Good afternoon, everyone. Thank you for joining the session. A warm welcome to all of you on behalf of Mega Lifesciences. I'll be taking you through a synopsis of the financial results for full year 2022 and fourth quarter 2022. [Foreign Language] Overall revenue in full year 2022 was THB 15.686 million, reflecting a growth of 11% on YOY basis. Branded business revenue was THB 8 million, representing a growth of 16.6% on YOY basis. The growth in revenue in FY 2022 is coming from Southeast Asia and Africa, driven by strong consumer demand for all product categories and partially driven by depreciation of Thai baht. Distribution revenue was THB 7.32 million, representing a growth of 6% on YOY basis. Normalized, the growth was 1.1% on YOY basis.
Despite the ongoing situation in Myanmar, we are still able to maintain the sales for distribution business at similar levels as FY 2021, which was partially held by Thai baht depreciation. Overall gross profits at THB 7.04 million improved to 44.9% of operating revenue in FY 2022, as compared to 41.8% in FY 2021, given relatively higher growth in branded business, causing favorable revenue mix and better gross margins for branded business. Branded business gross margins at THB 5.397 million remained healthy at 67% in FY 2022, compared to 66.2% in FY 2021. Standard gross margins for branded business are usually in the range of 63%-65%. We expect the same going forward.
Distribution business gross margins at THB 1.52 million remain steady on a normalized basis at 18.1% in FY 2022, as compared to 17.5% in FY 2021. The reported gross margins were slightly higher at 20.8%. Normalization is required due to dual currency rate in Myanmar and temporary delay caused in remitting money back from Myanmar on a timely basis, which results in a higher sales, higher gross margin, and correspondingly higher FX loss, but not materially impacting profitability. Our net margins, which is EBITDA as a percentage to gross margins, remain steady at 45.9% in FY 2022. Going forward, we can expect the normalized distribution margins to remain at similar levels as year FY 2022 on a full year basis.
SG&A expenses at THB 4.359 million remain steady at 27.8% of operating revenue in FY22, which is quite similar to FY21, where the SG&A expenses stood at 26.7% of operating revenue. Reported net profits were THB 2.24 million, reflecting a growth of 15.4% in FY22. Adjusted net profits at THB 2.290 million reflected a growth of 21.7% in full year 2022. Adjustments to net profits are made for FX gains and losses from new businesses, which are investments in future, and material items of income and expenses, if any. Overall, the net profits have improved due to growth in branded business, revenue, better segmental gross margins, and stable SG&A.
Operating cash flows were THB 1.997 billion, representing 89.1% of net profits. We continue to be a net cash company with a strong balance sheet. On the CapEx front, we have spent THB 320 million towards CapEx in FY 2022, with majority spending approximately THB 243 million towards consolidation of manufacturing operations and capacity expansion in Thailand. We plan to launch 23 new unique products in FY 2023. On the fourth quarter 2022 performance, overall revenue in fourth quarter 2022 at THB 3.884 billion reflected a growth of 18.7% on YOY basis. Branded business revenue at THB 2.061 billion grew by 23.5% on a YOY basis.
The growth in revenue in fourth quarter was again driven by strong consumer demand and partially driven by depreciation of Thai baht. Distribution business revenue at THB 1.752 billion grew by 15.2% on YOY basis. On a normalized basis, distribution revenue was up by 4.5%. Despite the challenges in Myanmar, distribution business remains stable, partially held by Thai baht depreciation. Overall gross profits of THB 1.79 billion improved to 46.1% of operating revenue in fourth quarter 2022, compared to 43.3% in fourth quarter 2021, given stable revenue in branded business and relatively higher reported gross margins in distribution business, as explained earlier.
Branded business gross margins of THB 1.35 billion remain steady at 65.3% in fourth quarter 2022, which was quite similar to 65.7% in fourth quarter 2021. Distribution business gross margins at THB 413 million on a normalized basis represented 22.6% of operating revenue in fourth quarter 2022, compared to 18.7% in fourth quarter 2021. SG&A expenses at THB 1.19 billion stood at 30.7% of operating revenue, which is quite similar to fourth quarter 2021, where SG&A expenses stood at 27.5%. The spending in SG&A usually varies from quarter to quarter, and the highest spending in the fourth quarter 2022 is as per plan.
Reported net profits were about THB 400 million, reflecting a decline of 19.2% on YOY basis in fourth quarter 2022. Adjusted net profits at TBH 516 million reflected a growth of 6.5% on YOY basis. This is in brief the synopsis of our financial results for full year 2022 and fourth quarter 2022. May I now request our CEO, Mr. Vivek Dhawan, to provide more insights on the business side and the guidance for year 2023. Thank you.
Thank you everyone. [Foreign Language] Vivek Dhawan here. Thank you, Francis. You had Francis taking you through our, our performance results. I have Manoj here and Thomas also with me. I'm just gonna quickly take you through our guidance and also talk a little bit. I mean, the year 2022 has been good. I mean, it's probably one of our best years in terms of bottom line profitability and sales growth. In spite of the turmoil around the world and the pressures we have had in Myanmar and Peru now and in Sri Lanka and in Ukraine and all these areas. Hopefully the worst is over. The pressures of supply chain and the remaining issues that all of you know very well beyond us.
Energy prices going up, material difficulties around the world. In spite of that, Mega has been able to clock its best year in history, I would think, in terms of bottom line. That's a fact. A lot of it also has to do with, A, the baht has been helpful, to some ratio. COVID also helped us in many areas. Some places COVID was around, hasn't gone away, but hasn't been the only driver. The good thing is it's not the only driver. We have seen growth in the COVID products when we classify them at only about 8%, but our other business grew over 18%. The good signs are it's not only the COVID products that are growing. Number two, as we have mentioned in the past, that the trend to wellness hasn't stopped. A lot of people continue.
It's got a new normal. It won't remain there, a lot of these products, but a lot of them will come down. They generally will have a new high, because what we had in 2019 is gone to a new level now and will probably stay there and grow from there. That's a good thing. What we would have to say as we would grow normally, but we have probably grown faster than our plan. Our guidance has not changed. We promised you that we will reach THB 2.5 billion in 2025 or thereabout. We were saying 2025, 2026. I think there's a very good likelihood that we will still achieve that 2.5 in spite of all the issues around or even better it in 2025. We remain committed to that.
That's the focus. There has been a gain in the short term and there is that thing in our hand that we have got from various reasons, but in spite of that, there are good signs. The strategy hasn't changed. Our direction hasn't changed. We are doing all the things that we promised, and we continue to work on these areas. Building good brands. Thailand is doing well. Malaysia has done well. Vietnam has done well in our consumer health area. Our over-the-counter, what we call self-medication, is performing better than all the other areas. Our prescription drug business is growing at a faster rate. Our pipelines hit somewhere around 173 products under development under different stages.
I mean, Francis just mentioned we have a plan to launch 23 in 2023. We have a 173 product pipeline which are under development and going on as we progress. I think looking at the pipeline, the markets where we are and with more stability coming in, fuel prices getting more stable, countries' economies getting a bit more stable and the situation, people either learning to live with the situation, we should see a slight growth in 2023. In spite of the pressures in Myanmar, we are seeing some losses in distribution revenue because of some one of our principals that decided to exit the country. That's probably an impact of what? 7% turnover. On the bottom line, very minimal impact on the bottom line.
If things continue to carry on and things have got better, imports have become easier now, money we can find and import. With all that happening, we see probably see. We'll see how things go. We can't write a whole year in front of you, but we all believe that the next year should not be as bad as it looked as it was last year. Hopefully things will start to recover. That's our view. Having said that, with Myanmar, Ukraine also, in spite of all the problems, business is carrying on. We are still able to import and sell, but some areas are disturbed. In spite of that, we are profitable, and we expect to see some growth in 2023 as well. Sri Lanka is recovering. Again, LCs are opening up, products are going in.
We are seeing a recovery moving towards the earlier norms. All these things are positive, and we are hoping as we go forward, this will add and accrue into our overall business. We should still see on profitability anywhere in low to mid-single digit growth in profitability in 2023. That's the thinking behind based on this logic. If things change, we will keep you absolutely informed from time to time every quarter. At the moment, that's our internal plan and that's what we are working on. Based on an internal strategic review that we do every year. We do budgeting every year in November. We review that in the first quarter again. We do it every quarter. We will keep you updated how things are moving in that direction.
Having said that, I don't see any variance from our plan of 2025, that we shall hit our numbers without doubt, in spite of all these hiccups that keep coming and going, coming our way. We are confident of that happening. Good brands are being built in all the markets, and the branded business is the real driver. As the branded business grows and becomes bigger, the bottom lines become more stable and stay there. The distribution business contributes largely from Myanmar, and number two is Cambodia. They are two markets, right? Vietnam probably ranks third in the range. I mean, the turnover is higher, but in terms of profitability and all these things.
We have largely Myanmar and the drug business or the pharma business in Myanmar is still very stable. We do hope that the principals who are there are committed to the country, their teams are there, they are still investing in the country. We believe that with the great partners we have and our own branded business, that the Burma pharma business should continue to maintain and from there, as country improves and gets better, should stay on as compared to other people. That's our belief, that's our thinking behind what we are telling you is based on logic, and we believe this should continue. That's the story on how things will look like in 2023 and the outlook that we are presenting to you.
Other than that, a lot of other things that we have started working, moving in the right direction. Indonesia, we had mentioned our products are getting registered. We have started to launch new drugs that are being imported, also our local manufacturing is starting to grow there that we have started. Our plan to build a facility is in progress. We are going to start something soon. The next quarter, we'll start appointing the contractor and start building our additional facility to make softgels. We are also getting some licenses to launch some of our products in Vietnam soon. Sorry, in Indonesia. two or three products should get approved in the second quarter, and we should be launching them as well. That's the update on our Indonesia products import licenses.
Many new products have been approved and launches are starting to happen. As we mentioned, we need a local facility to do that. Imports have begun. Also transfer the, what we call, license transfer, for local manufacturing is also being done. You're doing tech transfer and new product development is happening in Indonesia. That's part one, and we hope to see improvements every year-by-year till we reach break-even and profitability and grow our sales from that $10 billion to the $40 million-$50 million as we are projecting in that year 2025-2026. We are moving in the right direction. We are moving there, and I hope we will get there as planned. Vietnam, we have a plan.
We have mentioned to you we are looking at investing in Vietnam to build a site to make sure that we cater to the local requirement, local laws. That's also a plan in progress. Nothing finalized yet. These are other areas. We are in Thailand. Our facility is nearly ready. Now we are waiting to do a testing, getting approval on GMP. That should also start and move in that area. Investment in facilities, supply chain and capacity building in all the areas is moving in the right direction. Other than that, CBD, nothing much yet. No really update. As and when the product gets approval, we should be in the market.
I don't believe that it's it has a major impact on our growth and bottom line and top line. Yeah, it's there. We are not in recreational marijuana. We are not into recreational CBD. We are into medical CBD. We are only selling extracts, and we are only gonna sell products that are approved by the law. We have to wait and get that get that moving in that direction. Baby Natura , DR. DRINK, all this is now consolidated under one company, under one brand called Natural We Care, an extension of Mega We Care. Like we have the pure pharmaceutical, we have the over-the-counter drugs or self-medication, then we have the nutraceutical in pill form, and these are health products in non-pill form. I think we have launched it in Cambodia.
We have also launched some in Vietnam, and we are working towards other launches around the region. Slowly it's becoming and is growing towards that THB 100 million as we are planning to move there. I think that part of the branded products in the food, health, in other dosage forms that we are working on. This is a new area where we are directing foods, easy to use, regular use on functional claims and for good health benefits. Products that are scientifically known. I think it's a work in progress, and we are moving towards that. It's growing. It's growing every year. That's what's happening on our new area. Wellness We Care Center remains our CSR, our social objective of helping people to stay healthy as long as you live.
We are doing a lot of work in educating people, running program from cancer camps to diabetic camps, to stress relief, to heart disease. We are promoting knowledge, working along with our brands for our own colleagues internally, externally, and that continues to become a source of invigorating the brand Mega, that what we stand for, the purpose we are here for. That's also moving in the right direction. Other than that, I have nothing more to add. I think I've covered most of our areas that we are involved in at the moment. Maybe it's a good idea now to move this to a Q&A. If you have questions, we can take them, start them now, unless I've missed anything. Anything you want me to touch on?
I think we are ready for Q&A. We shall answer. I mean, most of the areas, if they are covered, if you have heard them. We can also repeat them again. If you have questions, please, as we request you every time, please give us your name and the organization you represent. Then we shall try and answer those questions. If we can't do justice to them now, Mr. Thomas, Mr. Francis, Mr. Manoj are available to talk to you even after this call is over. Right. Okay. That's it. Thank you so much. Over to you.
Thank you, Khun Vivek. This is Yuwanee from-
[Foreign Language]
[Foreign Language] You hear me? Okay. This is Yuwanee from Maybank. I actually have a number of questions.
Okay.
Can you please be more specific about your guidance? You say you will grow revenue slightly this year. What do you mean by that?
I don't know how specific I can be. I'm saying that our bottom line will grow in the single digits, plus between zero to 10, the low to mid-single digits. Top line can be flat, can be minor growth. We'll have to see because it also depends on. A large part of our business is also distribution, right? We have what, 50, 48, or in that range. Distribution business having dropped 7% in Myanmar and some other impacts on consumer businesses, where most of our partners are finding ways to, you know, start local manufacturing, et cetera. They are doing, but some may have an impact on it, and it could affect the top line.
It could affect because we don't know how things work out because they're all working on plan B, contingency plan, their local manufacturing plan. If they don't get it happen on time, then it could have an impact on top line. The impact on bottom line is very limited. The biggest thing is, yes, our branded business that we control, we still say is going to grow in that single digit. We've had phenomenal growth in the last two years, so you can't take last two years, which have also got COVID and other thing involved in it to extrapolate. We are saying we should still see growth in our branded business. The distribution business could have some impacts, negative impacts and overall we may be flat or maybe see some growth.
Bottom line should still be protected or see, should see, mid to low single digit growth. That's what we are projecting. That's what we think is going to happen with based on the facts that I've shared with you. We'll keep reviewing it every quarter and coming back to you.
Top line, single digit for branded and distribution flat?
Yeah. Summarily.
Okay. Thank you. Second question about Sri Lanka. I heard that the government is hiking the electricity price by 66%. How is it impacting you economy-wise and in terms of-
Yeah, we have a very small stake in Sri Lanka. You know, we are not very big in... I mean, electricity prices definitely affects the whole country, but Mega is a very small. We are what? Three-.
It's such a small part of our overall business that, even in spite of all the problem last year with LC not available, we are still profitable. We are hoping to see growth next year. The impact is so little in Sri Lanka on the overall bottom line, that, and overall sales. It shouldn't have a big impact. Yes, fuel prices have gone up. Electricity prices are going up. A lot of things have moved up in that direction. Interest rates are up, it's a hard, little bit harder. IMF wants them to do that, and they are paying their first loan back, I read yesterday, $2.6 billion they are paying back in this coming week. They have to comply in order to get the IMF.
The conditions have to be met, in order to revive the economy. The good thing is that tourists are back, hotels are getting fuller, tea exports are going to start. I think there are also some good signs in a small economy, so chances of revival are good. We are hoping that things are looking better. We can see things are looking better, to be honest. From what we saw last year till today, things are better.
Okay. Thank you. Coming back to your guidance, I remember that this time last year you had quite a bearish guidance like what you do have now, but then, you made something like 15% increase in profit. What could be the upside for this year, based on?
Yeah, I wish I had the crystal ball you have, you know? We can only imagine THB helps. These things are not in our hand. We have no control over them. THB, number one, COVID came back in some places and maybe helped a little bit. The good thing in the stable part of our business doesn't go anywhere, right? When we were at THB 1,500 million in 2019 and we said we'll become THB 2.5 billion, that's the plan. If there are some additional bumps because of A, B and C, this is additional bumps that are coming, right? Our direction that we are on...
I think with, if you look at the pipeline, if you look at regular growth, if you look at the business growth, real growth in pharmaceutical, healthcare, pipeline, countries we are in, brands we are building. We are there. We still remain absolutely confident that we'll deliver you the numbers that we had told. You had bumps. If you expect us to be able to predict that is very difficult, I think. If things go very well because our products are up and running and a lot of products are seeing growth, you could see maybe slightly better than what we are projecting. At the moment, looking at facts, you can call us optimists. Optimists, we are not the most. We're probably a little bit more conservative than...
Not optimist. Maybe we remain pessimist. We don't give you very high number and then say sorry. Looking at facts, we think it's a very reasonable assumption, you know, because we don't know how things will pan out, how dollar looks like, how all these things. People are now used to the crisis. They are used to the fuel problems, and it's all they learn to live with it, right? Hopefully. We are in difficult places. We are not in India that is growing. We are in Sri Lanka, we are in Burma. Vietnam is one that is very, very. Is a very growth country, but also very. A very difficult country, you know.
Most people see growth there, the profitability in Vietnam is not great for most people. It's a very tough country. There's a lot of growth happening in Vietnam. We are there. And we see Indonesia as the next engine also, if we can get it right. I'm not saying we'll get it right, but it's also got potential to grow in the next 10 years. Everybody's banking on Indonesia with the tin find and future of EVs and all these things. The hope is there that we are in the right places. We have the right products. We have the right people. That's where we are coming from. I don't know if it makes any sense or not, but I don't know what more to tell you.
Okay. My last question is, what could explain the FX loss, large FX loss in the fourth quarter? What was the driver and then what do you expect going forward in terms of FX gain and loss?
I would ask our finance team to answer that question. I am not gonna try and do that. I'm sure there is a reason, very good logic behind it.
In quarter four, the FX loss was mainly coming because of the baht appreciation. The baht appreciated from close to. It was 37, 38 in the end of quarter three. Slipped down to 34. That was the major reason why there was a FX loss in quarter four. Thereafter, the baht has remained stable at 34 in January and February. Overall, if you look at it in any particular year, we don't look at FX loss from a quarter-to-quarter basis, from an overall basis. If you look at our historically past 5, 10, 30 years, our forex loss has never been about 1% of the overall turnover. That's where we are, you know, in terms of forex loss.
In terms of quarter four, it was specifically because of the significant baht depreciation which happened. Thank you.
Thank you.
[Panthanapol], you are on mute.
Hello?
Hello. Hi. Yes.
Hi. Is it all right if I ask a question?
Please.
Great. Thank you very much. My name's Harry from Vergent Asset Management. The first question I had was on 2022. Just if you could give us a bit more color on the branded side, particularly like the contribution from certain like areas, certain products, or certain countries and how much like you think was COVID versus non-COVID. If you can give any more color on 2022, that'd be really helpful. Thank you.
We don't really separate country-wise data on our business, but as you know, Asia is what? Over 72.
Southeast Asia.
Southeast Asia is over seventy-
79%.
79%. I think Southeast Asia has done well. Among the top countries performances, probably Thailand, Vietnam have really done well. They are also a large part of the turnover as well, right? Both have done reasonably well and contributed to the growth because they're also large proportions of their business as well, branded business. Having said that, it is not that Africa has not performed well. They have also grown. Africa has also grown. When we say Africa, it's only Sub-Saharan. We are only in Sub-Saharan, starting from Ethiopia all the way down to Ghana, right? That's where we are. That's also shown growth. Southeast Asia is number one and then comes Africa number two.
Others have not been that significant because from Latin America to Ukraine are probably flattish or very small 1%, 2% growth. Maybe largely because of war and Colombia is very new. We just started it, so it can't be very predictable. Peru had its own issues last year. I think these are the two areas which have shown the largest growth. Product categories growth, our prescription business has shown much higher growth with which, because hospitals started to open up. That is good because we were. Last year before it was largely COVID product, but last year it was a lot of prescription products, a lot of our self-medication products. The COVID-related products had a lower growth, if you look at in the total. If you say our growth in the branded business is what?
16%.
16% overall. The COVID-related products is a smaller part of it, and the other are much higher part of that. That's something that I can tell you for a fact. The prescription business has grown higher and the self-medication have grown at double the rate. The COVID-related. When we also look at COVID product, we may demand them that, okay, they're also regular product. They're just not COVID. We've been selling them for a long time, except a few, one or two of them that were added during COVID. We didn't add 20 products during COVID. There are only two products that came under COVID, a spray, mouth spray, and one of our Viruno, the Andrographis.
They have also done well, but they're also a regular part of our product portfolio, right? Other than that, large part are normal products that we sell anyway most of the time. C, D are part of our regular portfolio. They were always a large part of Mega's portfolio before COVID as well. The growth there hasn't been very high. They probably tapered off. The real growth is prescription and self-medication. I don't know if that gives you the real flavor, because we don't give % and growth separately, and I don't have it with me at the moment also, to be honest.
Sure. Yeah, no, that's fair enough. You mentioned as well the, you know, the acceleration in kind of awareness of health and wellness, et cetera, and how that was kind of accelerated by COVID. I mean, is there anything that you can like, any studies that you've done and data to substantiate, like, the increased purchases coming from people on the back of that?
We haven't done that, but I see data from NBJ, I see US data. The sales of supplements worldwide, US alone, have grown. Even 2022, they have seen growth, but they are predicting, everybody is predicting a flatter 2023. Little bit more flatter or smaller growth. When we look at it, they have seen such growth over the years. The thing is, even after COVID was not as prevalent in 2022, but still, supplements, they dropped. They didn't drop off 50%. They did drop off 8%, 10%, but then other things, people continued to look after their health by using other products. Maybe at that time, they were all stuck on vitamin C, D, and there were things like elderberry, and there are. Some of them were very focused only on COVID and immunity.
After that, a lot of things have dropped off, but they haven't come down to the same level in sales. At the same time, a lot of herbal, other products that were not as big before have also started to grow. Related products, sleep, gender health, wellbeing, and people have started to come out more. I think overall, there's some increase in brands that people trusted, and they have started to use some of the products which are not only COVID. That's also started to happen. We see that from the published data as well, growth in herbal supplements, herbal medicine that was not as big before. Growth in some areas like gut health, other things that people are starting to go out more, so they're starting to look after their health more.
Data is showing in Euromonitor, in NBJ, Nutrition Business Journal, et cetera, where HerbalG ram, where we look at the herbal medicine used in the U.S. Wherever there's data available, we can see those signs, that they are, they're higher than the before COVID. Some that were COVID have dropped down, but the other products have gone up. It's a balance. You have not seen the whole market drop off. Otherwise, the market should have gone down by 20%, 30%. Other things have gone up and adjusted it, and still there is an overall balance of growth in the market. That's what we are seeing. Like fish oil and general heart health. Related, long COVID related product, people are also looking after balancing long COVID and staying healthy.
A bit of that has also come into mind. People are using products more regular. There is some bump in products that were not COVID, and there is some reduction in products that were only panic-driven, right? Some people just got into saying, "Okay, now let me take," but they're not regular. This is happening. This is probably the true fact. We can also see it in some of our product sales as well. It's collaborated-
Got it.
what we are seeing also factually.
Got it. That's very helpful. Just lastly in terms of going forward, like the... Could you just comment on the sensitivity of the company to, like, tourism spend, particularly you mentioned in Sri Lanka, but also Thailand. Like if I think about increased consumers on the ground in the form of tourists, like, does that have an impact? Then also with regards to inflation levels, like, do you see much of a sensitivity of your consumer to price levels and how that could possibly impact going forward?
Fortunately, Mega is not reliant on tourist travel who buy our product. I think we have a very small portion of our business which travelers buy. Our brands are locally consumed and are something that we have built on the strength of the credibility behind the product. We have for years and years, historically, spent our life. I spent my life building the product 30 years with good quality, right ingredient, right quality, right dose, scientifically proven, and we have built it like a medicine. If people start to take them and they take them for a reason, we don't sell them as foods. There's no magic in it. We don't advertise movie stars and say, "Eat them today." We don't do that.
We are trying to convince you on health and lifestyle and changes, and that's where we come from. It's a hard job. It takes time. That's why we don't see one year 100% growth and next year -200%. We don't do that. We have a very slow and steady growth rate because we convince. Once people convince, if you have diabetes and you turn to take. You have neuropathy, you need to take vitamin B complex. There are brands of that nature. In the world, you have the Neurobion, then Mega has NAT B. If you have pain, you have Nurofen and you have GOFEN. It's a very effective, fast-acting product, and if you need to cure that, you take GOFEN.
Similarly, we have many similar areas where our products are focused on. We continue to work there, work on it and educate people. If you believe, yes, there's inflation, yes, there are all these issues, but for that group of people and the amount of product that we sell, we are targeting only a very small part of the population. Maybe not the topmost end of the world. Maybe some of them also the rich and the famous also use our product.
In this B plus, A plus category or C in that group, the impact of inflation and not being able to use our product regularly might be there, but it is not gonna be as large as if only in the C, D, E category, where we only sell cheap low-end products which they can say, "I don't need it. Let me not waste my money on it because I might well save it for something else." It's possible, but I don't see that as a very, very big impact because we are not that mass at the moment. There are some product, but they are anyway very cheap. Eugica Lozenges sell one of them, one of them in Vietnam in 20,000 outlets, but then again, they are only a lozenge.
It's only 800 VND, right? The impact is not very large on that kind of product. That's best view we have. If you have trusted, we have believed you still want to stay healthy, you spend some money on your health. If you're gonna use a drug to cure cough, if you believe in Eugica is a natural solution, is a better, safer solution, you want to give it to your children, you probably use our product first before you go and buy a drug. I think it's this trust and building that credibility, and it takes a while. That's where we come from. Again, this is our view and we continue in that direction and we see, we see results as well. We see continued results. In bad days we have had...
Not now. 2005, we had Tom Yum Kung. We have had this twice or thrice. We also thought, "Oh, the market will go under and nobody will buy anything." That Baht is. But it didn't happen. I don't know, we will find out. I may be completely proven wrong, you may be right, I don't think it should be that way, you know. I don't think we should go that. We should probably see a big impact of inflation also on our business.
Great. Thank you very much.
Hello. Can you hear me?
Yes.
I just have one question about your distribution segment. Correct me if I'm wrong, but I think normally the margin for this business should be about 18%. For the past two quarters, the margin for this segment has really been thrown out because of remittances that you've mentioned. Earlier in the call, I believe you said you expect margin in 2023 to normalize to about the same level at 2022, and that comes about 20%-21%. Does it mean there will be similar kind of remittances in the coming quarters? Can you remind us structurally where the margin lie for this business? Thank you.
[Kunthapal], if I understand your question correctly, you are asking about the gross margins going forward, right?
Yes, because, normally, right, Structurally, the margin for this business, as you have always guided, should be about 18 to 17%, 18%. We have seen a number in the low 20s for the past two quarters. What we can expect going forward, and will there be any more remittances again in the coming quarters?
I understand.
Yes. [Kunthapal], as explained earlier, our normalized gross margins usually are in the 17%-18% range. Even in FY 2022, the margins on a normalized basis were around 18%. As explained earlier, the normalization was done because we have a dual currency rate in Myanmar, which to some extent impacts the sales gross margins and SG&A. We also had some Forex losses coming from delays which were temporary in nature while remitting funds from Myanmar, especially in July, August 2022. Most of these losses were recovered from principals, but because of accounting requirements of IFRS, the gross margins appeared inflated and the FX losses also appeared inflated. When we normalize it for these events, the gross margins still remain at around 18% on a full year basis.
This kind of, this kind of increase in gross margins, the reported gross margins, can be expected going forward as well because the dual currency rate will continue even in 2023. On a normalized basis, the gross margins should still hold at around 18%. I hope that answers it.
All right. Yep, that's very clear. Thank you.
Hi. This is Nakarin from private fund in OSX. Just wonder about your utilization rate and capacity for brand business. Even with small growth, if your utilization rates is currently underutilized, should we expect more operating leverage going forward? If the capacity you have right now can you can achieve the guidance in 2025. Thank you.
I think we are prepared in terms of capacity. We have now developed and increased our plant capacity in all areas and realigned our manufacturing for drugs, for OTCs, for supplements, for food, because there are regulatory requirements also to have the right plants, you know. A lot of things change in GMP as time goes by. I think in capacity terms, we are aligned. We have created enough space to expand. We are investing in machinery from blister packing to sachet filling, et cetera, new ones over the next one, two years. We have enough ability to produce internally whatever we are doing, and we should be able to meet the requirements in 2025 for our growth and whatever plan we have.
A lot of our products are also coming from outsourced partners, where we also have a plan in place where we work with them, so a lot of the drugs we don't manufacture in some cases. As you see, the Indonesian plant is being refurbished and grown, so that's also happening. Australia plant has also seen capacity enhancement and some machinery investments have been made there in that plant as well. Hopefully, over time, we may also see something happening in Vietnam. We don't know yet, but we'll get back to you. I think all these capacity requirements and so outsourcing will make sure that we'll achieve our 2025 goal. Now, having better operating margins because we have capacity, better utilization, that's a possibility. As we utilize more, whenever you produce more, you see more, you see better results.
Operating costs are always there, they are fixed. I think as we go forward, we are also tightening up. We are doing a lot of stuff at the factory, ESG, a lot of work on environment, a lot of work on managing efficiency, improving outputs. A lot of things have been done over the years, and we have become more efficient in those terms. And as things get bigger, your variability also reduces. As brands get bigger, your production runs become longer, right? At the same time, our model, as you know, we have a lot of SKUs and we have a lot of products, so the variability is huge, SKUs. We need flexibility to respond to demand.
33 countries, I keep saying, 33 countries, some 200 products, you multiply them and the supply, you see how much complexity and different packaging, different requirements and law, regulatory requirements. I think it creates a lot of variability, and for that you need to have some excess. We don't work on this 100% capacity. We always work on the 70%, 80%. As we get closer, we have to start thinking of expanding our capabilities or else, you can't respond to demand. The demand in the front is far bigger, far, far more important than the cost of creating capacity. That's not been the challenge. Efficiency is there in what we produce. I mean, you work at 98%, things like that.
A lot of things we have done in terms of material usages, manpower per 1,000 capsules. A lot of improvements in automation. We are continuously working on that area. I don't know if it answers some of your question. If not, maybe we'll have to sit in detail to explain that to you someday.
Just to add one more thing. See, you asked for any further operating leverage. See, our gross margins have been very high already, you know, 67%. Historically, we have been doing 63%-65%. Yes, there will be operating leverage as we utilize more, but there are also costs, you know, salaries go up...
Yeah.
and stuff like that. You know, if you're asking us if the gross margins are going to improve, no, it won't. All the chances are it'll come down a bit more. Thank you.
Revenue should go up, and the percentage should come down.
Yeah. Because we're already very high.
They are very high. They're very high.
Baht can have an impact also. I don't think it will go up.
Competition, baht.
I see. Thank you. My second question would be, coming out of COVID, should we see more of the selling expense as... During the COVID, people just rushed to buy stuff that make them feel healthy. Coming out of COVID, I speculate that some maybe just don't just feel that they don't need the supplement anymore. Just wondered, do in 2023, do you need more of the marketing budget or the promotion? Thank you.
Before I'll let Vivek explain. One thing that you need to notice is that even before COVID, our SG&A expenses were 28.5%. During COVID, it dropped to 27.5%. There is no big impact. We have no big change that has happened. I don't think going ahead also it's going to hugely change, you know. As a percentage-
You go back to 28.5%, you stay there. If 28.5, that 27%-29%, I was like, got it, we'll stay in that range. Doesn't go up, change very much. We don't just start advertising just because you're losing sales or sale. People who will go out of COVID will not come back by telling them more. We do branding business on a regular basis in some form or the other, and we continue to do that. We shifted some to online, we went on TV, we do on the front, we do in stores. Some of the things that probably changed is in-store became a little less. That will probably go up. Traveling will go up because people can travel more. In Thailand, we were still traveling. I mean, we hardly stopped traveling, to be honest.
Many other countries we didn't. Some things go up a little bit. I think within that 1%, it should cover the original cost of travel, trips, et cetera, that was missing. With the right allocation, it will not have a very major... It can't become 20 and become 35. I don't think so. I doubt that we are gonna become done. COVID, we've never been. Even before COVID, we were not there. I don't think after COVID we'll go in that direction. Our model is not that. We are not a TV oriented and that model oriented business, right? We don't do that. I have my serious doubts. There definitely is gonna be a growth because... It already had already started.
It's already reflected in 2022, because by 2022 Vietnam was traveling. I went in the country, they had parties, they were traveling, they were all across. The planes were flying, everybody was visiting the other cities. Thailand was doing it anyway. There were only a few markets where there was still restriction. I think travel, all the expenses have already begun in 2022 actually, majority of 2022. Should not have a very large difference. In the end, in the end of it, actually it shouldn't go up. Within that 27.5-28.5, as you said, I mean, I don't see very big difference coming out there for that reason.
I see. Thank you. My last question would be the product you are going to launch in the pipeline. Could you provide more, some more color? Like, is it more the herbal product that you mentioned is growing very fast? Or is it?
Mm-hmm.
Is it a product that is?
In the We have a 23 products that we have, we have a lot of products in that category are prescription product. There are drugs, medicines, for prescribed by the doctor. The large portfolio of 23, I don't know the number, probably 13, 14 products are.
No. More than that. 18 products.
18 products are real drugs. Drug, drug. Five of them are, we call them consumer health. Consumer health has herbal, some herbal medicines. 18 products are all branded generics, and five products are in the list of we call consumer health. We divide our business into three categories. Pharmaceutical healthcare, purely pharma. Prescription-based, doctor-based. Consumer healthcare has over-the-counter self-medication and supplements, vitamin, herbal. We expect to see five products in that category and 18 products in the pharmaceutical healthcare. In the natural healthcare, then we have all the natural foods. Foods and food related health products. There we don't identify how many. There also we are gonna launch some six, seven SKUs. Some drinks, some teas, some other stuff, and gummies for children, plant-based. That's another range we don't report yet because it's still very small business.
The expectation is 23 products in 2023. 18 pharmaceuticals, 5 consumer health. Consumer health means supplements and herbals all put together.
I see. Thank you.
Narimon, you have something to ask?
Yeah. Hi. Narimon from KKPS. I have three questions. The first one, the easy question. Could you please share revenue contributions from like consumer health, medical, health and OTC, as a range or percentage will be fine.
Yeah. Overall breakup of our Maxxcare and our branded business is what now?
53 and what?
F-53 is coming branded.
53% is branded. 40 is 45-
47 is coming from Maxxcare.
Our Maxxcare.
Maxxc are. And two percent-
No
2% comes from our OEM
No, no. I mean like supplementary.
Coming. One minute.
Oh, okay. Thank you. Sorry.
Overall, out of 100, 57 is brand. 53 is brand, 47 is Maxxcare. Out of that there is 2% is OEM. In the branded Mega We Care business, we have the 60% is our supplementary business. 10% is the over-the-counter. Over-the-counter or self-medication. This is what we call consumer health, 60 plus 10. 30% is pure pharmaceutical at the moment. It's 70-30 at the moment. Around there. Plus, minus 3-4% here and there, depending on the quarter. The pharmaceutical healthcare business will grow and become bigger towards, moving towards the 40%. That's the possibility in the next one, two, three years, you will see the consumer healthcare business becoming 60 and the pharma healthcare becoming 40, that kind of a proportion.
Very clear. Thank you, [Ka]. My second question is about the gross margin from distribution business. You said that the gross margin is normalized at 18%, right? Around 18%. The reported number is like 24%, 23%. After your explanation earlier, from the earlier questions, should I assume that we should see abnormal high gross margin from distribution business quite for some times, right? Am I correct? Just to be clear on the guidance on the distribution margin.
Yes. There is a dual currency rate which is followed in Myanmar.
Understand.
Going forward, we will have this for some time, till the time the dual currency rate is merged into one rate.
Mm-hmm.
The normalized gross margins should still remain at the same level, which is around 18%.
Okay. The implication is that looking forward, once the currency is quite less volatile, I mean, like a flatage, the distribution margin should come down to normalize as 18%. Am I correct?
I think what Francis is trying to say is it's already at 18%. It is not that it will come to 18%. Maybe I'll explain it some once more. Today in Myanmar, there is a bank rate which is approximately MMK 2,000 to $1, but there is a market rate which is MMK 2,800 or thereabout. As per IFRS, the auditors insist on using MMK 2,000 as the rate to account. Actually in practice, we have to pay MMK 2,800 to buy $. Because of this, there is a difference between how we account, because in Myanmar we sell in kyat at 2,800. When we convert that into THB, we have to first divide it with $, which we are using MMK 2,000.
Actually, we should be using THB 2,800, right? Because of this, there is an impact and the net effect of the impact is that the gross margins show up much higher. When we remit out, this loss goes as a Forex loss. Because of this IFRS restriction, we have to account like that and which looks like our gross margins have improved. Actually, it has not. That's why we are saying when we normalize, we are still 18.1%. We have been 18.1%, we will continue to be that. As the, as the dual currency becomes one, this, you know, this exaggerated gross margins will also go away. Thank you. I hope it's clear.
Mm. Mm-hmm.
Somebody else want to ask on this? I hope it's clear.
Yeah. Yeah. Yeah. Okay. Now more clear.
Actually it is not, it's not 24%, it is 18%.
Mm. Mm.
It is just the way it's representing because of accounting requirements. It is still 18.
Yeah. Understood. Okay. Okay, understood. Very clear. My last question is about Indonesia. Could you please give a color on Indonesia, like revenue contributions or like operation likes... I'm not sure I remember right or wrong. Indonesia is still a loss contribution, right?
Yes.
Yes.
Okay.
It's a new country.
So-
It's a new country.
Yeah.
It's a new country. It's a loss. We just bought a factory there, because two years was COVID, we could not revamp and do anything. As we mentioned to you, that our objective there is to start imports of medicine, which we started to register. Registration takes three years. The first three years we get started to get approvals. Now starting last year, some, and beginning 2023, we are starting to get new drug approvals to import. Number one. You will start to see from 2023 a growth in revenue, both coming from what is made locally in the plant and what we are importing as pharmaceuticals into the country. 'Cause only pharmaceutical companies can import. You will start to see improvement in that happening from 2023 onward. We can report to you how the performance is.
We said by 2025 we should achieve breakeven or get start to get better. The turnover will grow from $10 million to $15 million to $30 million or something like that between by now to 2023. That's our plan.
Mm.
That's what we are working toward. Locally manufactured, imported pharmaceutical and consumer health like we do in Thailand, which we import also. You know, both, all three. We are also making our consumer health there. We are making some of our self-medication products like Gofen also locally to produce in the country. All these three things we are doing there. The pure pharmaceutical, healthcare, prescription drug, the self-medication, OTC, and the consumer health. All three. This will start to happen this year. This year we should have all three. We will need one to two to three years to see the results of this.
Okay. Thank you very much. [Foreign Language]
[Foreign Language] 4 o'clock already. [Crosstalk]
I think we can. We are already over time, I think we can do another one or two last question before we close off. Sorry lady. We will answer whatever you have written in the mail directly to you and put it down please there. Yeah.
Yes. On gross margin, again, I try to ask you indirectly about the FX loss. When you say it's actually 18%, it means the 5% is netted off somewhere. Is that through your FX gain or loss? Something like that. Is that correct?
Yes. Yes. The gross margins are higher by 5%, but that gets netted off by the Forex. Ends up with 8%.
When you net it off, that's what you mean by 18%, right?
Correct. Exactly.
Okay. Thank you. Thank you very much.
Yeah.
Yeah. We see a question in the chat box. I think we already answered.
We already explained that. Yeah.
If we have no further questions, we would like to close this call. Thank you very much for joining the session. Thank you.
Thank you, everybody. Thank you, all of you, thank you for being there, supporting us and believing in us. I'm confident, as I said, 2025 will be there. 2023 should be also look alright if things don't get too bad, and we are confident we are doing the right things. We haven't changed our strategy at all. We are moving in the right direction, and we are focused only on human wellness, your wellness, your health, helping you to stay healthy as long as you live. Thank you again. See you next quarter, in between, if you have any help, you have any question, Manoj, Francis, Thomas, they're all there. If you need me, I'm also at your service. Thank you so much. Bye bye.
Thank you.
Have a good weekend.
Yeah. Bye-bye.
Bye. Thank you.
Bye-bye.
Thank you.