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[Operator Instructions] I would 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.
Good evening, ladies and gentlemen. Welcome to ThaiBev's First Quarter 2018 Ended the 31st of December 2017 Financial Results Conference Call. I am Namfon Aungsutornrungsi, Head of Investor Relations. We will start the call today with a summary of the first quarter 2018 results then we will open the line for Q&A with our management team here. For the summary of the first quarter results the total sales revenues of the company in the first quarter ended the 31 of December, 2017, was THB 45,604 million, a decrease of 2.6% year-on-year, attributable to a decrease in sales revenue of spirits and beer business. [Indiscernible] there was an increase in sales revenue of nonalcoholic beverages and food business. Net profit was THB 3,018 million or a decrease of 61% when compared to last year. There was nonrecurring expenses related to acquisitions in this quarter and finance cost related to Sabeco acquisition. While Sabeco's results operation will be included from the second quarter ended the 31 of March 2018 onwards [indiscernible] net profit. Net profit excluding the nonrecurring expenses and the finance cost related to Sabeco acquisition was THB 5,476 million or a decrease of 29.3%. In this quarter as we continue to pursue our Vision 2020 objectives in order to entrench ThaiBev as a leading [indiscernible] producer and distributor in ASEAN the company completed 4 acquisitions of about 76% shareholding interest in Spice of Asia Company Limited, a 75% shareholding interest in Myanmar Supply Chain and Marketing Services Company Limited and Myanmar Distillery Company Limited collectively known as the Grand Royal Group. 252 existing KFC stores in Thailand by The QSR of Asia Company Limited and a 53.59% shareholding interest in Saigon Beer or Sabeco. However, due to the acquisition of Sabeco was incurred close to the end of December 2017 only assets and liabilities were included in the consolidated statements of financial position but results of operations and cash flows will be included from the second quarter ended the 31st of March, 2018, onwards in the consolidated statements of income and cash flows. The company obtained bridging loans from various local and foreign banks to fund the acquisitions in the first quarter. As a result, current ratio was under 1.0 and short-term debt was higher as at the end of 2017. The company will manage to take out short term in appropriate time. Further highlights are the first quarter operations. Even though sales agents in Thailand reduced their purchase orders after the announcement of excise hike in September 2017 the spirits business in the first quarter ended the 31st of December, 2017, continue to report a 0.6% increase in sales volume as a result of the acquisition of Grand Royal Group in October 2017. However, as selling prices of Grand Royal Group's spirits differ from those of Thai spirits sales revenue decreased 5.8% year-on-year to THB 24,769 million. Compounded with an increase in personal expenses as well as high advertising and promotion expenses after the end of the mourning period net profit declined 21.2% year-on-year to THB 4,026 million. For the beer business registered sales revenue amounting to THB 14,434 million in the first quarter 2018, representing a 4% drop compared to corresponding period last year. As the market recovery after the mourning period was lower than expected, factoring in an increase in packaging cost, advertising and promotion expenses and personal expenses net profit of the beer business decreased 29.7% year-on-year to THB 886 million. The nonalcoholic beverage business in the first quarter generated sales revenue amounting to THB 4,113 million, representing a 5.8% year-on-year increase, fueled by an increase in carbonated soft drink and drinking water sales volume. Notwithstanding higher cost stemming from the introduction of an excise tax for sugar we narrow the nonalcoholic beverages business net loss by 5% year-on-year as we managed advertising and promotion expenses and improved their efficiency. The sales revenue generated by the food business in the first quarter of 2018 rose by 42.3% compared to the same period last year to THB 2,328 million due to the contribution of new Spice of Asia and the QSR of Asia restaurants that were added to ThaiBev portfolio. Consequently, net profit jumped 2,080% year-on-year to THB 109 million. Sales revenue recorded by the international business improved 118% year-on-year in the first quarter as a result of the acquisition of the Grand Royal Group in October 2017. Accordingly international spirits sales revenue increased 249% year-on-year driven mainly by the Grand Royal Group. Moreover, both whisky sales in USA and U.K. have had a strong start. Premium brands recorded double-digit growth held by sales to Germany and through new distribution in Asia. And OEM brands have started to pick up in this quarter. International beer sales revenue however dropped due to a continued slowdown in sales in South East Asia. We will now open the call to any questions on our result. Operator, please open the line for Q&A.
[Operator Instructions] Our first question, Permada Darmono from UBS.
Can I ask about your statement regarding the consolidation of Sabeco from the second quarter onwards, will that be on a full consolidation basis, that's my first question. The second question is I read that Sabeco is guiding for an 11% top line growth this year and a 2% net profit growth also in 2018. Can you comment or provide some color on the moves going to Sabeco in terms of Sabeco's target for this year. And last question, what is the average interest cost that you are bearing for the bank loans that you've incurred and are those interest costs fixed?
Good evening, Sithichai, CFO. So I confirm you Sabeco we can consolidate [indiscernible] both income statement [indiscernible] December. So [indiscernible] so we didn't consolidate P&L [indiscernible] starting from 1 January, 2018 we had a full consolidation both [indiscernible] P&L and [indiscernible] less than 3% [indiscernible].
Now regarding your second question about Sabeco for [indiscernible] ThaiBev, we won't comment on that forward-looking.
Our next question, Thitithep from Phatra Securities.
I have 4 questions. Number one, your spirit profit is high year-on-year although you have consolidated the Grand Royal in Myanmar can you tell us whether that's [indiscernible] destocking [indiscernible] Thailand or because of [indiscernible] of Grand Royal is more than expected? Number 2 question is on demand outlook for domestic market, have you any improvement from January and when the destocking of GRG spirit has ended from since the first quarter of your [indiscernible] fiscal year? The third quarter you booked THB 2.3 million of the acquisition cost, is that a one-off, is that going to be more [indiscernible] in the second quarter of this year? And then the last question, right now the debt level has increased substantially can we have your statement on the dividend policy?
Thitithep, this is Prapakon Thongtheppairot. On the spirit question [indiscernible] first question is the first quarter report on spirit year-on-year the [indiscernible] representing maybe due to the over-sale in Thailand. However, international market is reporting increasing in sale and [indiscernible] the existing business and the new acquisition. But I think when we take the consolidations and reporting, reporting the Grand Royal business into our P&L is actually compared to a quarter of the year before which doesn't actually have Grand Royal [indiscernible]. So it doesn't [indiscernible] but in terms of what's inside for that I can say that in Grand Royal, our business in Myanmar for the same quarter-to-quarter, year-on-year the reporting both volumes up, sale up and profits up. In term of how much is Grand Royal is representing our spirit business, at least for this quarter it's reported in our financial statements of 24, which is part of the acquisition of business since we've reporting quarter on Grand Royal you can see that revenue that was added [indiscernible] THB 1,822 million with profit of THB 455 million. That's our net profit reporting. Just for that business net profit is about closer to 25%. And basically the [indiscernible] mainly coming from the global volumes Thailand our marketing activities in the last quarter have resumed to the normal activities so it's above the selling expense, it would be compared to [indiscernible] same quarter, the same quarter last year but 2 years ago which is normal activities. Now moving to the second question about the outlook for this quarter, we have I think the decline in term of lower spirit sale in the last quarter due destocking probably have stopped. We have seen much slower stock from our agent. So in the past month we start to get better tracking [indiscernible] and that's including beer business as well. So I think answer the first two questions. I'll pass it to Chaikriangkrai for your finance question.
Yes. On third and fourth [indiscernible] one-off no long while other you know [indiscernible] only one no more. But first question, our dividend policy we will pay average of not less than 15% but subject to [indiscernible] and debt situation [indiscernible] if you consider the cash flow and debt at November this year so that is [indiscernible] I will consider the dividend at the time [indiscernible].
If I may ask a follow-up questions, hello can you hear me?
Yes.
Yes, we hear you.
[indiscernible] I'm not sure if I heard you correctly you said contribution from Grand Royal [indiscernible] is THB 450 million just would like to [indiscernible]? And then the second follow-up question is that the destocking done with [indiscernible] the demand from the end consumer have you seen any incorporating in demand that they heard from other beverage company? The listed beverage company the demand is still quite [indiscernible]. And then the last follow-up question for [indiscernible] the interest rate environment is on the way up, do you prefer to [indiscernible] may I have your thought on that, do you have a timeframe on when do you want the debt level to go down to this level by which year?
Thitithep [indiscernible] on Grand Royal the net profit and revenues it's in the footnotes of the financial statement page 24. You can have that. That's for that [indiscernible] business contributed revenue of THB 1822.26 million, net profit of THB 455.42 million to group result. So that's [indiscernible] this first quarter we added, so this is the baseline for the quarter but I think going forward we will start to report as an international business combined with our existing indiscernible]. Now I'll give the fact which is in terms of destocking it's -- we believe it's over. We started getting better tractions in term of consumption. I will refer only to third-party research report that we just received at the end of yesterday. For the beer market in January the markets are down about 7%, January '18 compared to January '17. [indiscernible] the market consumption reported by the third party market research [indiscernible]. The brown spirit [indiscernible] for the same [indiscernible]. That's the actual data which is guided 2 days ago. But so far we believe that the [indiscernible] the purchase and consumption of the white spirits are doing well. I think we stand at [indiscernible] so we're still hopeful for the quarter that's why we are [indiscernible].
Yes, Thitithep, this is Sithichai. Yes, [indiscernible] full time in this year to take out the bidding growth and take out the [indiscernible].
Our next question, [ Hangars ] from [ CCAN ].
You've been talking about Sabeco acquisition as though you are buying the whole 53% stake but what I can see is the actual [indiscernible] you only own 49% of the entity that's buying the stake. Can you confirm that this is correct? And if this is the case, is all of the debt from the Sabeco acquisition going on your balance sheet and is the acquisition 100% debt funded, because you bought the stake at THB 320,000. Share price is THB 230,000. So are you saying that long-term banks are prepared to give you cash for an asset 50% higher? And then can you tell us about the partner in the entity because it looks to me like you're putting up all of the risk with [indiscernible] I'm sure that will pay some interest cost. They get 50% of the upside but it if goes wrong the debt is on your balance sheet. So this sounds terrible for ThaiBev shareholders.
Okay, Hangars, let me discuss and we'll come back to you soon. One moment please. For the announcement that we -- I'll try to give you the date of the announcement. Actually other questions that you asked we already announced it, so the asset announcement in late December last year. In term of the rationale, why we do the financing and who is the partner in Vietnam, those are information that we disclosed, so I cannot tell you more than what we announced.
You can tell us about what you are going forward, the bridging loan? Are you looking to 100% finance the acquisition with the debt when you switch it from bridging loan to long-term loan, will it be a 100% financed?
Yes, Sithichai, CFO. Yes, [indiscernible] to the bidding law. Secondly, since [indiscernible] we are loaded, fully loaded [indiscernible] on the investment, yes, you can see that [indiscernible].
And will all the debt be on you balance sheet though even though your earning economic interest is below 50%, will 100% of the debt be on your balance sheet?
In terms of debt is, for this acquisition for Sabeco is 100% debt funded, you are right. And in terms of in our balance sheet since it's our entity that borrowed that debt so it's on our balance sheet. But when we lend the money to our subsidiaries in Vietnam they still need pay us back in terms of interest back to ThaiBev. So we are not just borrow from outside and just give them for free without any interest income back to ThaiBev, this is to protect ThaiBev shareholders. In terms of the question that, sorry?
You do it with ThaiBev...
In terms of the question that -- sorry?
Will ThaiBev do a credit rating for that partner?
Sorry?
Has ThaiBev done some credit analysis of that partner?
You mean the party that we did in term of the joint venture?
Yes, I mean if you are lending a fair amount of money, do they have a credit rating?
You mean our partner do they have the credit rating?
Rating?
They are local partner, so they don't have any in terms of credit rating. In terms of the partner I recommend you to call back to our announcement on 22nd of December, we also disclose who is our partners.
And when will you switch, when do you believe which quarter will you switch the bridging loans into long-term loans?
[indiscernible] so we will split [indiscernible] long term [indiscernible] but maybe 50% within this year and the less maybe within next year [indiscernible] the 2 year.
Right. And what rates do you think you will have to pay when you switch it into long term?
So far we still don't know because we [indiscernible].
Our next question, Nicholas Teh from Credit Suisse.
Just want to get a sense of the SG&A of the spirit side, how much is the Myanmar spirits business contributing to that and also is there more clarity, more details on that THB 2.3 billion of acquisition cost. Just more color on what that is?
It's part of the what you call the financial adviser fee, you can see it's [indiscernible] 1% of the transaction value only.
And for the SG&A for the new acquisition in Myanmar business [indiscernible] we don't disclose that [indiscernible] going forward we will disclose the SG&A as part of basis of global spirit business.
Our next question, Cezzane See from CIMB.
Actually I just wanted to re-confirm on the, was there mention of in terms of bridging loan did you all say that it's 50% this year, moving into the -- to long-term and also 50% in next year. That's the first question. And secondly, just a question on the consolidation. Can I think it to mean that Sabeco numbers will go into the P&L and the balance sheet like you mentioned and that it is still effective 26.3%, so most of you [indiscernible] can I just reconfirm that?
Yes, on the consolidation on the sale EBITDA, EBIT we get the full consolidation, 100%, but the net profit, yes, we have to deduct the impact.
So it's still, the effective stake, is that 26.3%.
For the number we have to work later. I just confirm you we have [indiscernible] on the net profit [indiscernible].
And in terms of the -- so right now the loan that is taken up is the bridging loan for Sabeco and that -- and coming to your, I just want to reconfirm, was that 50% this year moving into long-term and then 50% in next year?
So the bridging loan is 2 year, normally when [indiscernible] 2 year term loan so we've had to take out 50% within the first year and the rest within the second year. We [indiscernible] term loan, 2 year bridging term loan.
But just to reconfirm, in the December announcement was there talk of the repayment being within the year [indiscernible] saw that wrongly from your partner.
For bridging loan this is 2 year, the whole bridging loan should be paid back. You can pay back even 100% within the next 2 years but [indiscernible] half on the second year the other half on the second year. Even you pay the 100% in another 2 year it is still under loan covenant, is under loan [indiscernible] to pay within 2 years. Now any installment [indiscernible].
So that also means that your, in terms of the targeted gearing I think right now it's gone up, as mentioned early on it's gone up a fair bit, is that -- can I just take a look at it in the sense that this will stay around this level for the next 2 years?
It's subject to the operation, the funding in the end of the full year, I cannot confirm you now.
And just last question for me, just to take up -- not to take up time. I notice that the volumes for the beer has actually narrowed on a year-on-year basis and also slightly below second quarter. So is this really just a timing issue because that is [indiscernible] morning within the fourth quarter of last year or is this something that you'll think will stay on moving ahead?
This is [indiscernible] sales volume for this quarter it is fair to say that the industry is still very strong. In fact, cumulatively for the last quarter for -- [indiscernible] December, there was a decline of minus 9% for just the beer [indiscernible] with you earlier that for January it is actually minus 7, right. So it's fair to say that overall the market [indiscernible] but we do hope that the month ahead I think will turn around and we'll then [indiscernible] accordingly.
Our next follow-up question, Permada Darmono, UBS.
So I just wanted to follow-up with what Susan said. In your disclosure on December 22nd actually you said that basically there will be interest chargeable on the loans. Beer [indiscernible] and beverage which is higher than the cost of fund for [indiscernible] the loans will be repayable within a 12-month period and will be secured by among other things Sabeco's shares to be acquired by Vietnam Beverage. So are you thinking potentially that you can lever out Sabeco and help pay down the debt from the Sabeco side. And then secondly on the consolidation question, you mentioned that on the profit basis you have to take into minority interest that you would not specify what that economic interest is, so are you saying that potentially it's a discussion between basically taking out a minority interest of something like 74% based on 26% economic interest or potentially also about 46% where if it's a full consolidation and your auditors believe that you have 53.59% economic interest on the business.
So Sithichai, CFO. We borrow from the bank 2 year, within 24 months, 2 year term loan but we lend to Vietnam Beverage [indiscernible] the acquisition to fund the acquisition on the Vietnam you have to provide short-term loan first. Short-term loans [indiscernible] under 12, we follow 24 month, 2-year term [indiscernible] 12 month [indiscernible] lend the short-term first [indiscernible] short term to long term again. For the second question, [indiscernible] on our second quarter result. I cannot confirm you that.
And what about my question about possibility of levering up Sabeco in part to help with debt repayment? And then also follow-up question some investors have been concerned about the possibility of new equity issuance to support the debt burden, is that a possibility?
We have [indiscernible] so far up to now. We didn't have any capital increase.
And what about the possibility of incurring debt at the Sabeco level to help the total debt repayment?
[Indiscernible] shareholder of Sabeco, these are under our acquisition debt, we cannot move to the operation [indiscernible], we cannot. And since because it's a listed company we have shareholders.
So that means that you will not lever up Sabeco at all then?
We can get dividend from them. If they have the full result [indiscernible] but our existing operation [indiscernible] our operation we have the capital consolidated [indiscernible].
Can I also confirm that you will install a new CEO by April? There was a statement by your -- by one of your key members.
Permada, we never mentioned about this in terms of other ThaiBev platform, I'm not sure, where did you get this information?
Well, it was reported basically by Nikkei that the Chairman of the Executive Board of [indiscernible] who is also a member of your -- of ThaiBev Committee was stating that there will be a new CEO for Sabeco in April according to his speech in Vietnam.
[indiscernible] is not our statement, that go [ SAX ] so this one I cannot comment.
Our next question, to [indiscernible] from [ Saga 3 ].
My first question is on, can you maybe take out the Myanmar Distillery volumes from [indiscernible] what is the ASP this quarter? And secondly, can we get an update on [indiscernible] and also any update on [indiscernible]. And on beer can you share maybe how the comparative landscape lies and how is the [indiscernible] your market share. Thank you.
On the Myanmar spirit [indiscernible] we prefer not to disclose the volumes that we say with Myanmar, that's very confidential, that's part of our global spirit business. Earlier in our press release we have confirmed that it's north of the 8 million cases per annum, I mean 8.4 million cases -- I am sorry 8.4 million little cases. We earlier announced that based on those data you put together 106% market share 12 million cases a year, so that will give you more than 8 million cases a year on an average. So that's on the Myanmar Spirit. As for the one [indiscernible] spirit, the competitors brand in Thailand we are still monitoring it. I think we believe that the level of sales still have not gone up significantly, we still continue to monitor. We've seen some activations by the competitors but it's still not gaining that much traction. As for our [indiscernible] we continue to have market activations, moving slowly we just really launched [indiscernible] about 3 months ago, so I think that's still too early for us [indiscernible] we still think that it's a positive aspect, it's part of a long-term platform for [indiscernible] spirit will continue to show some new [indiscernible]. Think that's your question. Edmond, [indiscernible].
Yes, okay. Edmond here. With regards to beer business, in terms of the competitive landscape [indiscernible] market share, it's been actually more or less stable [indiscernible] could go up [indiscernible] fair to say that [indiscernible]. For better growth because it`s very much targeted to premium [indiscernible] of rent, it's growing, but [indiscernible] because of the nature of the position of brand we do not want to start it everywhere, so we're quite selective as to how we distribute it. But the response of consumers is very positive [indiscernible] where it's been activated. And we have got very good in terms of [indiscernible] online division program [indiscernible]. And finally with regard to UBS, [indiscernible] to say that it's hovering around [indiscernible] growth thereafter. In terms of feedback, they are active online, but generally [indiscernible].
Yes, I am so sorry, what about [ Snowy Beer ], how are they doing?
Well, Snowy Beer is just new, they have just launched. It's still very, very small in terms of volume. They are trying to position themselves very much like wheat beer. So [indiscernible].
One more follow up. Are you guys like very excited about the World Cup coming up?
Sorry, come again, are we very what?
Are you excited about the World Cup?
I think all of us are. It's a good drinking opportunity, yes.
Our next question, Juliana Cai of RHB Research.
I just want to find out what's the interest rate you're charging for your Vietnam partners, Vietnam Beverage.
For this part we didn't disclose publicly, sorry about that.
Our next question, Xuan Tan from CLSA.
I have 2 questions. First is on the consolidation of the Sabeco, what is the basis, is it that ThaiBev has majority control? And if yes, what are your plans to leverage on Sabeco [indiscernible] margin expansion.
For the consolidation of Sabeco it is from the our auditor that they give the clear opinion in terms of the consolidation to us. The growth or the forecast for the Sabeco we do not give in terms of the forward-looking.
But since the acquisition have there been meetings between the 2 companies' managed of collaboration?
Since we are holding the share 50%, 53%, [indiscernible] but now we are in the process of to working together.
And my second question is back on the funding of Sabeco, can I confirm that the JV copartners need to be repay ThaiBev the [indiscernible] of the loan in 1 year's time. I am sorry if I missed the answer earlier.
Yes, we borrowed from the bank 2-year term but we provide them 1-year term because of an acquisition. Now we are in the process to [indiscernible] to long-term loan.
So in other words it is possible that a JV copartner may not be paid alone in 1 year's time and you can extend it to further?
We definitely will extend them if they cannot pay within 1-year term. Right, you are right. Now we are in the process to convert [indiscernible] longer than 1 year.
And upon conversion would there be any change to interest payable by the JV copartner?
We are talking to them.
Is there a possibility that if the JV copartner cannot be paid back within a year that ThaiBev takes ownership of their stake in Sabeco?
We cannot comment.
And one last question, what are your thoughts on potential securities to lower debt, lower gearing?
[indiscernible] you have the forward-looking statement.
Our next question, [ Hana Cha ] from Capital Nomura.
So I want to ask about the beer business outlook. So since we are coming from the low base last year with [indiscernible] and things like [indiscernible] the beer [indiscernible] has not recovered that much. So do you think later in the year would there be any event apart from the World Cup that could boost the sales and from the company's side would there any more active campaigns to boost the sales?
I think for the beer business moving forward you do have [indiscernible] to stimulate beer consumption. And we do hope that the World Cup is one of the key activity, yes, that [indiscernible] market. We remain hopeful at least the month of January that the decline is minus 7. We do hope that the economy overall will be a lot more robust in the coming months. And hopefully with that we will get [indiscernible].
Our next question, Gangahar from Morgan Stanley.
I have just 2, 3 questions, the first is on the spirits business, I wanted to understand that if you exclude the Myanmar contribution the domestic spirit margins is probably one of the lowest we've seen in recent quarters even though the [ TBM ] seems to be stronger, could you comment on is there -- is the conscious spending on SG&A increased or what part of the cost structure has actually gone up in spirits especially the domestic business? The second question is on the nonalcoholic beverage business, could you give us an update on market shares and what's really driving the improvement in that business on the top line? And just 1 housekeeping question on the cost of acquisition that is booked in the quarter, is that tax deductible or is that a net number?
Divya, this is Prapakon, on the spirit question, the first question about the margin, say, for spirit business. [Indiscernible] the spending and activities we engage [indiscernible] in the quarter proceed as normal, yes, normally this quarter would have been the highest quarter. historically if you track back our volume reported for these particular 3 months of the year going back [indiscernible] you will find that it should be one of the highest quarters. And because the loading factor that happened a quarter before [indiscernible] products probably a few weeks forward that taking out basically is amount of sale that if we were to put them back in the margin for the business would probably have gone backward, back up to same point. As you can see, the GP, the gross profit margins remain stable, actually improving, based on our data it is actually improving. Just the cost base [indiscernible] a global spirit company and we have extensive network in Thailand. And that network actually [indiscernible] and with the amount of money we are trying to spend in the quarter with the consumer to take the product forward when you don't see the sale because it happened a quarter before that's why the margin is a bit lower, much lower like what you see one of the lowest point, but we are able to take the volumes in the quarter before and it would have put them back into its normal range. So that's kind of like how we explain it internally when we look at the data from the spirit side. We will pass it to [indiscernible].
Good evening, this is Lester here. Replying to your question about what's driving the growth of the nonalcoholic beverages, I think 2 main factors for Crystal water, we have been focusing a lot on the quality of the water, we have won numerous awards last year some of which are quality related and so we have been advertising and pushing the strength of our quality of the product. I think for water quality is one of the most important attributes to the sell. For the rest of the other drinks, other beverages it is mainly driven by innovation. We have been quite innovation led the last couple of years launching new products for both green tea and carbonated soft drinks and this will continue for us as a pillar of our way moving forward that we want to be innovative and create excitement in the market. It is a quite youth-driven market so innovation is quite modern, they want to see new products all the time. I hope that answers the question.
So you asked, is the acquisition [indiscernible].
Just 1 clarification, maybe [indiscernible]. I wanted to understand the number that has been reported for the Myanmar spirit business which implies a net margin of close to 25% is that representative of what this business typically enjoys? It is even higher than the Thai domestic spirits margin which I would have thought would be probably the best, one of best in the world. So just wanted to get a sense that is there some sort of seasonality in margins or is this 25% margin a good representation of what this business makes on a recurring basis?
[indiscernible] of the business in Myanmar, the seasonality effect is very, very similar to Thailand's spirit domestic business. It has been [indiscernible] because Myanmar is a Buddhist country so it will have similar seasonality [indiscernible] leading the sale, going up from November [indiscernible] water festival in which Myanmar also has a water festival. So that is trending the same way [indiscernible] enter the rainy season with [indiscernible]. So the quarterly report for the Myanmar spirit is considered high quarter for the seasonality effect. The business continue to see good growth, and so if you ask whether that is a typical market it is a margin for the high quarter. In the lower quarter the margin could be slightly lower but it is still not that much lower. Annually we should be looking at around 20% net, so it shows exactly what we have. What we see is that the business in Myanmar, the Grand Royal business in Myanmar as the #1 spirit company in Myanmar would prove to be one of growth factor in our spirit globally with a strong margin.
Our next question, Andy Sim from DBS.
Just have a question for me. Actually first question is on the spirits, could Prapakon give a bit of color in terms of the, if you look at the [indiscernible] revenue it's down 5%, almost 6% but the volume is up. So can you give a bit of [indiscernible]. So more color on that product.
Hi, Andy this is Prapakon. The spirit volumes went up, the revenue is down because we were replacing the missing volume in the volume in Myanmar with the Myanmar volume itself carrying a lower revenue per liter as because it's just -- country per capita is much lower so the revenue, the sale, cross sell per liter of alcohol are much lower and the tax rates are much lower in all of them combined. So when we take out the -- you can see we can take out the sale, the revenue of our 1.8 million out and you take 1 out and that's basically the Thai average. Internationally, I think we are growing quarterly. Beyond Myanmar we have a good, almost 10% growth as well, but [indiscernible] spirit business.
So can I just confirm just on spirit [indiscernible] the sales revenue actually includes revenue from Myanmar and it's not included in the international segmentation?
In the report, we actually don't call that international, but in the report it's the vertical columns we shows spirit, beer, nonalcoholic and food. So it is spirit column it's combinations of Thailand and international. And previously before we have Myanmar, international referred to as IBHL and in that most of the business are scotch whiskey business based in Scotland. So now with the Myanmar we would describe it as international spirit business that outside Thailand. So as for the quarter or remaining quarter we foresee that our revenue, our gross revenue reporting would describe as Thailand around close to 85% and 15% would be international. That's a rough guidance that we would -- we see on an annual basis on gross revenue.
So, let's say, if I strip off in terms of volume if strip off Myanmar what would be the Thailand like-for-like comparison year-on-year versus last year, the growth or the decline?
I'm sorry, Andy, you know we don't disclose that data.
Sorry?
We don't disclose that data.
Just 1 more question from me again on market growth. [Indiscernible] share in terms of the longer term is deleverage because I know that you mentioned [indiscernible] long term the bridging loan [indiscernible] but in terms of if you look at it it doesn't change the fact that the net debt to equity and also EBITDA is higher [indiscernible] what the target is, 1 to 1.2. So [indiscernible] the share in terms of the deleveraging in terms of [indiscernible]?
Andy this is Sithichai, CFO. So you can see that for ThaiBev our operation [indiscernible] in Thailand for our beer we have a fully -- full operation cash flow. So [indiscernible] operation cash flow [indiscernible] acquisition to pay down the debt. We did a couple of the [indiscernible] on the group level.
So can I just hopeful that in terms of current plan [indiscernible] is using the cash flow as a cash flow from the acquisition?
Yes, so far, so far.
For now.
So far for now you [indiscernible] on the dividend for the acquisition and the existing operation for our existing [indiscernible].
And also a follow-up question on Sabeco itself. When do you think that you in terms of the financials will be able to share more of potential synergies from Sabeco?
Andy, we will have Annual Information Meeting [indiscernible] next week [indiscernible].
Yes.
[Indiscernible] further our CEO will [indiscernible].
Yes, could have [indiscernible] also join, yes.
Our next question, Thitithep from Phatra. Please go ahead.
I noticed that the price gap between your Thai beer [indiscernible] and your beer has widened after the excise tax hike, is that because of your pricing strategy or because of the excise tax calculation. And should we expect you to gain market share from this widened price gap?
Yes. I think in terms of price [indiscernible] we are looking at [indiscernible] if you look at the traditional trading gap it's more than sustainable where we were [indiscernible]. Again, the one that is more glaring is actually [indiscernible] which I think you see [indiscernible] but now there is a bit of gap above 15. I think largely [indiscernible] I think 49 [indiscernible] 57 which is very much aligned with what you actually see in the traditional trade because of the general economy itself where we are. So I think we just want to create more value for the consumer [indiscernible] recognizing that economy is a bit weak, so largely in terms of strategy I'm going to say we are [indiscernible].
Our next follow up question, Permada Darmono from UBS.
Just wanted to follow up on your KFC acquisition. If I understand, on KFC operations there is flexibility in terms of the [indiscernible] supplying nonalcoholic beverages to KFC so with the ones that you've acquired when is that agreement subject to review again and what is the possibility of injecting your nonalcoholic beverages into KFC operations in Thailand?
Hi, Permada. [indiscernible] from the meeting room. Do you have other questions outside from the 4 segment you can start first and then we can come back to the food and the KFC business or is the only question you have that?
Actually that's it. That is my main follow-up question.
Okay then, you just wait one moment please. From food. We actually are working on it. However, for Yum they also have their own protocol, so we follow the protocol. So if there is any other opportunity I will let you know, we will with you later.
Do you know when that agreement, I presume it's with Pepsi at the moment, when is that due to expire, the present agreement?
We can't comment on that at a moment.
Question, Nico Yosman from Morgan Stanley.
Hello, Nico?
[Operator Instructions] Our next question, [ Manoj ] from [ Bearing Asset ].
So you spoke of the annual general meeting next week, so are we seeing there is an AGM and an analyst meet as well where we will talk about Sabeco?
Okay. Let me explain a little bit. The Annual Information Meeting next week that we will have that one is a platform that we want to have the opportunities for the shareholders in Singapore to be able to meet our management. We will have it on the 21st, that means on Wednesday next week. So if you are a shareholder please feel free to register and participate. For this event we will have our full team for the management and we have the product book to present it on stage. And also we have our CEO, [indiscernible] joining on that one. So I cannot tell like [indiscernible], well it depends in terms of the question that we got from the investors, our shareholders at that time. So, I mean, if you want to participate we are more than welcome for you to join. That is the platform for you to meet our CEO.
Also given we are going to consolidate the accounts in April, as you mentioned, then probably can we say that from the next call onwards we should get more information about Sabeco?
And for the next quarter, I mean in terms of the number, absolutely it will have Sabeco in our income statement and cash flow. That is -- that you will see. But in terms of will we comment more or not that depends on the question, and normally in terms of regarding the forward-looking we normally not are giving the comment anyway no matter is in our financial statement or not because it's forward-looking. And for the information on Sabeco, actually they are the listed company, you can also follow up their historical data from their disclosure as well.
And now that we own 53% there so are we going to improve their disclosures also?
Yes, in terms of the disclosure from ThaiBev, that is you will see Sabeco including in our financial in next quarter, but we don't comment that will we in terms of doing anything in terms of Sabeco disclosure. We only mention about ThaiBev disclosure.
Just 2 last questions. So if you cannot talk forward-looking, then fine, but since you -- we have made such a large acquisition, what we saw that ThaiBev could bring to the table for Sabeco in terms of what were they not achieving so well in terms of market share, in terms of the product marketing or in terms of profit attrition be what did we see that they were not achieving so well that where we could come in and...
Okay, in terms of...
Manoj, this is Prapakon, head of the spirit business. I think a lot of you will have questions about the acquisitions in Sabeco which is a large sum of money that the Company spent on the acquisition, surely there will be more to come in term of explanation, direction, how we plan to run the business and how do we [indiscernible] but I think -- just apologies, we actually don't have the food member sitting around in this room today in terms of the earning, for this earning call. So a lot of these questions are not, we are not, some of us are not the right person to be able to answer it. So I think as [indiscernible] I think most of the top management is aiming to have the, more like a real food team next week when we have the meeting in Singapore. So those for the analysts and -- so analysts and the fund managers would be able to get more face-to-face [indiscernible]. So that probably would be better forum. As far today, we just try to answer our earning announcement, and apologize, we just have the -- we lack a few key people in here that are directly involved with the continued discussion in -- at the Sabeco level in terms of how we are going to get those collaborations, management scene, all those questions reviewed. Not just you, I think there are lot of people on the call like you. You have to defer it for next week...
Our next question in queue, Nico Yosman from Morgan Stanley.
If I may I have a question for Sithichai regarding F&N and the FCL restructuring. I think previously management have mentioned that this would have been done by fiscal 2017, can we get an update on that?
On this aspect currently we do not have anything to update yet. If we have anything to update we will actually go for the center of SGX announcement because if you're looking for F&N and FCL they are also the listed entities, so we are more careful in terms of our talking regarding about this issue. But whenever we have anything update we will go for SGX.
Our next question, Chalinee Congmuang, Macquarie Research.
So I have 2 questions. The first one starting with on the KFC, can you share with us the performance of KFC during December, either revenue growth from last year or same-store sales growth and what do you see so far in January? And the second question regarding the spirit business, essentially for Thai spirit business, well, since the recovery of the demand is still quite uncertain is it like -- is it fair that we would assume that that would be sort of a lower spending in terms of marketing and promotion and things like volume and sales growth does not pick up fast enough?
To KFC, because we just take over and operate only in December so it's probably a bit too early I will inform you probably in the next quarter so you see [indiscernible] forecast.
[indiscernible] from the marketing spend for the spirit business based on our revenue, the spending of our percentage of sale is very low. So it's actually cutting back, it's almost doing nothing. I mean, the level of spending that we have is low. And due to what can actually be done in Thailand under the regulations and restrictions that pretty much not allowing, a lot of things can be done. This is not like a full market where Singapore or the USA where full marketing and all can be done, and that can easily allow the producer like us to spend or over-spend. I think based on what can be done in Thailand, it's very low, very limited, and this is what we -- what we do here is not as much at all compared to our [indiscernible]. So the answer is there is room to cut back because that cutting back just mean not moving in, so that's for us [indiscernible]. On KFC?
On KFC, since we [indiscernible] but this type of sales in THB 602 million, almost 2, THB 601.8 million for December sales number. And it's also the seasonal for [indiscernible].
Our next question, [indiscernible] from JPMorgan.
I have 2 questions. First one on Sabeco, [indiscernible] when you consolidate Sabeco P&L would there be any significant accounting adjustment you may have to make like, for example, the excise tax treatment, that's number one. And number two, given the significant change in your balance sheet structure, will there be any change around the thinking on the restructuring of FCL and F&N going forward and also timeline on that one? Yes, that was it.
Sithichai, CFO. Sabeco [indiscernible] on the Vietnam Accounting System, VAS, [indiscernible] financial accounting system, so they have some [indiscernible] under that. Yes, they have [indiscernible]. For the second question, Namfon, you answer.
Hi, [indiscernible] refer to my previous answer in terms of regarding any restructure about F&N and FCL, that part we cannot comment. If we have anything to update we will go with SGX Center first. Sorry about that.
I actually have 1 more question on refinancing plan, which currency do you plan to repay first, the Thai baht one or U.S. dollar, and also are there any debt covenant embedded in the bridging of that and what would that be?
See, this is confidential in the [indiscernible] agreement [indiscernible] we cannot disclose.
[Operator Instructions] As we have no further questions we will now begin closing. Please go ahead, Ms. Namfon Aungsutornrungsi.
Thank you for attending Thai Beverage conference call tonight, and if you have more questions please feel free to contact IR Department at ir@thaibev.com. Thank you and have a good night, and also Happy Valentines and Happy Chinese New Year. Thank you.