, could you repeat your question please?
------------------------------
Unidentified Analyst, [39]
------------------------------
Yes, when you refer to the margins for beer, what sort of margins are you looking at, are you -- do you take into consideration the excise duty or after the excise duty, because --
------------------------------
Namfon Aungsutornrungsi, [40]
------------------------------
Actually yes, I understand different countries have different [taxes] and Thailand has one of the highest, but there are other industries or other country type also have very high excise tax for example, in [AMES]. In terms of EBITDA, they are all in double digit.
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [41]
------------------------------
Yes, so I think what we tend to look at when we compare apples to apples, we remove the excise duty. So once you remove the excise duty, the sales margin is in excess of 20% -- it's about 22%, right?
------------------------------
Namfon Aungsutornrungsi, [42]
------------------------------
Yes.
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [43]
------------------------------
So, when you look at that figure, it is very much close to the international brewing companies. So I think we have to kind of remove the excise duty then you end up being comparable with the other international companies. You find that the margins are actually within range of the international figures actually. In terms of moving forward, do we intend to increase the margins? Yes, of course and I think that will be done very much in terms of how we manage the business, in terms of cost of goods, COGS section, so that includes the gross margin and a cost price increase will be another key element to kind of trying for margin improvement.
------------------------------
Cecilia Mak, [44]
------------------------------
Yes, my second question about premiumization, must be on beer, I don't know about if you said any other -- any premiumization available in the other segments?
------------------------------
Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Chief of Route-to-Market, Senior EVP of Route to Market and Director [45]
------------------------------
Yes, we have for beer recently launched Federbrau which is a premium offering in our portfolio. Federbrau is very much pitched to the same target market or target sale. So that actually we have a premium offering for the beer segment. Moving forward across, as we expand the portfolio, this is one area that we would definitely like to focus in terms of premiumization in that portfolio as it provides a better value and better margin.
------------------------------
Operator [46]
------------------------------
Our next question Nicholas Teh from Credit Suisse.
------------------------------
Nicholas Teh, Crédit Suisse AG, Research Division - Research Analyst [47]
------------------------------
I just had a couple of questions on the spirits market, the volumes were pretty high year-on-year this quarter from the restocking. Just wanted to know if there is anything other than that, that pushed the volumes up and at these levels, what kind of stocks are we looking at in the market and how long do you think it will take to sort of see this destocking bring the volumes down to normal levels? And the other thing was just to check how -- what the price increase was for spirits that you guys passed on to the trade? Thanks.
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [48]
------------------------------
Hi Nicholas, it's Prapakon. On the price increase, in term of the spirits price increase, we passed on just from the tax perspective, but because we operate in many categories, many brands, we don't really quantify our price increase out and announce it because in the white spirit, there is some tax changes from the wholesale [at 4%, retail at 2%] and then up the alcohol beverage size and on the brown spirit as well. So our brown spirit, we have also some 3, 4 big brands and white spirits. Needless to say, there is more price increase in brown than white because that was where more the impacts took place, but it's very minimal and we actually haven't noticed -- although we pass on the price increase, we haven't noticed any significant change in retail price, it may have to do with there was enough stock in a previous price or the retailer decide not to increase the price, because [share] is quite marginal. Secondly, you're asking about the trade side. As described in the management's discussion section of our filings, we believe that the excise tax that was increased in middle of September have created some additional sales beyond normal trend that took place in the last month -- the last 4 weeks before the tax increase. So from the spirits side, we think it's probably about 2 weeks forward that came into the system. So if the consumption proceed back to normal, the 2 weeks forward should be fully consumed within this quarter, which is [O&D] and expected to be a higher consumption than the previous quarter.
------------------------------
Operator [49]
------------------------------
Our next question Juliana Cai from RHB Research.
------------------------------
Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [50]
------------------------------
I have 2 questions. First, can you give us some color on your A&P spend for the non-alcohol segment for next year and how [ASEAN going to look]. And the second question is on the spirit segment, could you give us what is the breakdown in terms of the mix between dark spirit and white spirit?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [51]
------------------------------
Let me just answer the question about spend about to happen on non-alcohol. We are looking at improving our spend, we are trying to get more efficiency through the spend, so in terms of spend levels, as a percentage [it will] go down because we look to increase volumes while reducing our A&P spending. So, no particular fixed rate that we are looking at, but we are looking at driving more efficiency with the money that we have.
------------------------------
Namfon Aungsutornrungsi, [52]
------------------------------
For the volume breakdown for the spirits, on this [hardly we hidden its cost]. Sorry about that.
------------------------------
Operator [53]
------------------------------
Our next follow-up question (inaudible).
------------------------------
Unidentified Analyst, [54]
------------------------------
Can I ask (inaudible) 2 questions. Firstly, I think last quarter because of how the BOT, the Bank of Thailand data in terms of beer volumes are very strong and the competitor is pushing up those volumes. So, are we seeing that again in the previous quarter and have you see any developments with regard to that?
------------------------------
Unidentified Company Representative, [55]
------------------------------
That's true. Based on the BOT details in the last quarter, we [should increase] production volume from the competitor. So what you see now in the marketplace, there's actually a huge stock level of the competition in the market. I think that is the sense we are seeing in the market and I think with that, we are actually trying to aggressively kind of clear that stock in the marketplace, but what we cannot sense is that if the market is a bit -- little bit slow so far for a start for moving information and it's a bit slower than what we thought it would be. So I think generally you still see quite a bit of that stock from the competition in the market. It hasn't really quite moved yet.
------------------------------
Unidentified Analyst, [56]
------------------------------
And maybe could you also remind me your market share for both Chang and Federbrau in the quarter?
------------------------------
Unidentified Company Representative, [57]
------------------------------
In terms of Federbrau and as I've mentioned, still very small, our total market share is hovering close to 40%. Like I mentioned, we took a bit, 1%, 2%, but we kind of moved up and down according to the [market]. So it's just hovering around 40%.
------------------------------
Unidentified Analyst, [58]
------------------------------
Okay and one more question. Is there any like pricing pressure on the [BSI] because there is so much stock, can you maybe talk a bit about that?
------------------------------
Unidentified Company Representative, [59]
------------------------------
Pricing pressure, in terms of [the tree] I think it depends on the situation. I think we cannot stock up as what we shared in the last quarter. So there is not much pressure in, but on competition side, we are monitoring it and so far I think we do have a bit of activation on that area in order to stimulate sales, but otherwise there is not a huge forward pressure in terms of pricing.
------------------------------
Operator [60]
------------------------------
Our next question [Linh Vo from Elvisa Capital].
------------------------------
Unidentified Analyst, [61]
------------------------------
[questions] from me, which is -- can you help me to confirm again, what is the reading on the spirits and distributors at the trade level, is it 2 weeks, is it 4 weeks? My second question is you talked about position in Myanmar of assets, what brands did that include and what kind of synergies are you expecting given the current economic environment? And the third question is with regard to debt loading, what kind of debt level would management be comfortable with and what kind of interest rates can you [get] at the moment for a long-term loan?
------------------------------
Unidentified Company Representative, [62]
------------------------------
For the first questions, it's relating to what I mentioned earlier, we think the exceptional sale that generated prior to the 4 weeks prior to the tax increase which estimates around 2 weeks, that's 14 days, so that 2 weeks of sale that we think is probably higher than normal sales for that particular month. So that's -- we expect that in the next 3 months, these will all work itself up into a normal range. So as -- you were asking the questions about Myanmar, I mean -- was that referring to that position in Myanmar?
------------------------------
Unidentified Analyst, [63]
------------------------------
Yes, that's correct.
------------------------------
Unidentified Company Representative, [64]
------------------------------
Okay just to then explain a bit more. The acquisition in Myanmar has allowed us to become the #1 spirit players in Myanmar. The segment that Grand Royal operates is whiskey segment. In Myanmar, there are 3 segments, there is one which is smaller than the whiskeys and in white spirit which is more difficult to quantify the market size due to its low price and fragmentation. So as to the market that has more values or the highest value is the whiskey business. The market share brand volume in whiskey business in Myanmar is approximately over 60% of the 12 million cases market. We estimate that the number case, so in Myanmar as for the market, is over 12 million. It starts at 8.4 million standard, 8.4 liter standard case, so you need to take 12x the 8.4 million to get the numbers of liters. And the estimate -- our market share is over 60%. The second case is probably running around the 20% range. So that's very small, much smaller competitors. So that brand in itself is comprised mainly of Grand Royal. Grand Royal has at the moment 5 different variance on the standard segment to slightly more expensive than premium, and each of these segments have its own significant market share in its own segment. So that's -- what it is about. In terms of the brand ranking, as you may be aware that we have 2 brands that ranks the Top 10 spirit brand in world. One is Ruang Khao and the other one is Hong Thong brown spirit. Then Blend 285 is ranked among the Top 100 brands, I think around the 50 range. The Grand Royal itself -- and this is starting -- Grand Royal itself is also ranked on the same ranking of the Top 100 brands that's around 43, ranked at 43 as one of the top largest brands in the world. So we are proud to say that we now have 4 brands ranking the Top 10 as well as 100 in a row.
------------------------------
Unidentified Analyst, [65]
------------------------------
So the acquisition was just Grand Royal brand. Were there other brands in alcohol products that you have acquired?
------------------------------
Unidentified Company Representative, [66]
------------------------------
In Grand Royal business itself, we have 2 distilleries out there, a food distribution system. This is alcohol distribution system and a brand that's very strong and dominant. Like I mentioned it's a brand itself, has many variance and each variance is so dominant. It's just like we would Johnnie Walker had Red, Black, Blue, Green and different segments occupy different pricing segment, so this is the same infrastructure words that you take at Grand Royal as a mother brand and then have about 5 variances at the moment that occupies different parts of market.
------------------------------
Operator [67]
------------------------------
Our next question Nico Yosman from Morgan Stanley.
------------------------------
Nico Yosman, [68]
------------------------------
I have 2 questions, is on the input cost for the next 6 to 12 months. It's seems that packaging costs seems to be going up, is this the case? My second question is, what initiatives have helped narrow your investment in (inaudible) segment and when you should update the (inaudible)?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [69]
------------------------------
(technical difficulty) It depends on the same for this year, whatever you are seeing is (inaudible) but how we are trying to manage with all the good source. Before strategy was responsible for that business. so raw materials, other components in terms of over the -- so we're trying to manage that price increase of the other components (inaudible). So we would probably say that cost (inaudible).
------------------------------
Unidentified Analyst, [70]
------------------------------
(technical difficulty) answer product initiative for NAV and the target?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [71]
------------------------------
Let me take your question on the -- for NAV. I can say that our positive NAV for products we did expect -- we did according to our expectations, so we are on the top of the trend. I can only say that we're producing costs, we're predicting that we'll break-even within the 2020, so it would (technical difficulty).
------------------------------
Unidentified Analyst, [72]
------------------------------
So do you have any other collaboration with Cola Est (inaudible)?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [73]
------------------------------
I'll put in for your question there. Thank you.
------------------------------
Operator [74]
------------------------------
Our next question, Chalinee Congmuang from Macquarie Securities.
------------------------------
Chalinee Congmuang, Macquarie Research - Analyst [75]
------------------------------
I have 4 questions. On the first one and starting from the short-term trend, so after searching for volume from both on the spirit and beer in the fourth quarter '17, have we still expect to see the volume recovery to continue during October to December in 2017, maybe (inaudible) last year with very low base or you do not expect so, mainly because you may expect to (inaudible) to clear off that stock. That's one. The second question regarding the stake on -- asset stakes on KFC acquisition deal. The third question regarding your new plan, could be please update your plan on the stake in Frasers Centrepoint, what could be your plan as of now? The last question, after the Myanmar acquisition, the Myanmar Refinery acquisition, do you still look for more acquisitions like expanding your portfolio in the spirit portfolio, in other Southeast Asian industry. As of these -- as of now Vietnam is also looking to sell asset swaps. Thank you.
------------------------------
Unidentified Company Representative, [76]
------------------------------
(technical difficulty) First question, regarding the sales volume in the first quarter 2018, we cannot comment. This is -- it's forward-looking, that we cannot comment that, which one is going to affect more, comment we cannot. For the KFC acquisition deal, it is still right on, follow what we announced on SAS that it will be done by December this year. So for the question about the FCL, we have anything new to update, you will see that -- we will announce it on SAS the same as what we do with other announcements. And also for the future M&A, that one also we will announce on SAS first if we have anything to update. Are you still here?
------------------------------
Operator [77]
------------------------------
Our next question, Thitithep from Phatra Securities.
------------------------------
Thitithep Nophaket, BofA Merrill Lynch, Research Division - Research Analyst [78]
------------------------------
I have the follow-up question, for the Grand Royal, is that net profit margin up to the global standard? How we can (inaudible) step in and raise the net profit margin?
------------------------------
Unidentified Company Representative, [79]
------------------------------
So Thitithep, well, normally we don't comment on the margins and once we report, it will come through it, but what we can assure you that -- were -- this acquisition was made based on a level of margin that we are very comfortable with, what -- with the acquisitions to -- when you say whether it's to the global standard, I would say it is to our standard, that it's actually a very good profitable business. So whether they have more room to improve margins, I think we will focus on the room to increase sales and volume, because as economy grows, we will be focusing on making the volume rather than trying to reduce cost, because the Myanmar is not a mature market. For us it will be the key factor. However, we are not going to be looking to make sale at less of those margin. So in a way, we're not looking to increase the margin, we're looking to increase the volume rather.
------------------------------
Operator [80]
------------------------------
Our next follow-up question, Chalinee from Macquarie.
------------------------------
Chalinee Congmuang, Macquarie Research - Analyst [81]
------------------------------
Sorry, my line was cut off. Do you want me to repeat my questions again?
------------------------------
Namfon Aungsutornrungsi, [82]
------------------------------
So you didn't hear the answer that we gave in terms of all your questions?
------------------------------
Chalinee Congmuang, Macquarie Research - Analyst [83]
------------------------------
No, sorry.
------------------------------
Namfon Aungsutornrungsi, [84]
------------------------------
Okay fine. For the question regarding the sales in the first quarter 2018, that one we cannot give a comment, because it is a forward-looking. And for the plan for FCL, and the M&A for the Frasers, that we will update you later once we have anything to update and we will go for the SAS website for the clarification and update in the future if we have. So that one also cannot comment. For the KFC acquisition, it will be done right on what we announced in the past, that we'd be done by December this year. This deal is right on the target.
------------------------------
Operator [85]
------------------------------
Our next follow-up question, Liz from [Albizia Capital].
------------------------------
Unidentified Analyst, [86]
------------------------------
Hi, sorry if I missed this now. In terms of the synergies of the Myanmar business, I mean, I know it's too early to comment now, but are there any plans, does it make sense for you to reap production synergies, now you've got a license in Myanmar, is it cheaper to produce there because I think it has to produce in Thailand just over, or again any type of form of operational synergies that we should look out for?
------------------------------
Unidentified Company Representative, [87]
------------------------------
The company in Myanmar is running quite efficiently. The general low-hanging fruit would be ability to supply some of the raw material from our scotch whisky this year into Myanmar, which is the company currently sourcing some of the raw material out of the Scotland. And this is something we can do ourself. So those are just an easy synergy to start off with. A lot of other synergies are coming from higher bargaining powers on new equipments. We have 18 this year in Thailand, and this is 2 more in Myanmar and we have 5 in Scotland. So a lot of these are some common factors when it comes to expansions, improvement and these are the common factor that we would be able to bring to the new acquisitions allowing to get access to our bargaining powers and expertise in making the product. So, it's not something that we would quantify as how much we will expect that coming out fully.
------------------------------
Chalinee Congmuang, Macquarie Research - Analyst [88]
------------------------------
Understood. Also this is the one company that's distributing Chang beer in Myanmar or --?
------------------------------
Unidentified Company Representative, [89]
------------------------------
No, this is a spirit business, and Grand Royal is a spirit distribution company. So we don't have a plan for the [first] quarter at the moment.
------------------------------
Operator [90]
------------------------------
Our next question, Cecilia Mak from One North Capital.
------------------------------
Cecilia Mak, [91]
------------------------------
Hello, I've 2 follow-up questions. I didn't quite catch the market share for the certain player in Myanmar. I understand that Grand Royal has 60% market share and how about the second player, and does the second player have product across all 3 segments, i.e., whisky, rum and white spirit? My second question regarding food. Given your last two acquisitions, KFC and the [Est] business, you got strong business and also I noticed that you have hired a new head for the divisions, the lady I didn't quite catch the name, is it a shift in focus for food looking forward or should we expect more M&A from that division?
------------------------------
Unidentified Company Representative, [92]
------------------------------
Let's just review with Myanmar. The estimated value share for the competitors -- the other competitor is around 20% and only operate in the economies like stand out segment of the brown spirit. That company does not engage in rum or white spirit, neither does Grand Royal or [Brighton Rum] or white spirits. So we are -- like a whiskey competitors, they just have smaller company, but only operate on a standout segment not on a premium end.
------------------------------
Namfon Aungsutornrungsi, [93]
------------------------------
Actually, I think I can't say anything as of now, but however, if there is anything opportunity arise, we will looking to that but I cannot commit anything for now. Thank you.
------------------------------
Operator [94]
------------------------------
Our next question (inaudible) from CLSA.
------------------------------
Unidentified Analyst, [95]
------------------------------
Just had 2 questions. And one, I noticed that ThaiBev is very active in terms of acquisition, can you discuss more on the M&A landscape in terms of pricing? And secondly, how do you balance between generating top line growth and margins with acquisitions in mind?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [96]
------------------------------
You are asking about our general view on the market acquisition pricing. It's actually -- taking that in -- we operate in alcoholic beverage, non-alcoholic beverage, food; each of these segments have a different kind of like competitive landscape and in the food segment, I think the valuations are depending on what's the trading multiple, what's the market pricing for those type of products, but in alcoholic beverage, what we have seen, the potential acquisitions are actually more hard to find, it's rather rare and therefore there is no such view as to whether things are expensive or cheap because it actually all depends on how it fits the strategy of how we go forward in the future because when management run the company, we are actually taking things very long-term, 5 years, we don't particularly have to concern too much about what is the next quarter look like, because if it fits the strategy, it's important that we have to aggregate and act on that business for the longer term. So that's probably answered the second question. When you talk about how do we balance the top line and margins, well, there's always 2 schools of thought, one is do nothing and generate a lot of money and pay a lot of dividends and then will describe the company as no growth and high dividend company and I think we believe our company can produce growth over the long-term and maintain our dividend, even increase our dividend as is evident by this latest announcement that we increased our dividend as our confidence and our profitability. The acquisition will have to fit under our vision 2020. At the moment, we have the 6-year plan now up to [about] 2020 where we would like to expand into a footprint outside of Thailand, more outside Thailand and opportunistically also into a non-alcoholic beverage or food, that -- because I think spirit and beer occupy a majority of our revenue and profit. So we want to balance this out. Then the question you asked about then how do you move around between the margin and top line, the answer is it's all about part of the vision, if it fits, we'll have to do it because we believe this is a better long-term strategy for sustainability of our overall business. I think that's like a more broad answer to what you are asking.
------------------------------
Unidentified Analyst, [97]
------------------------------
Thank you and I'm not sure if -- I did miss it or did you give a [round guide for gearing], given acquisitions that are coming in. What level are you comfortable at?
------------------------------
Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [98]
------------------------------
(technical difficulty) You are referring to our financial leverage limit?
------------------------------
Unidentified Analyst, [99]
------------------------------
At what leverage are you comfortable at -- to go -- given that you doing (technical difficulty) acquisitions?
------------------------------
Unidentified Company Representative, [100]
------------------------------
Normally our gearing depends on net debt-to-EBITDA to (inaudible), but if the acquisition is a fit for our strategy and the long-term, you can expect then up to (inaudible) within a couple of years.
------------------------------
Operator [101]
------------------------------
(Operator Instructions) As there are no further questions, we will now begin closing comments. Please go ahead Ms. Namfon Aungsutornrungsi.
------------------------------
Namfon Aungsutornrungsi, [102]
------------------------------
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.
------------------------------
Definitions
------------------------------
PRELIMINARY TRANSCRIPT: "Preliminary Transcript" indicates that the
Transcript has been published in near real-time by an experienced
professional transcriber. While the Preliminary Transcript is highly
accurate, it has not been edited to ensure the entire transcription
represents a verbatim report of the call.
EDITED TRANSCRIPT: "Edited Transcript" indicates that a team of professional
editors have listened to the event a second time to confirm that the
content of the call has been transcribed accurately and in full.
------------------------------
Disclaimer
------------------------------
Thomson Reuters reserves the right to make changes to documents, content, or other
information on this web site without obligation to notify any person of
such changes.
In the conference calls upon which Event Transcripts are based, companies
may make projections or other forward-looking statements regarding a variety
of items. Such forward-looking statements are based upon current
expectations and involve risks and uncertainties. Actual results may differ
materially from those stated in any forward-looking statement based on a
number of important factors and risks, which are more specifically
identified in the companies' most recent SEC filings. Although the companies
may indicate and believe that the assumptions underlying the forward-looking
statements are reasonable, any of the assumptions could prove inaccurate or
incorrect and, therefore, there can be no assurance that the results
contemplated in the forward-looking statements will be realized.
THE INFORMATION CONTAINED IN EVENT TRANSCRIPTS IS A TEXTUAL REPRESENTATION
OF THE APPLICABLE COMPANY'S CONFERENCE CALL AND WHILE EFFORTS ARE MADE TO
PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS,
OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE CONFERENCE CALLS.
IN NO WAY DOES THOMSON REUTERS OR THE APPLICABLE COMPANY ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER
DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN
ANY EVENT TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S
CONFERENCE CALL ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE
MAKING ANY INVESTMENT OR OTHER DECISIONS.
------------------------------
Copyright 2018 Thomson Reuters. All Rights Reserved.
------------------------------