Good afternoon. We are going to start our review of the quarter. So I'm Vivek Dhawan, CEO Vivek, and I have my colleagues along with me here. Mr. Francis, Mr. Manoj, Thomas Abraham, CFO, Sujintana. So we are all here. So I think the first session will be taken by-
Yeah.
Manoj. Manoj is going to start, and then I'll begin. I'll, I'll give you a little bit of a brief, and then we'll open up for Q&A, right? That's the order. So, Manoj, over to you.
Yeah. Thank you. Thank you, sir. Warm welcome to everyone to the third quarter earnings call of Mega Lifesciences. My name is Manoj Gurbaxani. So this is how the agenda we will have for the upcoming one hour. We will start with financials for nine months, 2023, and third quarter, 2023. And then we will have remarks from our CEO on the financial performance and the outlook for the company for 2023. And then we will open the forum for the Q&A. While you're raising your questions, may we request to let us know your name and the company you represent while you're raising the questions to us. So thank you very much for everyone's participation. So here we go. The nine months performance of Mega Lifesciences.
Our overall operating revenue for nine months, 2023, has been at THB 11.5 billion, marginal decline of 2.4%. This decline is mainly coming from third quarter, 2023, which is mainly coming because of the exchange of Thai baht to USD. Now, going into the segments, the branded business revenue for nine months, 2023, has been at THB 5,879 million, representing a marginal decline of 1.9%. And this decline is mainly coming from third quarter, 2023, as explained. In last year, nine months, 2022, our branded business had grown at a double-digit growth rate of 14.3%. In spite of that high growth rate, we have been able to maintain our nine months, 2023, branded business revenue.
Post-pandemic, the demand for COVID-friendly products have declined, have been tapering down, but our other category of products have been growing and which has resulted in nine months, 2023, revenue of branded business to be very similar to nine months, 2022. The distribution business on the revenue front has declined by 9.8% on an adjusted basis, adjusted for the dual currency effect of Myanmar, as we have explained. This decline is mainly attributable to loss of one principal in Myanmar, as we had guided at the start of the year. Coming to the overall gross profits of nine months, 2022, our gross profits have been at 45% of the operating revenue, quite stable. Branded business gross margins have remained steady at 65.2%, as we had guided earlier.
Generally, on the branded business front, we do a gross margin of 63%-65%, and in nine months, 2020, 2023, we have been at healthy levels of 65.2%. The distribution business gross margins have been at 22.4%, adjusted for the dual currency impact. The gross margins on the distribution business have improved because of exit of one principal in Myanmar, which had a relatively lower gross margin. Gross margin for distribution business is also influenced by principal mix, among other factors. The SG&A expenses have been at a remain steady at 26.8%, for both the periods, nine months 2023, and nine months 2022.
Our overall adjusted net profits for 9 months, 2023, have remained steady at THB 1,706 million, which is very close to the last year adjusted profits of THB 1,774 million. The reported net profits for 9 months, 2023, have been at THB 1,519 million, as against THB 1,840 million, where there is a decline of 17.4%, which is mainly coming on account of one-time Forex impact for loss of depreciation of Nigerian currency to the US dollar. Our operating cash flows have overall remained healthy at THB 1,561 million , representing 103% of the net profits. We continue to remain a net cash company with a strong balance sheet.
Overall, our CapEx spending has been at THB 193 million for nine months, 2023, with majority spending coming from consolidation of manufacturing operations in Thailand, Indonesia and Australia. Overall, we plan to launch 16 new products in FY 2023, out of which 13 new products we have already launched in nine months, 2023. This is a synopsis of the nine months, 2023. Coming to the third quarter. Our third quarter has been at THB 3,380.3 million, overall, representing a decline of 6.2%, which is mainly coming on account of appreciation of Thai baht in third quarter, 2023, as compared to third quarter, 2022.
Branded business has been at THB 1.9 billion, decline similar 6.2%, against for similar reasons, because of appreciation of Thai baht in third quarter as compared to third quarter, 2022. Distribution business, decline of 8.2% on adjusted basis, mainly as explained on account of a loss of one principal in Myanmar, as we had guided at the start of the year. Overall, gross margins have remained stable at 45.7%, similar to third quarter, 2022. Branded business gross margins remain healthy at 65.3, and distribution business gross margins at have been at 24% as compared to 22.7% on third quarter on an adjusted basis.
SG&A expenses at 26.8%, stable, third quarter, 2023, similar to third quarter, 2022 levels. Adjusted net profits have been at THB 526 million, a decline of 9.8%, which is commensurate to the decline in the revenue. And our overall reported net profits have been at our third quarter, 2023, have been at THB 535 million, down by 18.7%, which is mainly arising on account of strengthening our Thai baht to US dollar. So this is in very brief, the synopsis of the financial performance for nine months, 2023, and third quarter, 2023. Thank you. And I will request our CEO, Mr. Vivek Dhawan, to provide. Thank you.
Thank you, Manoj. I think it's given you a flavor of what's actually happening. I think there will be concerns that we have had a bad quarter, but I think overall, we are in the right direction. This is something that is expected. The COVID boom that a lot of companies enjoyed, especially being a supplement business, having vitamins and minerals and vitamin C and vitamin D and many other such products, nutraceutical, have all went off the roof, and they did very well in that period, and resulting in a much higher profit than we had actually planned. Our plan was to get to THB 2,400 million by 2025, and we are still very confident that we'll get to that number by 2025. That's our stand.
We had this uptick in these two years, which was because of uncontrolled, unprecedented, all these things that are unknown, but we managed to do very well. In spite of that decline, if you look at the COVID product, we have declined anywhere in the range in many countries, from 20%-50%. Not in our case. We have a good portfolio. We have drugs that are doing well. We have over-the-counter products that are doing well, Gofen, et cetera. And we have a lot of supplements and herbal medicines that are not related to COVID.
If you look at the whole portfolio, we are doing well in spite of COVID, in spite of Myanmar hit with a coup, in spite of Ukraine war around, and in spite of the fact, which is a one-time thing in Nigeria, which was replanned because the country corrected their currency to a new rate, which became official. But we've been managing that for a long time, but it impacted in our books. So that's the situation at the moment. But having said that, look at the real cash flow, look at the real growth in the branded business. In spite of all this, our brand business is fairly close to what we did last year, right? And also some other factors are also very true.
If you see 2022, I think our quarter 3 and 1, 2 to 3 were the quarter 3 was the highest profit we ever made in history in Mega. So that was also an exceptional quarter. When you compare quarter to quarter using 2022, that won't happen. But if you look at 2021, 2020, our quarter 4 is always a better quarter. So hopefully, if things go right, we should have a better quarter 4, and things should look a lot better than you are seeing. So overall, we are still sure that we should be closer, if not very far, toward than what we did last year, which is already, to my mind, a great achievement. And we have 2 more years to get another THB 200 million on our top line, and which we are confident of doing with what we have planned.
The number of drugs, as we said, we have 16 in pipeline. We launched 13 already. We've got total 16 unique products, and many of them are being launched in the country and a huge pipeline of drugs happening. Indonesia, we are running at, increasing our capacity utilization by the day. We are producing a lot more, and we are seeing much better results. A lot of products have been registered, so hopefully by 2028, as we said, we should reach $30 million. Our plan was third, 2028 or 2030, I think, when I think originally, I think 2028. In between 2028 and 2030, we are looking at about $30 million. We should get there, with a lot of oncology, new drugs getting registered, product approvals coming in the country, and that should show an uptick.
While other countries also are drug registration in Thailand, Vietnam, Malaysia, everywhere, the number of products getting approved have grown. So the expectation from our pharma business, from our over-the-counter drug business, and even supplements, I mean, I'm—If I look at 2019 and look at our base of any product, coming to 2023, our base has actually grown. We are not lower than 2019. So in the last three years, if you grew at an average rate of 5%-7%, we would never—we would still not be there. So the good signs are many of our products are higher and still remain there. So after COVID, if the expectations were they will remain and grow at 30% rate, that would not happen. But so it's gone back, gone down some parts of it, and they still remain higher than the 2019 numbers.
That's a good sign. Also stocking up, retailers buying more, consumers stocking up, that's happened. 2024 we should see again. I think we should probably start to get better again in 2024. That's the expectation worldwide. Reports from anybody in the world is this, your cabinets are stocked, your pharmacies are stocked, so repurchase is going to start with. In our case, at least we are a lot better. We are, our product range is a wide area of products, and we are not suffering because of only one category. Having said that, I think most of it has been explained, the quarter results. CapEx, Manoj, just talked about, Thailand, Indonesia. We have plans to invest more money in Thailand towards ESG and capacity expansion, some THB 80 million.
Indonesia, we are, as per plan, building additional facilities to get ready for expansion, more products, including softgel lines and all this, which is another THB 510 million. So in 2024, in the remaining period, we are, we are expecting what, THB 590 million approximately in CapEx to be spent. So between the 2024-2025 year period. So that's the whole plan. 2023, as I said earlier, should be nearly the same numbers. And 2024, we'll still again look for growth. I think we should look at single digit, mid to high single digit growth in 2024. That's our plan, but, but having said that, 2025 guidance is still that THB 2.4 billion, as we had promised, and we are going to—we are 100% going to get there.
So as a pipeline, we have 157 products in pipeline, 79 products are registered or pending registration, 78 are being filed. So there's a huge pipeline of drugs coming out in our business, and we should see them helping in our future plans and thoughts. Pharma growth. Pharma will become a larger part, not larger, but I mean, still continue as a proportion. Both will grow, but pharma will definitely become a larger part of our... Nigeria, already explained, more detail if you need, you can talk to the team and they'll explain to you how it works. But at the moment, the Nigerian currency is still sitting at 990 NGN , and government's keen to make sure it floats and stays there.
So it's open floated now, it's available, so for businesses like ours, pharma, we can still source and import products and get money out. That's the very key and important thing. Myanmar is the same thing. Large part of our business is pharma. In spite of restrictions, import licenses, turbulence in the country, we are still holding up well. I think our real challenge is that our expectation in the last few years were that we will see majority growth out of Myanmar, especially top line, because we do distribution and that may be affected. But the pharma business, where large parts of our business rest anyways, was our major focus, seems to be that we can manage and maintain, but we cannot put a project 20%-25% growth in the country. It'll be nominal and will remain.
But while we have to, growth will come from other parts of the world, Vietnam, and Indonesia, et cetera. We should see growth and compensate for what little decline or reduction in growth rates that we see out of Myanmar. I think that's probably it. I don't want to get into many other details. I've already told you why the COVID product... We should not ask, we can look around the world. I mean, there's enough data around the world from 26%-35%, 40% reductions in many companies who started only in COVID have a much more difficult time. We've been doing this for all our life, so our brands are known, people consume our products not only for COVID, but for many other health reasons. So I think Mega should fare better than other than this current scenario.
Anything else that I need to significantly touch on? I think, I think I will, I will now leave you to ask questions because there are many small, small details which all of you probably have in your mind and you would like to ask us. And the team is here to answer your questions. We are ready to answer your questions. I think there's no common things, areas I can think of that I should probably explain, so it's easier, but when you ask, we'll try and answer them as clearly as possible. So we are ready for your questions now. Open the floor. Shall we open the floor and, and receive your questions? Yes, please. You can introduce yourself, let us know who you are and, and ask the question, and we'll, we'll answer them as best as we can. Thank you. Welcome.
We welcome you. Yes, please.
Hi, then, how you can raise your question, please?
You talk.
Hi. Hi. Hi, can you hear me?
Yeah, Mr. William.
Hi. Hi, thank you very much for the opportunities. This is Sean from Opus Capital . Hi, Khun Vivek, hi all the management. Just one question from me, right. So you have always set a target of, you know, double the business for every five years or so since for the past 10 years. So just wondering: I think in Thailand, you've been already a dominant player and you are expanding into the other markets. So can you give us a bit more sense of how big is the market that you are addressing in total? And where do you see the opportunities in the longer term?
Like, which one is more challenging, which one would take more time, and which one would you put more investments, budget into to expand the business, to achieve that long-term goal that you have set? Thank you very much.
I think if you look around, Thailand is a 60 million, 66 million population. Pharma business sits around $5 billion. But then, you know, the business changes from MNC originator drugs to generics to branded generics and first to launch. So this is common, right? New drugs come in, old ones get taken by generic companies who are first to launch. At the same time, the models also change. People start to self-medicate a lot more as they learn. As the wellness industry changes, you don't just wait for the hospital to get yourself treated. So as countries mature, aging population comes in, the type of product they use, the type of disease they have, NCDs grow, where you have to manage yourself on a longer term basis from infectious diseases. So I think it's not just, it's just not only about markets. One is markets growth.
So we are in countries where there's still potential for upside of the market. Okay, they will never become $400 per year per person spend, or $110 per person per year spend, like Australia or some other countries. But at $8-$9 average to $20-$30, there's still an upside of consumption growth, right? As hospitals become bigger, as drugs reach, as services reach, as population ages, as disease grows. So Vietnam is 100 million population, sitting at $3.5-$4 million. So these countries have definitely an upside, from Philippines to Vietnam to Thailand also, and Indonesia as well. Okay, governments are now becoming covering universal coverage scheme. You see, like Thailand, they have BPJS, somebody in Vietnam has something else.
So the models change, that they start buying products and providing to their, to their social service. Government provide it free, or they have model where you support it, you subsidize it. So I think in those models, the units grow and generic companies probably become bigger, and we are also playing in those categories where we are first to launch. So I think growth will come from the markets we are in. And we are in serious sizable areas. You know, Indonesia, we are very small, but they are very big player. But still, in a $9 billion market, that can become $16 billion, we have a chance to at least...
Okay, $9 billion-$16 billion is probably at consumer price, but if you come back at pharma factory prices also, to become a $50 billion-$100 billion business is not a $100 billion is not a... I mean, I mean, from 30, in another 5 years or 10 years, we say we keep doubling, so we should get to a $100 billion. So growths are going to come from these countries, where Vietnam, if we are sitting at 80-90, we could become a $200 million company. There's a definite opportunity for that to happen. And Thailand, with the growth in units and growth in consumption and growth in areas where we are, and with oncology drugs and ophthalmic drugs, new drugs that we are getting into, we should see an upside in that area as well.
You know, we are not only fighting in the old category. One is more consumption, as belief grows and more consumption grows in the areas we are focused on. And as people age, you have gut health issues, you have incontinence issues, you get older, you have, you know, you have urinary tract issues, you have, what we call benign prostate, BPH issues. So other categories change, and we are playing in those areas. We are getting ourselves ready to grow in those areas, in the markets where we are. Then the other part of our business, though, Africa is very fragile. It's got all kinds of issues with democracy, with geopolitical issues, but still, 100 million in Ethiopia, 200 million in Nigeria.
If one day they sort out their problems, and we have products and brands and registrations, and we have teams on the ground, and we have very good relationships, if you walk into Ghana, you walk into Kenya, and we have serious brands in the markets where we are. So if those markets do get better, even with dictatorships remaining and income levels growing, Tanzania has found gas, Uganda has found oil, somebody's got copper. And with this change in geopolitics, they want to buy oil and gases and there, and reduce dependency from other parts of the world, like Russia or anywhere else. So I think, I think as these economies get better, and we're having an entrenched position, so this is a little bit longer term game. They should also develop from where they are today. Some markets are only sitting at 800 million.
At 200 million population, like Nigeria probably has a less than $1 billion pharma market, right? So are there possibilities that in 10 years' time, they can become $2 billion or $3 billion? They should. So looking at, one is looking at them, two is what can we do? One, the market becomes better, two is what Mega can do better than the market other players are doing. By being there, building brand, investing in brands, getting the right products in the market, we are also building new categories there in this market. So put these two together without having to look at more geographies. I mean, forget it, anything that, okay, yeah, we're in Peru and Colombia, they'll also become bigger. Peru, Colombia, Ecuador. We are in smaller Latin market.
We are not going to be in the bigger Argentina and Brazil unless we acquire, but that's not what we plan to do, so we are going to build there. Ukraine, Uzbekistan also, but they are not that large, 20 million, and Ukraine is still, whatever the size they have, they have 32 million people left in the country, or 3-4 million left the country. But still, they have money there. We are still selling, we are still growing, but we are not expecting that to become 3-4 times bigger at the moment with the situation they are in. But they are stable, but the real growth is going to come from these two areas, and with the growth that we can bring ourselves and the markets themselves.
So with that, we still remain confident that 5-6, 5, maybe 5-6 years, every 5-6 years, we stand a good chance of doubling at least our own branded business. Now, if I ever talk about distribution business, we say our branded business bottom line should double. Top line will be maybe 80 to 100-120, but the bottom line has a bigger... As you grow your top line, the bottom line doubling has a higher chance, you know. Because a lot of other things, cost structure, doesn't multiply at the same rate, right? Okay, margins may drop your- but your volumes go up, right? You compete in generic, some become lower, some products you sell, you launch first, you are higher. So this is a constant game we are playing all the time. It's a regular thing that we are doing.
So with that, the expectations are we could do this every 5-6 years, and I think we have done it once. We probably will be able to do it twice, at least this next 2025-2026 was our plan. We may be able to do it in 2025. I think earlier we said 2025-2026, 5-6 years, but we think we should be able to do that in 2025. Then we will start our strategic planning session again in 2025 and see what we can do in the next 5-6 years. But I have a feeling in the next 5-6 years, we'll probably have a similar goal, to double the bottom line in the branded business.
Yeah. Overall.
Right?
Overall.
Yeah, overall. Not the overall, but branded plus it, but I think real growth is when we say growth-
Bottom line.
In terms of bottom line.
Top line may grow by-
Top line may not grow 100-
20%, yeah.
May not grow double, but it may go 180 or 170%. Yeah. But distribution has their own limits, and if things don't change in Myanmar, that was our biggest... I mean, out of the total business, 65%-70% came from there, right? So that may not happen. That depends. If things change, it may come back. But that's the fact. It's a fact that you all know very well. I don't know if that answers your question, sorry.
Yes, yes. Thank you very much. That's clear.
We have a few more hands, please. Number one, anybody? Narumon, you want to start?
Yes. Thank you very much, Ka. Thank you very much for your presentation. Yeah, Narumon from KKPS. I have two questions, about the financial, numbers. It would be great if you elaborate more on, this number. Question number one is that, regarding to the, MD&A in the third quarter, 2022, I mean, last year, the core profit was adjusted down from, like, THB 658 million-THB 583 million baht. So what is the reason for the retroactive adjustment? You want, you want me to read the second question before you answer?
No, so-
Let Manoj answer.
Sure.
Please, for Thomas, yeah.
Yes, please. So THB 658 million was the reported profits, and we have made two adjustments to that. One is the gain, which is arising on account of forex. Last year, the currency had significantly depreciated Thai baht to USD, which had given us a THB 97 million gain, which is what we have adjusted. And the-
Yes.
And the-
Yeah, go ahead, sorry.
THB 21 million was coming from the losses arising on account of new business, which has brought our profits from THB 658 million to THB 583 million on a normalized basis.
Yes, I understand that. But if you look back at the third quarter 2022, right? If you look at the MD&A last year, I think the number is quite different. I mean, you had just down core profit last year as well. So I just wonder what is... What situation changed, why you adjust the FX? Like last year, I think about FX gain, right? But this year, you adjust to FX loss. So I think the number is quite-
Yes. So,
Yeah
So last year we had this dual currency impact coming on account of Myanmar, which we started reporting from quarter four, but the actual impact was coming from quarter three onwards.
So what we have done here is a dual currency impact of Myanmar, which was an adjustment to the gross profit. That is what we have normalized in our-
The number which you are representing in third quarter 2022 is coming on account of that.
I think you can get on a different call with-
Yes, yes.
Hello.
So Narumon, we can explain you in detail. I hope you understand the dual currency impact of Myanmar, but maybe I can explain you in more details on a separate call later.
Sure, sure. So we should-
Okay.
We should not see any impact in, like, the fourth quarter and onwards, right?
The fourth, yeah.
It should be one time, right? In the third quarter last year.
That's right.
Adjusted, right?
That's right.
Would be like lag effect from FX, right? Yeah. Okay, okay. My... Thank you very much. Sec- my second question is, in, in this quarter, the, third quarter, 2023, this quarter, the re- the reported, foreign exchange was lost about like THB 100 million, right? In the, on the financial statement.
Yeah.
But in MD&A, it was gained like THB 38 million. So what's the difference between those two figures? I mean, reported loss for FX in financial statement, but again, in MD&A.
Yeah.
Yes. Yeah, thank you.
We'll get on another.
Yeah, sure. This is again coming on account of the Myanmar dual currency impact. So Narumon, maybe after this call, maybe I'll give you a call and explain you things in more detail.
Ah, okay. Okay.
But again, again, the same reasons what we have, what I've explained earlier.
Oh, sure. So, my last question, did you see the deterioration of business in Myanmar? Is it like, is it relatively stable or worsened?
I think it's more or less stable. You know, next year, I think, we just saw the budgets. They are also looking at some growth next year.
So, looks like, you know, it's stabilized now and, I mean, it's still, the conditions are still not normal, as you know. So there are a lot of issues, but still, I think as a company, we are looking towards some growth next year, if everything remains the same and things don't get worse.
Okay. Okay, understand. Okay, thank you. Thank you very much.
Bye. There are some questions in chat.
So I think, we had, Yuwanee, you had some questions?
Yes.
Yep.
Yes, a few questions, please. First, this for this year, do you think first quarter will be the peak season, peak quarter again?
I think generally speaking, you know, fourth quarter tended to be better if you look at things historically. Now, this year was probably the first year after the COVID, so we are hoping that, you know, the last quarter should probably look better, you know. So overall, our feeling is that, yes, the fourth quarter we should be able to catch up a bit. That's how we have guided also in the beginning of the year onwards. By end of the year, we should be able to get closer to last year's numbers. Thank you.
I mean, compared to other quarters of this year, will it be the peak quarter, at least in terms of sales?
I mean, we can't-
I don't want to compare to last year. I want to compare to this year.
I think we can only relatively compare with last year, you know. So it's, it's again, the last three quarters post-COVID, how things have changed. You know, it's very difficult to project and predict. So compared to last year, we feel, yes, definitely we will, we will do better. But compared to previous quarters, it's still a year unfolding after COVID. I don't think we can, with any, you know, amount of certainty, guide you that way, you know. So compared to last year, definitely better. Overall, by end of the year, closer to-
It has to be a better quarter, but if you look at many, many years, every year before last quarter-
Yeah, but then we are saying compared to last quarter. Previous quarter this year will be better because it's already a high quarter, and so we cannot-
Which, this year?
This year, compared to the previous quarters in this year, will the last quarter be better? Or we are saying compared to last year, last quarter, this year will be better. This year, because it's already on a high, so we can't really see how it's going to unfold.
Okay. Second question is, for next year, I think you mentioned that, the revenue growth will be mid- to high-single-digit. Where will this come from, from the branded or the distribution?
Branded business. We're only talking branded business here, largely branded business.
Uh-
Distribution in Myanmar, if Myanmar pharma grows, it will also grow. So if revenue growth is going to happen by 5%-8%-
Yes.
It will come from Myanmar as well, little bit. But a lot of other businesses we hope to grow as well, a little bit faster than Myanmar.
So,
So there are a lot of products in pipeline, as I mentioned before. I mentioned that there are products in pipeline, new product approvals have come, which are getting launched, will get launched. So there's expectation that there'll be growth from these areas, new products in the same country. Correction after COVID, what we have seen decline this year, stocking decline, all decline, there should be some correction even in the, in the consumer health division as well.
So if conditions in Myanmar is stable, will you see some growth in the distribution business next year?
Yes. Yes, yes. Already, already we are seeing compared to 2022, it is much better this year. So we are seeing a lot of companies have readjusted their, their plans. Some of them have started local manufacturing for consumers. So it's happening. Some are looking at other ways to do this.
So, it will be mid- to high-single-digit for distribution, do you think, if things are stable?
I'm saying overall, Madam, I'm not putting any words on my mouth because if you keep saying it again, I cannot answer that question. But as an overall, we should be getting into mid- to single digit, higher digit in next year, all combined. Could be brands are 50% growth, at some growth at 12%, and it even grows at 5%. So average, we should grow at more than 7, 8%. Yeah, more between mid- to 5%-10% in that range.
Okay. Thank you.
Yep. Thank you.
Harry, you had a question? We should open you all.
Hi, can you hear me okay?
Yeah. Yes.
Great. Thank you very much. Yeah, I had several questions. The first is just related to the third quarter revenue growth. And you mentioned in the comments before that a large part of that was due to the impact of Thai baht appreciation. So could you share with us what the growth would have been if you strip out that change in currency?
Flat.
Okay. It would have been flat without the-
Yes.
Without the FX. Okay. And then when it comes to the FX losses that you'd seen, are you expecting that to continue to increase in the rest of the year? Like, what are the FX losses you're expecting for the full year?
I think, see, major part is Nigeria, THB 150 million. Other than that, you know, the impact is basically, the impact is on gross margins because of the appreciating baht. Because the gross because we invoice, we are exporting, so invoice in baht, I mean, in dollars. So as the baht gets stronger, you know, it gets, it impacts your gross margins. So to what extent, other than the Nigerian currency, should continue, because I think last year, last quarter was 35, right? So last year, last quarter was already 35. The baht was already at 35. So in this year, the last quarter, probably if the baht stays at 35, maybe not a big impact. But the timing difference impact, because what was sold in previous months, that gets received. We receive it during the last quarter.
To that extent, there'll be some losses, but it'll be able better than the other quarters if the Thai baht remains at 35, because last year, the baht, baht had already appreciated to 35 in the last quarter. Thank you.
Okay. That second element is what impacts your revenue, but-
Yeah, maybe 36.
Correct.
Thirty-six.
Yeah. And then the bit I was actually referring to was just the what you recognize in the net Forex, net Forex gain or loss, I think, which is THB 410 million in the nine months. And about 84 or 94 million in the third quarter.
Sorry, what's the question?
Sorry, what's the question, Harry?
So, you were referring to the impact on the revenue growth. But this question is more related to the net Forex gain or loss that you report as well, which was THB 410 million.
Yeah.
My question was just how you... Do you expect that to be constant in, for the rest of the year, or do you expect, you know, more net loss to occur because of, of Nigeria?
I think it really depends. You know, if the baht remains, there will still be impact of timing difference. What we sold at 37 in the last quarter, you know, when we receive that money in the last quarter, we'll have to take an impact. So this is the timing difference. But on the sales, on the gross margin part, it will be more steady because baht has already appreciated to, appreciated to 35. Last year also, last quarter was 35. So the impact is going to be lower, but there would be a slightly an impact.
Okay. And my understanding is that the net Forex loss, the operating expense that you report, that's all related to Nigeria in this nine-month period?
Yes. So THB 187 million, which you look at, which we have normalized, mainly is coming from Nigeria.
But that's out of the THB 410 million?
THB 410 million is coming from the Myanmar dual currency impact.
Okay. Okay.
I think we should take him offline. I think we should get on a call after this, so we can move on to other questions.
Yeah. No, I agree, but I also think it's quite important, given there's so many questions about it.
Okay.
You know, it seems like this is an issue that's-
170 Nigeria. 170 Nigeria, which may not happen again, because already been up to that level, 1,000 anyway. We don't expect, we are not seeing that happen, so there does have to be a correction. What's happening because of the dual two currency impact is a different thing. That is shown at 4 and below the line. That, Manoj can explain to you. That impact is not going to be all the time. They just... It's a methodology that we have in term-
Yeah, understood.
With business in Myanmar. So it's not an impact-
Understood.
It's a methodology that causes that. So there are two things in there. So address the concern, the last quarter, if Baht remains at this level, our gross margins won't have an impact, but the impact would be because of the AR that will receive at 35, which we sold at 37.
Sure.
That extent. So that is going to be the impact. So it's going to be much lesser than what you saw in the previous quarter. So that is the general guidance we can give you. We can't get more specific than that. Thank you.
Got it. Okay, thank you. And then last question was just, when you get the adjusted net profit in the MD&A, what's that? Is that difference also the 170 or?
Adjusted net profit
Yeah. Adjusted net profit is a result of the Forex, which is mainly coming from Nigeria. The second impact which you see is coming, the losses of the new business, which we add back.
Okay.
Because we are in the registration period.
Got it.
So that's what these are: two major adjustments which we do in the adjusted net profits.
Got it. Thank you. Thanks so much.
Thanks.
There are questions on the chat.
Answer. Sure, answer.
The first 220, 230 was answered, double-
Yeah.
Coming from Indonesia. Bottom line, largely, not top line. Already answered. Double, double group. API prices are trending. API prices, we have so many. Not one is affected. Some are lower. If you talk about vitamin C, it is much lower because the demand has gone up by 40%, and there are some APIs that may have a higher impact. Generally, it all depends on demand and ingredients coming out of. If it's an API for drugs, they come out of India and China. Largely, India depends on China for intermediates. So there's not a major, major impact that had that was in some parts earlier because of some of the areas that were constrained by agriculture crops. So it's not the impact is not sizable. I mean, there is some, but it's not very sizable in the overall, overall business there.
There's, I think, a quick question there.
I think you've covered it in the early answers.
Yeah.
Everything there.
They are covered.
It's all covered.
Yeah, already, already covered. Single digit. The third quarter, you said, is flat, is not declined after you take away the currency impact. Yeah. All right. Doesn't look like there are any more questions. If there are none, we can also close our session now. If you have anything, you can always come back to Francis, Manoj, Thomas, Punna; all of them are here at your service. Explanations. So once again, thank you. Oh, we have one. Harry, yeah, please.
Yeah. It's just related to the, the comments you made about the fourth quarter. And I think if we look at 2020, 2021, third quarter was the strongest, but is that, could you say that was due to COVID, as a COVID impact, and typically without COVID, the fourth quarter is the strongest?
I mean, historically, always there is. We keep explaining this every time. We used to all the time say, "Why is the fourth quarter is always higher?" A, we have sales contracts, we have this and that with, with all the... Because we have retail business, so you have all these contractual obligations, closing sales. There's no other reason. It's not that people are only buying more, but they're also. And it generally was always 10%. So we, we control that to not push too much stocks at the end, and then the first quarter becomes lower, which is if you look at historic, always find high fourth quarter, lower first quarter. Everywhere, all businesses, pharma, everybody has this. You know, somehow or the other, this is very common.
But how do you make sure it's not too much, it's within ±5%-10%, that's how you manage it. But with COVID and all being around there because of shortages, lack of stocks, people were buying as they needed. They didn't wait for... They were not looking at the last quarter. It was very much dependent on where the COVID peak happened and where shortages were there, all the, all the retailers were stocking up, you know. So it was just that wild madness going around, and people were buying. Pharma businesses were down because there were no hospital visits, so that had come down. They were declining. If you look at pure pharmaceuticals, if you look at 2022, 2021, you'll find decline.
They had a good year in 2023 now because the hospital business and surgeries that were not necessary or elective surgeries, all these came back. So the pharma business has seen an uptick, whereas the consumer business has seen a downturn and the other economic situation conditions as well, with things happening around the world. And largely, the COVID-related products, as I said, D, C and all the other kind of products that are related to COVID, mouth sprays and lozenges, have seen a decline, but the hay fever, flu and all is back, so some things are back in business, but not completely zero. But our business was never. We didn't launch a product. I don't think we launched a single product only for COVID.
99%, I would say 98 of them were there. There were 1 or 2 that we are planning to launch, which we repositioned.
We won.
I think one or two we launched, but all of them were already in business. So they became bigger, bigger than we, we planned, and now they are back, but they're not down to... They're bigger than they used to be. So we are in a better position today than we were in 2019 or 2018, I would, I would think so. So it's up to us now to grow those businesses from where we were, and some were already very large. So there has been that impact, but the good thing is that's not had a major... In spite of that, if the, if the brand business in turnover has stayed, even after correcting for currency, we are still flat. So that means it's still good because some other big things are taken up, and this is 9 months gone.
If the fourth quarter is good, then we will be even be in a better shape. But that's what we are trying to, trying to tell you factually. You analyze yourself; this is a fact. So yes, who doesn't have an impact? Please do Google; you'll find everybody from—look at big companies, look at the reduction in sales of any company from the U.S., big biggies who are in the business, who are all doing COVID. Look at the... Forget the vaccine guy; they are really down by a much larger number. But some company lived off remdesivir, favipiravir, and all. We were not in those businesses. We didn't have any of those, what do you call, antiviral drugs and all that. So our biggest gain was in the vitamin, single vitamins area.
In spite of that, things are not that bad. We always said, I think in the beginning of the year, we said there will be an impact, but looking at our portfolio, we knew that there will be some to manage that. Not all countries will have the same type of impact. So, but we've had double whammy. We have this, we also got Myanmar, we've also got Ukraine. But in spite of all that, I think the business is strong. It shows it's got strength, it got strong legs, and it's holding on, and we have a potential to build on top of where we are in the markets we are sitting in. So that's where we are coming from, that we will deliver 25.
There's a very high likelihood, I mean, anything can go wrong, but there's a very high likelihood, let's say 80%-90% chance of delivering 25. And then within the next 5-6 years, we are again talking about something similar, at least doubling the bottom line by 30. Sorry, 2 more questions. We have worked-
Read out.
We planned to actually build a plant in Vietnam.
Read out the question so people know what-
So we're there, you are asking about Vietnam acquisition, but-
And see.
I think what we had informed you was that we are going to build a facility, greenfield, in Vietnam. It's on track. We are working on it. There are some deal land issues, et cetera, that we are sorting out. I think by next quarter, when we meet you and when we announce, we should have the final details of timelines and when we should be ready. There have been some delays because of these technical issues, that all land have got licenses and they are structured with what they can do. They were given for a certain purpose. So all these things are there. We are... We're sorting that out. That's why I'm saying. But yes, it is on hold , and we have a serious plan to invest in a pharmaceutical factory, and there are reasons for it, which we have explained to you before.
I won't spend time doing that now, but if anybody ever goes next time, we can explain to you why we are doing what we are doing.
I think the next question is about distribution margin, reason for going up. As we explained, yeah, it is because of one principal, lower contributing principal leaving us. And will this trend continue? If the product and the principal mix remains the same, yeah, I know there's a good chance it can continue, but if the product and principal mix changes, which happens in distribution, then it will change. So as of now, if things change, things don't change, yes, that is a trend you can expect. Thank you. Yes, we can conclude. Say thank you. Close it now.
Thank you very much.
Require that you record the meeting.
Their policy. Okay, so now you can conclude, Mr. Manoj.
Yes. So thank you very much for everyone's participation. If you have more questions, you can always get back to us, and we'll be more than happy to answer your questions. So have a good day. Thank you.
Thank you, everybody. Vanika?
Thank you.