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Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
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Good evening, everyone, and thank you for joining the Thai Beverage First Half 2023 Results Call. All participants have been placed in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will be given at that time.
I will now hand over the call to the presenters, Ms. Namfon Aungsutornrungsi, ThaiBev's Head of Investor Relations, and the members of ThaiBev's senior management team. Please go ahead. Thank you.
Thank you, and good evening, ladies and gentlemen. Welcome to ThaiBev, the first half 2023 ended the 31st of March 2023 financial results conference call. I am Namfon Aungsutornrungsi, Head of Investor Relations.
For the conference call tonight, I will start with the summary of the first half results, then we will open the line for our Q&A session with our management team.
The summary of the first half financial results. Total sales revenue of the company for the six months ended the March 31, 2023 was THB148,295 million, an increase of 3.7% when compared to the same period last year. This was due to an increase in sales revenue of the beer business, non-alcoholic beverages business, food business, although there was a slight decrease in sales revenue of the spirits business.
Net profit was THB17,781 million, a decrease of 3.2% compared to the same period last year. This was due to a decrease in net profit of the beer business, non-alcoholic beverages business and food business, partly offset by an increase in net profit of associated companies and the spirits business.
ThaiBev Board of Directors agreed to propose an interim dividend payment of THB3,769 million, or THB0.55 per share, the same as last year.
For the highlights of the first half operations, the spirits business recorded sales revenue of THB65,161 million in the first half of 2023, a slight decrease of 0.04% year-on-year. This was due to an 8.5% decline in total sales volume from a high base in the first half of last year. That was a result of sales agents accumulating inventory ahead of price increase during the period. Despite price adjustments and changes in the product portfolio mix driven by increased consumption of brown spirits in Thailand, the spirit business continued to face cost pressures, particularly in relation to packaging costs. Nevertheless, the business reported a net profit of THB12,839 million, showing a 0.18% increase compared to the first half of 2022.
The beer business saw a 4% increase in sales revenue to THB64,434 million in the first half 2023, despite 2.2% decrease in total sales volume year-on-year. The growth in sales revenue was due to price increases implemented. However, an increase in brand investment and marketing activities during the festive season, coupled with an increase in key raw material and packaging costs, resulted in a net profit decline of 29.5% to THB2,532 million.
The group's NAB business recorded 15.1% rise in sales revenue to THB9,439 million in the first half 2023, lifted by a 7.7% increase in overall sales volume. This was mainly driven by higher demand for drinking water, ready-to-drink tea, and carbonated soft drink products, as consumption improved post-pandemic and economic activities returned to normal. However, net profit declined by 35.2% year-on-year to THB284 million, taking into account increased brand investment and marketing activities, higher distribution costs, and material costs. The decline was partially offset by production efficiency resulting from increased utilization due to volume growth.
The food business recorded a 21.8% year-on-year increase in sales revenue to reach THB9,365 million in the first half of 2023, in line with the rise in dine-in traffic at restaurants. However, the group's ongoing efforts to improve brand visibility and accessibility, along with pre-operating costs incurred in conjunction with the opening of new stores, cost push factors, as well as increased operational and administrative costs to support sales growth of the food operation, these have led to 51.2% decrease in net profit to THB82 million.
The international business recorded a year-on-year increase of 6.5% in sales revenue to THB39,262 million in the first half. The increase was attributed to 19.8% surge in international spirits sales, driven by strong sales performance in Myanmar, increased bulk sales in India, the U.K., and Japan, and higher case sales in ASEAN and some North Asian countries. The international business also recorded 3.9% growth in beer sales, mainly driven by sales revenue in Vietnam and higher Chang soda sales in China.
That is the summary of our first half 2023 financial results. Now, we will open the line to any questions. Diana, please open the line for Q&A.
Will do. Thank you. We will now begin the question-and-answer session. [Operator Instructions] Our first question is from Divya Gangahar, Morgan Stanley. Please go ahead.
First question was on the beer business. Could you help us understand how the beer business has done in Thailand, in particular? When we see the overall numbers, it seems that revenues have declined 3%. But if you could comment on the domestic business? Because the industry growth shows a negative number of 10%. I just want to know how ThaiBev has done in Thailand. And if the volumes have indeed declined, what's the reason for the decline, given that the on-premise would have come back in a bigger way this year compared to last year?
My second question is on the spirits business. Could you quantify the price hikes that have been taken for brown spirits overall and when were these taken? And also what is causing the spirit volumes to be lower versus pre-COVID levels? Is it in Thailand or is it in Myanmar? And if you could explain the reason for that gap?
And my last question is just on the outlook for the domestic beer and spirit margins for the second half with respect to your raw material coverage, and if you expect marketing spend to increase further from the current levels? Thank you.
You respond one and three together.
Good evening, Divya. Hi, this is Lester here. As Khun Ueychai has just suggested, I will be addressing question one and partly three as well, talking about the domestic Thai beer market as well as the -- where we see spending going in for the rest of the year.
So, looking at the total Thai beer market, really on a month-to-month basis, it's almost like a roller coaster. It goes up, it goes down. We're not seeing the nice recovery -- smooth recovery at the end of COVID. But I have to say that it is mainly in the green territory. So half year versus half year last year, we are about even with last year. What the nice part for us at the domestic level is the share number. As of December last year against the -- our number one competitor, we broke the share gap, came to a single digit. And in the end of the second quarter, that share gap has now -- has been halved. So we're catching up in terms of share between the number one and the number two brands in the market. So when you ask me about how I see the outlook for the Thai beer market, especially for ThaiBev, I remain very positive in terms of where we're going to end up in terms of share.
In terms of costs, you talked about cost a little bit as well. You can see from the numbers that the COGS has increased quite dramatically year-on-year, total of -- just all the categories, raw materials, packaging materials, utilities, everything has gone up by a total of 19%. So that is quite significant. So we took a couple of price increases earlier this year. Enough to cover. But although in terms of pricing, we are at about the limit, so that if there's any further raw material price increases, I'm not so confident that we are able to increase prices again for the rest of this year. So we're looking to try to see how we can save in other areas. And therefore, we come to A&P.
When you look at A&P, yes, year-on-year comparison versus last year, it has gone up quite significantly. Because, again, last year was the tail end, the COVID year. This year, we are in an open market again. So, A&P activities have come back in full force. But what I'd like to say is that when we do a comparison versus 2019, which is the last -- which is the pre-COVID year, on a similar comparison, our Baht per liter spend for A&P has actually come down by 19%. So, we are being more efficient in the way we spend our money to get the volumes that we have.
But your question looks forward as to how do I see the second half of the year. Obviously, we do have measures in place. We do have a ring fence in case we need to defend the bottom line. We do a ring-fencing program in place that we can return money to the company to protect the bottom line. So looking forward, moving forward, overall, total very confident that in terms of share, we will continue to gain share. And I'm also very hopeful that the market will continue to grow so that our share numbers pick up from there. And then when it comes to cost and the bottom line, again, confident that we should be able to deliver by the end of the year.
Prap?
Okay. Good evening, Divya. This is Parp. I'll answer the second question, third question as well. You're asking the second question on price increase in Thailand, how that's going. So, let's recap this. In the first half of last year -- because we compare six months against last year. In the first half of '22, we had a price increase in white spirits. Quite a good price increase, so the high level of white spirits sale in that first half, resulting in lots of trade loadings. Okay?
So, then I jump to explain to the declining in volumes. If we look at white spirit in Thailand, the first half of this year, the volume against the first half of last year, experiencing decline because of that high base has a lot of inventory loadings in the system. So I think we -- actually, if we normalize it, we'll probably have a very small single-digit decline on white spirit in Thailand.
I think that being said, the volume in Thailand and around -- in other -- I'd say, in other markets, have experiencing all double-digit growth. Our brown spirits experienced more than double-digit growth for the same period. Grand Royal Whiskey also experiencing double-digit growth. Our international spirits out of the U.K. that engaged in brand sale together with bulk sale, volume-wise experiencing double-digit growth as well. So in that combination, it resulted into a slight decline of total volume that reported, as you can see. Okay? Having said that, it's a fantastic result. This is the first half EBITDA that we're reporting is probably the highest since listed, including GP and EBIT as well.
So, to answer to the last -- other questions on price increase, what we have done for brown spirit is, this is first half, we haven't finished that. We've only done probably half of what we plan to do this year, meaning the number of SKUs that need to be reflected in price increase. So in the second half, we probably have a bit more price increase to be done in the remaining SKU. So I will leave it at that. Yes. So in price increase, sometimes we have volume fluctuations, but we believe the baseline increase in brown spirit consumption, and that's also reported by third-party market research. We're still looking at a double-digit increase in consumptions for the first half of this year as well. So I think that's all good news.
Cost wise, the first half of this year, the cost pretty much been reflected what's supposed to be our cost of good throughout the year. So I don't think in the second half, we'll see surprises in our cost of goods. So that's what we're seeing. Okay? I hope that answers. Thank you.
Yes, thank you very much. If I could just have a very quick clarification, maybe from Lester, on the market share gain. Could you just maybe talk about that a little more in terms of what do you think are the drivers of that gain? Is it distribution led? Is it marketing led? Any new products out there? And after the price hikes that you've taken, what's the gap now between Leo and Chang? Basically, that Leo also follow whoever took the price hike first?
Yes. Divya, so when it comes to the gain in share really is not about new products. We haven't launched any new products, but mainly, it is -- we do have a program in ThaiBev where we go out into the market as a complete team, all the product groups together. And I think the efficiency that we're gaining in the market as well as the collaboration that we see across the product groups, gives us a lot more distribution strength in the market. We are penetrating a lot more outlets in -- across Thailand. So that is adding to the growth in our share.
So when you ask about the numbers between Leo and ourselves, like I said, in December, for the first time in many, many years, the gap was a single digit. And by the end of the second quarter, that number has halved. So, we have gained quite a lot because of this program. But actually has been led by Khun Kosit, so it's non-al spirits and beer together. And we approach the market as one total type of group.
Got it. And then the price gap between Leo and Chang right now?
The price gap, because all of us have taken price increases in various different times across different SKUs as well, so the gap, after all the price increases, will come back to the same cap as we had before the price increases. So it's at the retail level, it's a couple baht for the big bottle at retail pricing level.
Okay, got it. Yes, thank you very much for that. It's very helpful.
Thank you. Our next question is from Selviana Aripin, HSBC Limited. Please go ahead.
Hi, good evening. And thank you very much, management, for the opportunity, and thank you for the presentation. My question is, first, with regards to goodwill. I see that there is a decline in the number in the quarter ending March as opposed to September. Can you clarify where this is from? Is this from spirits or from the beer side? Can you clarify what's going on over there?
The second part is with regards to specifically inventory and, in particular, raw materials. I noticed that raw materials has actually gone up. Presumably, this is from beer. Can you clarify what's going on there? Is that loading? Or is that something else? Can you clarify from a pricing versus volume as well? So those are my two questions for now. Thanks.
Hi, Selviana. This is [indiscernible] speaking. For the goodwill that you see in the -- at the end of the period that we -- year-on-year is at the end of the period is lower. Mostly, it came from the foreign exchange translation on the financial statement because of most of the -- when we dominate by the baht, right, baht shrunken, so when we translate for international operation, there could be also part of that one, it will be lower when we recognize as baht in the balance sheet. That is reason that year-on-year lower in terms of goodwill. It's nothing about any significant change in terms of the transaction, yes.
And this is with regards to both Vietnam and Myanmar?
Correct. This include Vietnam and also some part of the -- in the past is when we have the investment associated with the FPL and F&N as well. The majority will be the Vietnam.
Okay. Got it. And can you explain from a -- I guess, from an accounting perspective what happens when baht actually weakens, let's say, six months down the road or one year down, will you reverse back the goodwill?
If you see in the past year, right, when you see in the equity part, right, you see the section called the other comprehensive income, right, when the baht is -- you see last year, baht is quite depreciated, right? The part of equity and also the goodwill is up on the asset side. And equity, you will see that this is kind of the things that when we do consolidation from international, we will be up and down based on the translation of international operation Khun Selviana, yes. You can check the last year.
Okay. Got it. Thank you very much.
Selviana, hi. [Multiple Speakers] Repeat your second question, Selviana.
Sure. Thank you. So the second question is with regards to, I guess, the increase in working capital, particularly from inventory. I'm assuming that this sort of comes from beer, particularly with regards to raw materials, there is actually a marked increase there. Can you speak about what is going on there? Are you loading up? Or is that because of pricing? Can you explain what's going on over there? Thank you.
Selviana, [indiscernible] again. When you see the working capital year-on-year, right, last year, actually, we kind of sum up the reduce on the inventory based on the depleted stock. But this year, sales is going up. We have some of the bill, the stock is going up and also the receivable also going up as well according to the growth of the sales. So that's why you see year-on-year working capital is quite -- get some of the cash that we need to build up working capital in this area.
Okay. And specifically on raw materials?
I think both all material and finished goods as well, it's not only the raw material sales, Khun Selviana.
Sure. And sorry, can you explain, is that because you're loading higher volume in anticipation of future volumes? Or is that because of a function of pricing?
I don't think it's about the -- because of the loading the volume concern. Last year, actually, the cover the inventory is already down, right, because we have the depleted of stock. This year is still coming back, we ramped the business sales going up. So it's a normal operation that we need to build stock to support the sales growth during the -- especially on the summer side.
Okay. Got it. Thank you.
Thank you. My apologies for earlier. Our next question is from Llelleythan Tan, UOB Kay Hian. Please go ahead.
So I just have one question. So it's about tobacco in Vietnam. I'm just trying to understand what caused the fall in year-on-year revenue for Vietnam. So I understand that, of course, the beer segment may also suffer from their fund loading, but I'm just trying to understand what really drove the fall in revenue. So is it like inflationary -- high domestic inflationary pressures, or high inflation that caused consumption volumes to fall? Yes, thank you.
Hello? Can you hear me?
Yes, I can.
Okay. I mean, in general, I think that if you know the GDP numbers for Vietnam has come down, I mean, from the third quarter last year at 13.7% to about 5.9% in the last quarter of 2022, and the first quarter was actually dropped down to 3.3%. And in the south, in particular in Ho Chi Minh City, dropped down 0.1%. So, GDP growth is one. The import-exports of Vietnam has come down also, resulting in a lot of job losses in the industrial park. So the general sentiment, consumer sentiment is no good.
So I think if you -- I'm sure you read our competitors' result as well, I mean, the drop was even more drastic than ours, I think, but generally, I think consumer sentiment because of the economy. But I think we are pretty positive. I mean in Vietnam, in about two weeks' time, about one week plus time, the Chinese tourists are coming in. And I hope that the interest rate has stabilized, will stabilize in the coming months. Plus I think with the raw materials stabilizing, I think we are very confident in the next few months going forward, we'll see growth.
Okay. Thank you. I just have one follow-up. Is it possible to share the first quarter and second quarter volume for -- just for Sabeco?
Sorry, Llelleythan. Normally, we disclose the volume for ThaiBev is under the beer group together. So, we've not separated. Sorry about that.
Okay. No problem. I'll jump back to the queue. Thank you.
Thank you. Our next question is from Khun Thitithep Nophaket from Kiatnakin Phatra Financial Group. Please go ahead.
Hello?
Go ahead, Thitithep.
Can you hear me?
Yes.
Okay. I have just one question. If you look at the consolidated level, your SG&A as a percentage of sales used to be about 16%, and then you cut it to around 14% during the COVID because of -- there was no marketing activity. And right now, you're SG&A sort of come back to about 16%, 17% again. I'm wondering whether I should assume that the ratio will stay here or it would go up further. Because my understanding is that Sabeco is spending money to build brand given the competition in Vietnam. That's the only question I have.
Bennett, do you want answer that Bennett?
Yes, I lost the question. Sorry I couldn't hear clearly.
It's about the A&P.
Okay. A&P, I think, we continue to spend. Already we are -- I think we are -- as we have mentioned many times, we are trying to focus on efficient spend. So on a per liter basis, we keep -- trying to keep it constant or lower than last year. But with the volume coming down, we also have ring-fenced our spend. So I think we're confident that still keep it manageable. I think we'll be protecting our bottom-line to ring-fencing some of the advertising spend. So I think, in general, when the economy is down, we do not cut drastically, but we will try and keep it to -- for liter spend that's not higher than the previous year. I think that's the way we manage it.
Khun Thitithep, this is Prapakon. I think your question is on consolidations and the percentage of SG&A, so whether it be back to trend. I think the answer is what you see in the first six months, probably start to be what we will maintain. I mean we have -- it is true that we have started to spend, but then the spending on a percentage of sale will probably be at this level. So we don't actually expecting a higher percentage going out, but now that it's going to come down, yes.
Right. Okay, that makes sense. Thank you very much. That's only questions I have. Thank you.
Thank you. Our next question is from Permada Darmono, UBS. Please go ahead.
I have a couple of questions. So the higher mix of brown spirits, could you just let us know in terms of first -- as of first half, the sales and volume mix between white and brown spirits domestically in Thailand, and approximate kind of revenue mix? And related to that, I'll just ask it one by one, I saw that government data suggests that molasses production is actually below the government forecast. So what's the outlook for molasses prices? Because I recall that in the last quarterly briefing -- sorry, half yearly briefing, you're anticipating for molasses prices to actually increase and therefore, price outlook for molasses would be quite benign. Any comments on that? So, spirits mix and molasses.
Okay. Well, this is Prapakon. I'll answer the molasses questions. On the spirits mix, we don't disclose the mix of our white and brown. But as we answered in an earlier question, that we're experiencing double-digit growth in our brown. But in our white spirits, if we -- on a normalized basis, probably have declined in this very small single digit for the quarter -- for the six-month period.
On the molasses, the output of the -- sorry, the sugar plantations that were just in this crop that just ended just right at the beginning of April this year have a better harvest than about the same -- better or about the same as last year. So the molasses, it is true that it's below what the government was forecast, but the number -- there are volume of molasses that came out for this harvest is at or about the same as the last year. Our input cost for molasses for this crop is higher than a year before, that's true. So that's the answer, what we have been experiencing in terms of input costs that came in. Thank you.
Thank you, Khun Prapakon. What about on barley? Because barley is a derivative of wheat prices, right? And the wheat prices is down significantly from the peak. Should we anticipate lower raw material prices in terms of barley for beer?
Dr. Pisanu, can you respond to Permada. Dr. Pisanu, can you answer the question?
Yes, please, I didn't hear the question properly. About the price of...
The barley situation, just tell Permada on barley. Okay.
Yes. The barley and the malted barley, the price has been weakening down quite dramatically from last year. Firstly, about probably because of the freight costs. And secondly, the situation of the geopolitic is quite relax now. So, you can be rest assured that the price of the malted barley will be less than the previous years. Thank you.
Thank you.
Any more questions? I'm happy to answer you.
Yes. The next question is on -- I sadly read about Bennett's planned resignation from Sabeco, and I understand that's part of normal depot reshuffle within the ThaiBev Group and Lester will take over. Can you just sort of clarify management changes plan. So on the domestic beer side in Thailand, who's going to take over with Lester head up both Sabeco and Chang? And also just in terms of those market share gain that you mentioned, the distance in market share halving at the end of the second quarter, is that just Leo or it's aggregate Leo plus Chang? So some color on that would be useful.
Yes. Permada, we will make an announcement on Lester's replacement. So just hold on. I think it will be out shortly. Okay. And on the other question, Lester, please.
Permada about clarification on the share gains, we measure Leo against Chang total brand. So for them, it's all the variants, Leo, Leo 8. For us, it's also all the variance Chang and Chang Cold Brew together.
Got it. Thank you, Lester. I appreciate that. And lastly, just in terms of your strategic plan with -- based on your disclosure, the intent to privatize Oishi is really to separate their food and beverage business side. From a strategic standpoint, can you give us some color on the intent in the future of why separating it, would be a good idea? How should analysts or investors think about the steps going forward? Thank you.
Hi. This is Nongnuch. Okay. I'm taking care of the food business and also Oishi. Yes, actually, there's not much trading volume of the share of the company. So this will provide the opportunity for our shareholders of the company to sell the company shares. And I think the second one, ThaiBev is actually clearly is in the process of producting the feasibility study into the restructuring plan of the operations of food and the non-alcohol business. So we believe that this will enhance the management effectiveness and also enhance the business potential, okay? And last but not least, I believe that this is coming -- the delist of the company will provide a cost saving, which would have been incurred in the connection with the company being publicly listed entity. Thank you.
Thank you, Khun Nongnuch. Is there a change in strategy on the food side? I mean, for example, KFC in Thailand is run by three different companies, right? Is ThaiBev looking to potentially consolidate the market? CVC as well is publicly disclosing that they're looking to sell their stake in QSR in Singapore and Malaysia. Is there an ambition to actually grow the food business much larger through this privatization program and so forth?
Permada, at this moment, we can't disclose too much because we are now in the process of working on this plan. We will disclose when we are ready. Sorry, Permada.
No problems. I had to ask. But thank you so much anyway for addressing my questions.
Thank you, Permada, for your understanding.
Thank you. Have a good evening. Thank you. Happy Friday.
Thank you. Our next question is from Andy Sim, DBS Vickers Securities. Andy, please go ahead.
Hello?
Go ahead, Andy.
Hi. The first question is actually -- hi, Khun Ueychai. The first question is actually more of a follow-up on the raw material price. I think Dr. Pisanu mentioned earlier that raw material prices weakening. Can I just check when would we -- how long forward you have been purchased forward in terms of barley, malted barley, as well as like things like aluminum? And when -- because these are all coming down. And when will we see the positive effects flowing through? That's the first follow-up question.
The second one would be in terms of the election. I think about six months ago in the last call, Khun Ueychai, you mentioned that you're hopeful that with the election, in the roundup, there would be positive effects in terms of consumption and spending. Just wanted to get your sense on the company's sense on how is this flowing through? And what you're seeing on the ground with respect to this area, maybe more of some commentary on that? Yes, thank you.
Can I take the first question, please? It's Pisanu speaking.
Go ahead, Doctor.
About -- we are quite lucky, we are about to deplete the stock of our malt, of the old year price. So that's been -- we are lucky in the way that we get the new lower price by the end of -- the last quarter of this year. So that's why I can tell you that we can rest assured that our malted barley, the price cost to come down. So that is quite lucky.
About aluminum, when we hedge, we hedge every three months. Lucky again that we are going to use the new price, they have lower price. Reassured about -- I think commencing from next month onwards. So I think, again, about the cost of the can will come down. So that is my respond to your question. Thank you.
Andy, the second question -- this is Ueychai. I observed a lot of consumptions until tomorrow at 6:00. By law, we have to stop drinking for 24 hours. That time, we will be thirsty. But after that, I think they'll be soon drinking for another month to celebrate. And then -- I mean, that's the impact of election.
So is it tracking versus your optimistic view about six months ago when we had the last call?
Yes, I think the consumption will continue. I think there have been good consumption for the last month.
Okay. That's good to hear. Maybe a follow-up in terms of -- probably just elicit some commentary in terms of the outcome. I know it's still out in the works. But how should we see in terms of implication? Seems like the opening polls seems to favor the prodemocracy, i.e., PDP as well as Move Forward. And would this so-called reignite the progressive [return bill] (ph) or some form of debt with respect to this post-election. What's the view on that?
Andy I can't comment on that, because I -- but we all be prepared for whatever happens. I think we've been watching this closely for each party and what is their policy and all. We just prepare for any outcome.
Okay, got it. Thank you. Thanks Khun Ueychai. I understand.
Thank you, Andy.
I'm sorry, everyone. Sorry, this is Alan Koo from Sabeco. I would like to take Andy's question for point one, because I think it's important to address that from a Sabeco point of view. In any case, Andy will probably ask me next Wednesday as well. So, if I may, from an input cost point of view, as you are aware, Andy, for Sabeco, we hedge forward about a year. So when malt prices are concerned, I think with '23, I'm likely to see higher cost than '22. The lower body costs will probably set in, in 2024 from Sabeco point of view, calendar year wise, all right? For the cans, currently, I'm hedged six months ahead. Probably I'm looking at LME prices, hoping that it will come -- I mean, it's on the way down. We will probably try to lower the hedging costs, and we are looking at it very carefully. So we still have opportunity there to lower the cost. But the benefits will kick in more likely in '24, calendar year wise.
That's for Sabeco's financial year, right?
Yes. That's right. So just want to let you know.
Yes, I understand. So you just mentioned FY '23 would be unlikely lower than '22, right, unlikely...
Yes, it will be better than '22. No, '23 will be higher than '22. That's [indiscernible].
Understand. But '24 there's potential, given the current trend, it could be lower. Yes. Okay, got it.
Yes, correct. Thank you.
Thank you. Thanks for that.
Thank you. Our next question is from Chu Peng, OCBC Bank of Singapore. Please go ahead, Chu Peng.
Hello? Hi. So can I -- just to confirm that the molasses price was higher in first half year-on-year. But in second half, are we expecting it to lower so that on a year-on-year basis, the price will be lower than last year. Is that correct? Hello?
Okay. Chu Peng, just wait.
Sure.
Chu Peng, can you ask your question again? Because we are not clear.
Sure. So my question is on the raw material costs of molasses. So I heard that actually, the price in first half this year is higher year-on-year. But are we expecting the price to come down in second half this year, and on year-on-year?
So Chu Peng, so I think molasses price is an annual crop, and annual crop harvesting in December to April. So when I refer to the input cost for these harvests that have ended last month, it's priced higher than the crop of the year before. That's what I meant. So they expect -- there's no expectation because this is a price for the whole annual crop that we have already purchased for whatever we needed and for whatever being sold to us have been closed. So I mean the purchase negotiation for this crop is over for us. I mean it finished already.
So as for the next year crop, we would not know the price until the start of the harvesting, which is December. So, we would not know this price because it's an annual -- just like annual agricultural farm price. Okay? So that will be depend on the weather and depend on other factors as well.
I see. Okay, got it. Just my next question is on the beer volume. So, historically, during the election previously, how much of the volume from beer can actually increase based on the historical number? Do you have any sense?
Well, I think we -- roughly 10% to 15% during the -- before the elections, roughly that, because it's free drink.
Okay. Just for the spirit, I guess, there will be not much both from the election, right, it's only the beer portion?
Yes, it's more beer than spirit. Correct.
Okay, got it. Okay. Thanks. That's all for me. Yes, thank you.
Thank you. Our next question is from Phasin Tone Ratanalert, Albizia Capital. Please go ahead.
Hi, thank you very much. Can you hear me clearly?
Yes, we can hear you well.
Okay. Thank you very much. Just a few questions for me. The first one is regarding your -- the spirit and beer business in terms of utilization rate in the half year. How is the utilization rate during the first half? And how is that compared to the pre-COVID level for both spirit and beer?
And the second question is, particularly regarding the beer in Thailand. As you mentioned, going forward, you probably prioritize the market share over the margin and profitability. So can you give us the guidance of the selling expense and particularly marketing in terms of percentage of sales for the rest of the year? Is that going to be around 12% as we see in pre-COVID level? Or how do you look at that?
And my last question is regarding the consolidated level interest expense, because we see interest expense overall didn't increase from last year. But actually, your interest income increased significantly. I think that's because of the rising interest rates. But can you help me understand why the interest expenses didn't increase year-over-year? Thank you very much.
Okay. I think in terms of utilization, start with beer in Thailand, then Vietnam, please.
Khun Phasin, let me talk about Thailand utilization. I'll also go into the A&P spending towards the end of the year. I think for both questions, generally -- sorry, for capacity utilization, we are generally about the same. We have not increased our production capacity. And then our volumes are -- in fact, our volumes are better than pre-COVID levels. But generally, it's about the same utilization, about 60%. So, no major changes there.
When you're looking at A&P spending towards the end of the year as a percentage of -- you're asking, sorry, percentage of revenue, correct?
Yes.
Yes. But in any case, we are planning to have a lower level of spend compared to pre-COVID levels. A few things, again, we have been looking actively at efficiency of spend. We do -- we have quite a few studies done in the last couple of years together with the beer group team in Singapore. So, we are increasing the efficiency of spend. So, maximizing the amount of dollars that we -- sorry, maximizing the utilization of dollars that we spend. So yes, the level should, in fact, improve compared to pre-COVID levels by the end of this year. Thank you.
Bennett, can you respond on Vietnam side?
Yes. On efficiency utilization, so for right now, we are around 70% or so. Pre-COVID levels, we're growing above 90%-ish, but we have expanded capacity since then. So right now, 70% or so.
On the A&P, I think I've answered that question earlier already. So basically, we are trying to keep through per liter spend constant as much as we can, and lower even possibly better.
Prapakon, can you respond on spirit and then also the interest question?
Yes. So on the utilizations about of productions, I think the answer would be we have ample utilized -- spare capacity we can utilize to be -- if we can deliver more sales and more growth. We do not plan to have -- expect to have capital expenditures in terms of spending or adding more capacity. Because in Thailand, we came from a consolidation, so we -- our utilization and our facilities have a lot of capacity available. In Myanmar, we also still have good spare capacity as well. And also, we engaged in the age and spirit business. So the utilization is not quite a factor in how we run it.
Back to the interest rate, interest income and -- we actually have quite a fair bit of cash on balance sheet and those are mainly sit in the Sabeco. So when we're consolidating, you see a lot of cash. And that have also increasing interest rate, increasing deposit rate, can earn us more money.
In terms of interest expenses, the reason why it hadn't move because we have a very good control of our interest expense and hedging. I think before the interest rates start to rise, our interest, all our borrowings that are not short-term, mostly in fixed rate. So the effect of change in interest rate come through very slowly based on the maturity of debt that you then will be fixing with the new loan and new borrowing. But you need to know that majority -- not majority, actually, almost all of our debt sit in Thailand, and Thailand have a very low interest rate environment. That's why you don't see rate picking up because the interest rate in Thailand have risen, but in a very slow rate. So we have a very negative real return environment at the moment. I hope that answer.
Right. So just to confirm, for the rest of the year, we don't expect the interest expense to increase in the near-term way?
We have modeled the increase, but it's very marginal actually. Because I'm not -- I cannot say it's not increased, because when the -- our debenture or the baht bond deal when it's due, we refinance it with the new rate, right? We will refinance with new rates. But I must say that you have to notice that we raised money through the baht bond market. And the last time we raised money in the market was just a few months ago, and we raised 4.5-year money at 3% flat in Thai baht. That's fixed rate for 4.5 years. So our interest costs are very competitive in term of what we can get from the market.
Okay. Thank you very much. That's very clear.
Thank you. Our next question is from Khang Chuen Ong, CGS-CIMB. Please go ahead.
Hi. Good evening. Thanks for taking my question. My first question is on the recent heatwave that's hitting Asia. Just wondering, based on your historical track record, do you see any potential impact to consumer behaviors? like when it's warmer weather, do people consume more NAB or beer potentially? As far as any potential impact on commodities, price outlook on lower yield, et cetera?
Second question is on the outlook for white spirits sales in the second half. I think brown spirit's momentum sounds pretty strong, but just wondering if you can share your thoughts on white spirits.
Third question is on Sabeco. I saw the target put out for 2023 during the AGM was pretty bullish, especially in terms of revenue number. So, just wondering if there's any exceptional factors impacting your top-line in first quarter by trade inventory loading, et cetera, or has the sales volume has been trending weaker versus expectations after the target was put out due to macro environment? Thank you.
Hi. This is Kosit. On the NAB side, I think the heat wave is just happening in May, right? So I think it just -- so there's no effect during the March and April. I think during that time, we have more like pollution from the PM, right? That's, I think, pretty much is a key why people are not going out as supposed to be, right? So yes, but we do see an increase in consumption. I think that's just to answer your questions on the heatwave. Thank you.
Okay. The questions on the outlook of the business, I think I wouldn't give you -- we can't give you a forward-looking statement as to what we're expecting the brown or white would be. But I think what we can say is that currently -- well, this Sunday, we'll have an election and full function government coming up. So we are expecting the new government to do a lot of spending, including increasing minimum wage. That's what they've been saying it. So that in itself should give more money to the mass market consumer and allow us to have a better outlook in terms of consumer spending. So that's what we can see for the next six to 12 months, if you want to talk about consumer spending coming from new government in charge.
On Sabeco, before the AGM, we had the opportunity to further reduce the target, but I think we decided to hit the target, although it's a big stretch thing. I mean if we -- if all the things are aligned in terms of the tourist arrivals coming in, from China, especially coming in this month, plus inflation rate stabilizing, exports increasing, we think that the cost [indiscernible]. But it's a stretch, as I said. It's a bit of a stretch. But we believe that, everything in line, I think we will be able to hit our target. If not for revenue, at least [PAT] (ph). I also want to add on the -- sorry, just add on, tourist arrivals, it's not only about the tourists. I mean when the tourists come, they create jobs and economy will be affected as well. So I think it's not only the tourist itself, but the industry itself benefit from.
Understand. Can I just quickly go back to the first question on heatwave. So traditionally in the past, when weather is really hot, does that favor beer sales or ready-to-drink beverages? Just wondering. Or is that minimal impact?
For Vietnam, beer revenue...
Sorry, I couldn't catch that.
I think -- well, it depends how you see it. The footprints where we are, the weather doesn't change that dramatically. We're not talking about Northern Asia, Europe, where you can see that in hotter month, when you get too hot, then you sell more beer than less hot of the summer. Because in Thailand, we have three kind of weather, hot, hotter and hottest. We just have more hottest month than other hot. So I think it's seasonality from weather, it doesn't affect us, but it's more seasonality that effect for consumptions from New Year's, from Christmas, New Year -- Chinese New Year, Thai New Year. We have a lot of new year's. So our first half tend to be bigger than the second half. That's what we can see.
Got it. Thank you so much for sharing.
Thank you. We have a follow-up question from Selviana Aripin, HSBC. Selviana, please go ahead.
Two follow-up questions. One is around CapEx. If I were to look at your CapEx run rate, that's below the depreciation and amortization run rate. Can you speak about why this is the case? And how long this can continue? So that's my first question.
Second question is with regards to tourism, particularly in Vietnam, following up with what Bennett alluded to earlier, can you give a sense how much of the beer spend is coming from the tourists, given that this should be somewhat a period? Thank you.
Selviana, it's [indiscernible]. I think when you look at the financial statement, right, we kind of have some higher amortization and depreciation higher than the CapEx. But this is kind of timing difference, that we still have some investment continues, but just about the timing that we probably need to plan and also investing in the future. So probably in the future, we'll be reflecting more sustained incremental capital spending. But this is kind of the timing difference only, Selviana.
Okay. Bennett, please.
Yes. So for Vietnam, in 2019, the tourism -- tourist number, tourist arrivals is about 15 million of so, so it's relatively small compared to Thailand. This year, I think we are expecting about probably the 9 million to 10 million. While the tourist don't drink as much, I think it creates jobs for the hospitality industry. So I think that is the impact. So when I say it's big, it's not as big as Thailand, but is still significant. Sorry about that. I'm in a train.
Got it. And to follow-up with that, Bennett, can you speak about what sort of inventory levels you are seeing in the channel in Vietnam? Is it low, is it high at this moment in time and going into the rest of the year?
We manage our inventory through an S&OP process, which we review every day. I review it monthly. And I mean the good news is that we don't have much inventory impact. Most of the distributors are not willing to keep as much inventory because of high interest rates. So in a way, if the interest rate come down, it's actually going to see a bump up in terms of sales because the distributors will start to keeping stocks again. So, we have a very healthy inventory, not high. But moving in with lower interest rate and better consumption in future, I think, we would benefit from it.
Got it. Thank you.
Thank you. We currently have no questions in queue. [Operator Instructions] We have a question from [Alvin Yong, Asia Resource Corporation] (ph). Please go ahead, Alvin.
Hi. This is Alvin from [indiscernible]. I just had to ask the question regarding, yes, the -- for the first half result, I noticed that, yes, the volume for Sabeco has come down. And as a result, the beer EBITDA has also come down. So could you also -- I just wanted to ask what the reasons for that? Like you mentioned that I think from Sabeco's announcement that was due to Decree 100 that resulted in poor sales volume. But I noticed that your companies are also not saying the same thing. So, were there other factors or reasons that led to the poor performance for the first half for Sabeco? Thank you.
I think I answered earlier already that it's mainly because of the economic concerns, consumer sentiments, people are still losing jobs, consumer sentiments also -- not much shrinking compared to the past. Of course, is further affected by a Decree 100, right? So that's generally the market. So the market has slowed down. We did not slow down. We actually slowed down lesser than the market. We grew market share during these one, two months, because market slowed, but we did not slow down. Sorry about that. And if you look at our competitor, our competitor has announced a lower [indiscernible] in terms of revenue.
Yes, thank you so much for...
Yes, Lester will respond on the Thai market.
Yes. Just Alvin, just talk to about the Thai market itself, as you can see, because of the price increases that all players in the market have taken, so the growth has been a little bit erratic, up and down over the months. So you see it's flat. But what we are seeing is that our share has been growing quite dramatically. And because of this growth in share, we like to think that our competitor is actually suffering in terms of volumes. So moving forward, again, fairly positive for the outlook for the next six months. And hopefully, this carries into the new financial year as well.
Yes, thank you so much for answer this query. Just one last question regarding your debt levels. Are there any like plans or initiative that you guys are planning to reduce the debt further? Because if I understand that back in 2017 when you guys made the Sabeco acquisition, you took on something like around THB5 billion in debt. Yes, so has this step been reduced over the past few years? And are there any further plans to evaluate this debt reduction?
The overall net borrowing has been reduced. I mean this quarter -- this six-month report, we reduced by about another THB3.6 billion. So all in all, I think the continued reduction in debt is our goal. There is no major activities or that will result to a major reduction, but the reductions are coming from cash operating -- operating cash flow.
Thank you for the response. Thanks, Lester. Thanks.
Thank you. We currently have no questions in queue. [Operator Instructions] As there are no further questions, we will now begin closing comments. Please go ahead, Ms. Namfon Aungsutornrungsi.
Thank you for joining our conference call tonight. And if you have any more questions, please feel free to contact our IR department at ir@thaibev.com. Thank you, and have a good night.