Good evening, fund managers, analysts, and bankers. Welcome to Thai Union's earnings call for the second quarter of 2022 financial results. Thank you for joining us today. We are here with Mr. Ludovic Garnier, our Group CFO.
Hi, good evening, everyone. Good morning.
Ms. Arunrat Surattanajindaporn, Head of Group Accounting and Controlling.
Hello, everyone.
Ms. Ratinan Wongwatcharanon , our new Investor Relations Head.
Hello, everyone.
Okay. The session will be approximately 1 hour with 30 minutes presentation, followed by 30 minutes Q&A. During the presentation, please ensure that you mute your microphone at all times. When we open the floor for Q&A, you please feel free to submit your inquiries in the chat box, or you may unmute your microphone. Now, please allow me to pass it over to Ludo to begin the presentation. Thank you.
Hi, everyone. Again, very happy to be with you tonight and to share our Q2 performance overall. I suggest maybe we jump directly into the topics. We just want to give you the key watch out and the key takeaway for you, for our Q2 numbers. I'm sure you have seen this one. We do achieve a record high sales in Q2, THB 39 billion. We are very happy about this one. This is a new all-time high for us in terms of quarterly performance. We are growing by 8.5% compared to last year. Honestly, it's a bit higher compared to our expectation.
If you do remember, when we give some guidance one month ago, we said we don't expect to achieve a new record high, so we did a bit better compared to our own expectation. Different explanation on this one and we elaborate on that. Of course our increasing prices, the volume growth and the positive effects are the key drivers for such a high performance. Talking about category, the PetCare and Value-Added growth is very impressive. We will detail about this one. The Ambient Seafood also is growing. The Frozen business is declining compared to last year. You remember last year, Q2 2021 was exceptional, so we were expecting some normalization happening in the U.S., and this is what is happening in Q2.
The gross profit is healthy. We did deliver THB 6.6 billion in terms of absolute amount of gross profit. Gross profit margin at 16.9%. Here you could say compared to our recent track record, it's a bit behind. Keep in mind we have some one-off impacting the gross profit margin, mostly the restructuring costs at Rügen Fisch. We will explain to you all of this, after. Overall you see we have a bit of a decline of our gross profit margin. We are comparing to a baseline in last year, which was exceptionally high at 19%. We have a bit of a decline, mostly coming from the impact from the inflation. Again, we will elaborate on that after.
The OP stands at THB 1.7 billion, declining a bit versus last year, but maintained versus Q1 2022. Our SG&A are still high. We are still facing this large logistic cost. Same situation that we have been facing since one and a half year. You can see here the cost impact is almost THB 600 million in Q2 coming from higher freight costs. The consequence, the SG&A percentage stands at 12.6% compared to 11.9%. Again, in this SG&A, we have a bit of restructuring costs coming from Lübeck, coming from our Rügen Fisch factory. I will elaborate further after on this one.
The adjusted OP, if you do remove the THB 274 million Rügen Fisch restructuring cost, then the adjusted OPs stand at THB 1.9 billion. Net profit stand at THB 1.6 billion, and I will elaborate on the two one-off that we have. I already talked about the Rügen Fisch one, which is THB 274 at the OP level, and net profit is THB 195 million impact. we told you one month ago that there would be a one-off impact coming from the change in the fair value of Red Lobster preferred units, and the impact on the net income is THB 424 million. overall, below the OP, we have different news. We have some positive news coming from the FX.
We have some higher tax credits, and we have some higher share of losses, mostly coming from Red Lobster. Here we just want to deep dive because of course we told you that we have some large one-off impacting our Q2 performance. We have two large one. You can see on the bottom left, the two we try to elaborate. The first one is Red Lobster fair value. The impact in terms of other income is THB 564, and then we have the impact coming from the closure of our plant that we announced in Lübeck. If I look at the bridge on the top left, you start from the 1.6, and then you add back the Red Lobster preferred shares fair value impact, which is THB 424.
This is net income level, the Rügen Fisch, the structuring cost, and then your adjusted net profit stand at THB 242.43 million. You can see here on the right, we wanted to share with you the impact on the whole P&L. There is one tricky point to have in mind, which is the impact of THB 274 million of Rügen Fisch closure cost have to be split between cost of sales for THB 188 million and THB 86 million for the SG&A. The impact in terms of OP stands at THB 274 million. The impact on the fair value adjustments on Red Lobster preferred shares stand at THB 564 million. Okay. Total impact of the two one-off on the EBIT is THB 838 million.
Of course, we have some related tax impact from this one, which is 219. That's why overall at the net profit level, the impact is almost THB 619 million. I'm sure you will have some questions about this one. We'll get back. For you just to keep in mind these two significant one-offs impacting our Q2 performance. Excluding this one-off, the adjusted net profit amounts to THB 2.2 billion. We do believe it's a very good performance to be compared to last year. Last year, adjusted performance from the one-off was 2.4. It was all-time high. At 2.2, we are not that far. We do believe the core business is doing well.
The net profit margin at 5.8% also is something very interesting for us. Moving on to the six months performance. You can see here over six months reporting numbers, sales growing by 12.3%, gross profit growing by 5.1%. OP declining by 24.2%. But again, including here the Rügen Fisch restructuring cost. EBITDA declining by 22.2%, and net profit declining by 18.7%. We have a bit of a drop compared to last year. We were expecting that. We mentioned that in our guidance for 2022, this normalization was expected. But again, keep in mind that the net profit is impacted by both Rügen Fisch restructuring costs and the Red Lobster fair value preferred shares. Moving on to the next one.
This is our story over the last ten quarters in a row. You've seen some. In terms of top line, I think the story is extremely good. Q1 2022 was already very attractive. If you do remember, we did deliver growth by 16.5%. Q2 2022 ended on a very strong growth, 8.5%. The gross profit has been going a bit down in Q2 at 16.9%. Again, if you do remove the impact coming from Rügen Fisch restructuring costs, then the adjusted gross profit margin stands at 17.4%, and I think very close to what we had in Q1. It's true that compared to last year, where we were at 19%, we had a bit of a dilution of gross profit margin. We don't deny that.
This is mostly coming from the inflation, and we will elaborate again on this one a bit further. In terms of dividend, one good news, I think the board decided this morning to agree on a 40 satang per share. I think this is quite high, a bit lower compared to last year, which was at 45, but this is our second highest interim dividend, if you look at the track record that we have over the last 10 years. Dividend date, recording date, payment date, these are usual, so I don't need to elaborate on this one. I think you are used to this one.
If we move now to Red Lobster, and we mentioned that our Red Lobster was our key priority in terms of business, our key areas of concern over the past few quarters. You can see here our usual table on the left, and then on the right, the table with our full year guidance on Red Lobster. If I start, first of all, with the Q2 performance. First of all, the share of profits coming from the operation from Red Lobster stands at THB 281 million for Q2. To be compared last year in Q2 2021, THB 249 million. Here you can see a deterioration. Again, same story that we had in Q1.
If you do remember, we said in Q1 we are impacted by Omicron, we are impacted by the inflation and the shortage of the labor. We have seen some improvements, yet we don't see the impact in terms of bottom line at Red Lobster. The share profit coming from the lease accounting is very close to what we had in Q1 2022, very close to what we had also last year. Only few changes only coming from the FX. I don't need to elaborate further. The next line, other income, is where you have the THB 564 non-cash impact that we talked about already earlier regarding the preferred shares fair value adjustments. To be compared to last year, around THB 300. In this line, we have two key topics.
We have some more, but the key two key topics are always the interest in the preferred shares, which is the vast majority of this amount. Management fee that we are also collecting from Red Lobster and few other topics. You can see usually every quarter we have something. In the past year, we have something like +THB 300 million. This quarter we have -THB 300 million in Q2, and this is one of our key driver. The key component is the THB 564 million adjustments that we have in this quarter. Interest expenses, no big change compared to last year. Income tax, we are increasing, of course, due to the share of loss increasing coming from Red Lobster and also the fair value adjustment on the preferred shares.
Bottom line, the impact on our net income is pretty significant and negative at THB 554 million. You can see a clear deterioration. Now, if you remove the impact of the THB 564 million, you have a net income which is almost at breakeven. Given this situation, we have updated our full year picture. You can see here on the top, on the top right, our full year guidance for the share profit is now between THB 1 billion and THB 900 million. Here we put in the middle THB 950 million. I think we need to acknowledge the fact that after six months we are at THB 500 million. T hat usually H2 in terms of performance is not great compared to H1. Here, I think H1 was very specific.
Again, Omicron, inflation really impacting our business. I do believe H2 will be a bit better compared to H1 in terms of losses. Yet, we are planning to have for the full year the share of loss, which is around THB 950 million. The lease accounting adjustment, I think no change. I think we can target to be around THB 400 million for the full year impact. Of course, you see the performance which has been deteriorating compared to last year. There is a very strong focus on the cash preservation measures, on how to reduce the cost and how to streamline the operations. We will elaborate a bit more tomorrow, but we did a lot of changes at Red Lobster over the quarter.
We did change the operation organization. We did launch a very intense training program also for all the restaurants. We are determined to improve the quality of the restaurants, of course. The situation in the U.S., the whole U.S. is facing with the inflation. So the situation of low guest count is not only specific to Red Lobster, but to the whole industry. When people have to make some trade-off in their spending, of course, they will cut some discretionary spending. Okay. We know that we are not the only one being impacted by this one. Moving on to the next slide. We just wanted to provide you with a quick update on the preferred shares fair value.
I think what we have, we just wanted to recap what we have on the left. This is a Red Lobster structure. We own 49% on a diluted basis of Red Lobster. 25% coming from the common units and 24 for the preferred units. Nothing new. This is the same structure since 2020, since Golden Gate exited from the business. Seafood Alliance owns 36% of the business, and we have Red Lobster management 15% of the business. Just on the preferred unit, I just wanted to remind you what we did communicate earlier. Preferred units are 10 years convertible preferred units. The maturity is on 2026.
We have an interest of 8% on this one, 4% to be paid every year, depending on the normal circumstances, and then 4% to be paid at the end of the maturity period. Here on the top right, you can see the way to record for this one under TFRS. Under TFRS, the preferred units are considered to be a financial instrument. What does it mean? It means that every quarter we have to calculate the fair value, and the fair value is calculated through a present value of all the future cash flow. Of course, in this calculation, we are using a discount rate. Okay? I think over the past few years, the discount rate has been very stable. We didn't see a lot of volatility on this one.
Of course, you have seen with the 2022 interest rate increase, this has some impact on the fair value, and the fair value is going down. When the discount rate is going up, the fair value is going down, and this is why we had to record in Q2 2022, this expense by THB 300 million in Q2. You can see on the bottom right also the chart of the U.S. interest rate since the beginning of the year. It has been growing a lot. Since July, there were another increase by 75 basis points, and we do expect to have another increase to happen also in H2. This is why in our Q3 and our Q4, we don't plan to record any preferred interest on this one.
Beginning 2023, I'm sure you will ask the question. I think it's a bit too early at this stage, but maybe we can address this one in the Q&A. Another update also to provide to you is on Rügen Fisch. In Rügen Fisch, we have three different factories, and we announced earlier in May that we wanted to close one of the factories together to regroup all the production from Lübeck to Sassnitz. The idea is, of course, to optimize the costs and the efficiency. We have in our Lübeck factory something around 200 employees. The closure is not effective yet. The closure will happen next year in Q2 2023.
Right now we are discussing with all our employees there to see the ones who are willing to follow in the Sassnitz factory and the ones who are not. Considering all of this, we did record THB 274 million actual. It's a one-time on this one. At this stage it's non-cash, but of course it will lead to cash outs happening in Q4 and also Q1, Q2 next year. We have a new CEO, Volker. You can see here his picture. He has been appointed at the beginning of May. Of course, this restructuring, which is a pure internal restructuring, because again, we are moving some production from one factory to another factory, there won't be an impact overall on our top line.
We expect there will be some positive impact in our bottom line because the efficiency will be improving. Just a quick update also in Q1, we told you we are selling the assets of our business, Meralliance smoked salmon business, Poland. It was effective. It was paid in Q2. We don't have any more assets. We still have the company which will be liquidated over the next month, but we don't have any more costs to provide to come from this restructuring. Having said that, I will now leave the floor to Khun Ead to go through the view by segment.
This slide provides to you a revenue component breakdown. Our group reported net sales grew by 8.5%. We benefit a lot from USD, but still with our FX, we grow by 6.2% over last year. You can see from the green bar that our sales are strong, generating from almost all segments, leading the growth by PetC are, one of our strategic categories, with 43% higher than last year. This is excellent result, driven by strong demand and price effect. Another core segment, like tuna, reports almost double digits, along with all Ambient segments, which are performing very well, driven by OEM and U.S. branded. Shrimp, lobster, and other seafood are normalizing. Remember, last year, performance was very exceptional. You can see it clearly from the chart at the right.
Frozen was very strong last year, linked to foodservice recovery in the U.S. Therefore, we expect some normalization on Frozen category this year. Next slide, please. A bit focused on the inflation. As you know that, inflation is skyrocketing everywhere and reached like four to five-decade high in the U.S. and U.K. We are not the only one amid this inflationary environment. Impact to our logistic cost is quite massive. THB 560 million for Q2 and added it up to Q1. Impact to the first half of this year is THB 1.3 billion compared to THB 400 million the same period last year. Additionally, we are facing cost inflation in raw material and other components within cost of goods. To protect our margin, we have actively taken several actions. We do fish price hedging. This is not new. We continue doing it.
We negotiate to pass on the cost through the selling price. We have second round, even third round of price adjustment in some markets. Now on top of that, we ensure that our production is at highest efficiency to keep ourselves agile in this dynamic environment. Overall, you can see it from our performance that our gross profit margin remain healthy for this quarter. Slide, please. In this slide, you have price of our key raw material, including tuna, salmon, and shrimp. Tuna is now back to the range of THB 1,600 in quarter two, after reaching its peak in previous quarter. This is due to the improvement of catching and the fish supplies. Tuna price in July remains stable at THB 1,600. Shrimp is at THB 154 per kg in Q2, back to our normal range after the spike in Q1.
Salmon is still on the high side at 96 NOK per kg, increased by 53% from last year. Good news is we have seen some improvement in July at 85 NOK per kg. Slide, please. Some good news on currency. As you know that we are export company, and we're benefiting from FX in this quarter, mostly from USD. Thai baht against USD depreciated by 9.7%. On the opposite, Thai baht is appreciated a bit against GBP by 1.5% and against euro by 3%. The cash flow is positive by THB 0.9 billion in quarter two, although first half is still - THB 2.9 billion. EBITDA is positive at THB 6 billion, offsetting by the increase in net working capital.
Our inventory position is expected, especially for the U.S. market, partly to secure sales performance in the following quarters and partly resulted from supply chain disruption. We are monitoring this KPI very closely, and it will improve. We expect it to improve in the Q3 and Q4. Net CapEx, THB 1.8 billion, which is behind our plan. As a reminder, our full year CapEx are budgeted at THB 6 billion. Net debt increased to THB 68 billion at the end of Q2. Net debt per equity at 1.09, increased from 0.99, ended December last year. This is still in the range of our guidance between 1-1.1.
On the ratio, return on equity is at 13.8%, while return on capital employed at 8.4%, slightly dropped behind last year and previous quarter due to the softer profit. This situation will improve in next quarter, as we expect to have some better net working capital. Moving to the chart in the middle of the slide, inventory ended Q2 2022 is THB 52 billion. Inventory days at 139 days, quite high, but mainly caused by industry inflation and logistics disruption. Net working capital at 120 days following the increase in AR and inventory. Net debt to EBITDA at 5.2 and net debt to equity at 1.09 are within our manageable range. Over to Khun GiGi for the next part.
Thank you, Khun Ead. For this slide, you can see our three core business, Ambient Seafood, Frozen and Chilled, PetCare and Value-Added. In terms of sales breakdown in first half of 2022, Frozen and Chilled represent 37% of sales. The last one, PetCare and Value-Added, represent 20% of sales. PetCare and Value-Added has significantly growth. The contribution increased from 17% last year to 20% this year. In terms of mix between the private label and the branded product, the contribution from private label increased from 58% in first half of 2021 to 61% in first half 2022, mainly because of the higher sales from PetCare and Value-Added and Ambient Seafood. Branded business represent 39% of total sales.
Moreover, we have the three new business which you can see at the bottom of the slide. We have the ingredient supplement and alternative protein. For this innovative business, we have the target to achieve 10% of revenue with gross profit margin above 20% in 2025. For this slide, you can see our strong growth from our all core business, especially Frozen and Chilled seafood and PetCare and Value-Added. For Ambient Seafood, even the high base in first half 2020, as people stock up on the food supply after the first wave of COVID-19, the performance is still growing 1.3% compared to the first half of 2020 and growth about 12.4% from last year, which was normalizing from the high base.
Frozen and Chilled seafood business grow strongly, 23.1% from the first half of 2020 and 2.8% from last year. Even last year was the exceptional recovery for the business from the low base in first half of 2020, especially in the U.S. foodservice business after the restaurant had a temporary closure from the impact of COVID-19. The last one, PetCare and Value-Added business category, with a significant growth of 56.7% from the first half of 2020 and 34.6% from last year. As people are adopting more pets during the COVID-19, and there is a humanization trend that people are treating their pets like family and prefer more premium food and expensive ingredients for them.
On the right-hand side, the whole group has been growing 17.2% from the first half of 2020 and 12.3% from last year. Thanks to our core business and our diversification, our margin has remained strong at 17.2% or 17.4%, if we exclude one item that Ludo mentioned before.
Khun GiGi, maybe let me add on this one, because I think it's very important for you to have it in mind. If you do remember the Ambient Seafood, we had the light blue that you have on the left. This is H1 2020, which is the first wave of COVID-19. If you remember at that time, we didn't realize an exceptional performance because of course we did see a pantry loading effect and many people buying a lot of seafood. We said at that time the performance is exceptional, and it was 32%. Here we are two years after. Hopefully, now we are at the end of COVID, but we do still increase compared to the exceptionally high baseline. We do achieve 32.4%. Situation is a bit different for the Frozen Seafood, of course.
Q1 2020 was a bit weak exactly for the opposite reason. I just want to highlight the performance in the PetC are. 57% growth compared to two years ago. I think this is really fantastic. Overall, the top right, if you see 17% growth in two years in terms of top line, this is exceptional, of course. We know we have some positive effects, but overall it showed that our core business is really, really strong. You can see also the gross profit margin just below are very consistent, except maybe for the Frozen, where last year was exceptionally high, we mentioned that. Apart from that, you can see at group level, this is very consistent overall.
Achieving such a high performance in 2022, in this context of hyperinflation, I think we can be very proud and very happy about that. Back to you, Khun GiGi.
Next. If we break down our sales by geography, we can see the growth from key regions, especially the U.S. and Asia, such as Thailand, Japan and China. In the first half of this year, exports to Japan has had significant growth, about 54% year-on-year, and the contribution from Japan increased from 5% last year to 6% this year. While exports to Thailand grew at 9% and China at 26%. If we break down by business, the private label has the highest growth of 13% year-on-year. The contribution from the private label also increased from 53% last year to 57% this year, mainly from PetC are and Value-Added business. Brands also increased about 2% year-on-year as we are able to increase the selling price as well as volume growth. Next.
Just go to our Ambient Seafood business. Our sales have been growing strong 10.7% year-on-year, driven by our product tuna, sardine and mackerel and salmon in the main market, especially Asia and the U.S.. The sales growth was also supported by higher selling price, increasing volume and FX. This is on the back of volume growth of 1.6% year-on-year. The margin also a little bit decreased to 19.5% versus 22% in second quarter last year. This mainly because of one-off expense from Lübeck restructuring cost, about THB 154 million. If we exclude this one-off item, gross profit margin was 20.5% in line with the past performance of the team. In second quarter of this year, private label growth higher than branded business.
The contribution from private label increased from 52% to 55% this year. Next. For our Frozen and Chilled seafood business, our sales declined 6.5% year-on-year after last year exceptional performance, especially in the U.S., as we mentioned before. And lower performance of shrimp and salmon business. However, this was offset by the strong recovery of foodservice business in Asia and higher selling price. For gross profit margin is also decreased year-on-year because of the market normalization in the U.S., especially lobster and crab. Next. The last one for PetCare and Value-Added business. They are significantly growth about 41.7% year-on-year on the back of volume growth 11.4%, thanks to our continued strong demand of PetC are product.
We continue launching new innovative high Value-Added product portfolio expansion as well as sales growth from the packaging business. Gross profit margin remained robust at 29.5% in second quarter of this year, slightly declined from second quarter last year, mainly from one of item of [audio distortion], about THB 24 million in Value-Added business. Last year is quite an exceptional performance with the favorable raw material price and higher sale from the U.S. PetC are business.
If you look overall, you can see our gross profit margin was in line with our target at high teens. On the next slide, may I invite Ludo for the closing part.
Thanks a lot. Thanks a lot, Khun GiGi. Here we just wanted to provide you with an update on our guidance. You have seen now in Q2 our top line performance is a bit stronger compared to what we were expecting. We did adjust up our revenue target for the whole year. In Q1 we told you the full year target will be between 7.8%. We already revised up compared to our first assumptions. Now the revised update is between 10%-12% for the whole year. We are at 12% already after six months, so it mean that maybe in H2 we'll not have exactly the same top line growth, but still we will be very high, I think, in H2. Gross profit margin and SG&A sales, we keep the same guidance.
Right after six months, we had 17.2% in the GP. Of course, we had a bit of impact coming from the restructuring. We have also on the SG&A we are 12.8%, so a bit higher. We do expect to have in H2 some improvement in terms of profitability and our SG&A become decreasing a bit. We do expect the logistics cost situation to improve a bit less compared to what we were expecting at the beginning of the year, where we are seeing in H2, we're expecting the situation to normalize. The situation will last until the end of the year. We can see right now some good news in terms of logistics cost, but it's still a bit slower compared to our expectation.
Apart from that, effective interest rate, no big change. Dividend policy, no change. CapEx, we maintain at THB 6 billion. We did have some cash in the CapEx because we sold some assets in Poland, as I told you, and in Canada. So we may have a bit of buffer. The net impact at the end of the year will be below this amount. I think we will update this one maybe in Q3. Overall, we just wanted to tell you that we do remain confident. We are very happy with the performance of the group in Q2. We have these two one-off which are polluting a bit the visibility of our numbers. Fully understood this one, so I hope that here with the explanation we gave it's clearer for you.
Again, I think a target top line of sales of 10%-12% for the whole year would be something fantastic for us to realize. We want to have some challenging targets. This is the old guidance we are giving to ourselves for the whole year. Now I think we can move to the next section.
Thank you, Ludo. Yeah, so thank you for the presentation. Now please allow us to open the floor for Q&A. Please feel free to submit your questions in the chat box, or you may unmute your microphone. Okay, maybe if no questions coming from the floor yet, maybe we can just raise a few that we have prepared in advance. O ne of the key drivers, of course, is the fish price. Can you talk a bit about what is the fish price situation now? It went from, it went down to a low of THB 1,400 in June and now back to THB 1,600. Can you share what is the outlook for the full year and any impact to our gross profit margins?
Sure, sure. Maybe we can get back to our usual slide on the raw materials that we have. If you remember in Q1, we told you at that time the average fish price was around THB 1,717 in Q1. We told you there was an increase in March and then in April. We were a bit concerned and we are saying we don't want to see some inflation here because if we see also some strong inflation on the fish price, this one combined with all the other inflation could become difficult. We have some good news. In Q2, the average fish price has been declining. You can see at an average of THB 1,608, we went down to THB 1,400 even in June.
We don't expect this to maintain. You can see here the price in July has been going up a bit compared to June. However, it's still at 1,600, so very close to the average we had in Q2 in terms of performance. Now, the outlook for the whole year, we just take the prices to go up again in the next months. W e have some period of the year where there is some FADs which are forbidden to be used and we will face with this situation. Here the catches will drop. We know that this is happening every year, so no surprise on this one.
We do expect to have a bit of price increase happening in Q3, and then in Q4 the price to drop again on this one. This is our usual seasonality on this one. Overall, we do expect the fish price to remain in what we call our comfort zone, which is between $1,500 to $1,700-$1,800 that we have. We don't expect the fish price to get back to the $1,900 or $2,000 that we have seen and experienced a bit earlier this year. Here we do expect the fish price in the world to remain under control for the rest of the year. A bit of inflation in Q3 and then drop again in Q4.
Okay. We have a question coming from the floor. If the U.S. continues to increase the interest rate next year, if it increases higher than our assumption, would Red Lobster book an additional loss from the revaluation of the fair value?
I think it's a good question. I think it's very unlikely. Maybe you can get back to the one slide where we do show the picture of the interest rates. What you need to keep in mind is this quarter the situation is very specific. The Fed has been increasing a lot, and you can see that in six months. They started with 25 basis points, and then 50 basis points, and then 75, and then again 75 here. I think this is the first time that we are facing with such an increase. It's really a massive increase, very unusual. O f course, that the inflation is very strong.
I'm sure you've seen that the inflation in Q2 was around 9% for the whole country in the U.S., and here the Fed absolutely wants to see this number going down, okay. This is why they have decided to take these very tough measures on this one. Of course, there will be some impact overall and some risk of recession happening in the U.S.. We don't expect to face with such a high increase happening again. There will be some further increase. This is coming from the consensus of the market happening in H2. This is what we have in our forecast, and this is why we do expect the fair value to remain at zero. We don't expect such a high increase to happen again in 2023. There may be some further small increase.
I think right now this is a consensus, but at this stage, the one-off impact that we have to record in Q2 is coming from this very abrupt and very tough increase happening in Q2. We don't expect this to repeat again. We don't foresee to record any negative impact coming from the fair value adjustment also coming from the interest rate in the next quarters.
Okay. Maybe just a follow-up question on Red Lobster. How soon, in terms of Red Lobster's operations, how soon do you expect Red Lobster to improve, or to become breakeven, in which quarter or when can we become breakeven for the full year?
Maybe you can get back to our style in Red Lobster on this one. If you remember the seasonality of Red Lobster, if you look at 2021, normally we make some profit in Q1, and then all the other quarters are loss-making. Usually, the Q4 is, in terms of performance and profitability, the worst, as you can see here in Q4 2021, in a year where the performance was overall good. I think the challenges we are facing right now with the inflation and also the Omicron that we have been facing in Q1, I think we have been a bit too slow, just to make it very clear, to increase our prices here. You remember what I told you in Q4 last year, we said we want to attract more guest counts.
We knew there was some inflation coming at Red Lobster, so we took a strategic decision to say we don't want to increase our prices that high because we wanted to attract the guest count in Q1. Of course, we were not expecting the Omicron to come in. Now we have decided to have some significant price increase. They're starting to happen in July and in August. You don't see yet the impact happening this quarter. The question is specifically when can we expect to have a breakeven quarter?
I think we can expect some further loss to happen in Q3 and in Q4 2022, and this is why our full year guidance moved up from the -$650 that we shared with you at the end of Q1 to the -$950 that now we have for the full year. I do expect that in Q1 2023 we'll get back to a profit in terms of share profit. This is what usually we always deliver since many years at Red Lobster. It was not the case this year because of very specific condition, okay? Keep in mind, this business has been facing in 2020 with the first wave of COVID-19, and they had to close many of their restaurants.
In Q1 2022, it was a new storm for them with this new Omicron variant. We expect hopefully that there won't be any more variants to come in, and then to be back to a breakeven, an even positive situation to happen in Q1 2023.
Okay. On logistics costs, how much can we expect for it to improve in this second half of this year compared to the first half?
I think if you do remember last year, back in 2021, if you look at the performance, Q1, Q2, Q3, Q4, the increase was happening again already a bit in Q1 and in Q2, but most of the increase, the increase will happen in Q3 and in Q4. You can see here from the top left chart. In Q3 and Q4 this year, we will see still a bit of inflation, but we are comparing to a baseline which is quite high. I think the increase will be much less in terms of absolute amount compared to what we had in H1. You can see here from the graph, the freight cost from Thailand to the U.S. has been dropping a bit, okay. This is good news.
We need to make sure this will be confirmed over the next months. You can see also the transit time is flat, almost flat, and even improving a bit on this one. There is some good news. Overall, we have some price increase in H1, which are still very significant compared to last year. Last year in H2, the impact in terms of price was already quite large. We don't expect to have such a high cost impact happening in H2. The cost impact should increase much less compared to the increase we have in H1 in our H2 2022.
Okay. A question on our global portfolio management. Do we have plans to close any more factories, or will there be any extra loss items in the next few quarters? I think they're referring to the Rügen Fisch one-off item.
Sure. I think that we are always looking at our manufacturing footprint, and the idea is always try to optimize this one. I think we did some few closure of factory over the past few years. If you remember, we did one in Scotland a few years ago. We did one in Thailand last year also. We had this one that we wanted to fix. I think with this one, we'll be done for the year 2022. We don't have any more plan even for 2023, but we always remain very agile. T he market conditions are highly volatile. Here I think this change was requested. We wanted to do this one since a bit of time already. We knew that we had.
We are facing with a situation of overcapacity in Germany. The fact that we were not the only shareholder over the past year didn't help. Of course, the fact that we had one fire happening in Sassnitz also did not help last year on this one. Now we execute our plan. This is a plan that we have, we wanted to execute. We are convinced this is the right plan, of course. There is one hit to be taken, which is a restructuring cost, and the amount is significant at THB 274 million. We don't expect for the rest of the year to have any other restructuring costs like this one. It's a one-off impacting only our Q2 numbers.
Again, we do expect some positive impact in our business in Germany. We are convinced this is a change and something which is absolutely required to improve the performance of the business there.
For our 10%-12% sales growth target, that means that our sales in the second half should be THB 82 billion. What would be the key drivers here? Is it selling price or volume?
I think it will be a combination. Of course, the selling price increase you've seen the impact in H1 was very strong. We do expect also this impact in H2 to be strong. Keep in mind that for some part of the business, our price increase will only effective in Q2. If you look at the first six months, you don't have the impact of price increase in Q1 and Q2. In Q3 and Q4, it will be fully effective. On some specific businesses like salmon, we go for fourth price increase, okay? The market situation is very specific here, so we need to request a fourth one. Depending on the business, depending on the countries, we go for a price increase number two or number three on this one.
Price increase definitely will remain a key component of the revenue increase happening in H2. I think the volume will still be growing. We have been very happy overall with the volume development in Q1 and also in Q2. That will continue in Q3 and in Q4. Of course, we don't plan to have the same growth. We plan the growth to be a bit lower in H2 compared to H1. This is why overall we have a full year target which is between 10%-12%, yet we deliver strong growth on this one. Selling price, volume, and of course FX also will remain an important component on this one. There is one question regarding the bad debt assumption.
We do expect the FX assumption to remain around the same level that we have right now. We are in a range between 35-36. You have seen over the last few days a small drop on this one. I think this is what we expect to enjoy until the end of the year. I think we need to discuss and to see a bit further what will happen for 2023. I think it's a bit too early at this stage to provide any recommendation. We are starting to discuss about our budget assumptions for next year, but we don't expect any significant change to happen on the FX in the next few months.
Okay, moving on to the next question. What is the current sales contribution from Rügen Fisch?
Just to give you an idea, I think overall the sales from Rügen Fisch is in a range between EUR 130 million and EUR 140 million in terms of sales. Just again, just to mention, here we are closing one factory, but we are transferring the production from one factory to another one, meaning we won't lose any sales on this one. We do expect our sales to remain the same and even to grow, but the bottom line to improve from the higher efficiency.
Okay. For the next question, what is the gross margin trend in the third quarter of this year? Will PetC are continue to be one of the key drivers? When can we expect to see a recovery in the Frozen business?
I think you've seen that after six months here we had a gross profit margin, which is at 17.2%, if I'm not wrong, after six months on this one. Of course, in this one we had the impact of the restructuring. If you remove the impact of Rügen Fisch, we had 17.4%. We're not very far away from our range of 17.5%-18%. We maintain the guidance, meaning in Q3 and in Q4, we do expect to have some improvement of our gross profit margin, overall in our business. One of the key driver, of course, will be the PetCare. The PetCare has been very strong on this one. We do expect the PetCare to continue to remain very strong.
When I say PetCare, Value-Added and others, of course, the Ambient business also is doing well. We do expect some improvement in the gross profit margin of the Ambient to happen also in Q3 and in Q4. There's a specific question regarding the Frozen business. When are we going to see the rebound? Keep in mind what we said last year. 2021, we benefited the performance for Frozen business, especially in the U.S., was exceptional. We benefited from a very strong price increase, positive price increase in all our key categories: lobster, crab, and also shrimp. We did tell you at the beginning of the year we expect some normalization to happen in the year 2022.
We see this normalization, but of course, the normalization is deeper compared to our expectation. I think on the shrimp, which is our core business, there is no issue. On the crab and the lobster, the market prices have been going up, and then basically there was no more demand. Many restaurants, they took away the lobster and the crab for their menu, and the demand really dropped. As a consequence, the market price also dropped on this one. This is why now we are facing with a bad performance coming from our Frozen business in the U.S.. Opposite situation compared to last year. Now we have our Frozen business in Thailand, which is doing good. On this one, always H1 is a bit weak compared to H2.
It's not the case for our business in Thailand, our Frozen business in Thailand, which is doing well in H1. In this part, we have also our Chilled business, which is our Meralliance business, which is highly dependent on the salmon business. I told you that the salmon business was loss-making here in H1 because of the salmon price, and we did negotiate some price increase to get back to profit in H2. I'm sure you've seen also the performance of our foodservice business, which is also in this Frozen business. Here it's a combination of different topics. One, doing well our Frozen business in Asia. Some of those like Frozen in U.S. normalizing or facing some exceptional market conditions like our chilled business in Europe.
We do expect the gross profit margin to gradually improve in Q3 and in Q4 overall, on this category.
Regarding Red Lobster's operations in Q3, can we expect an improvement from Q2 as even though the raw material costs are still high? In Q4, can we expect an improvement from Q3 as Red Lobster manages to increase the prices to cover the raw material costs?
I think we can get back to the Red Lobster slide, please. Here you've seen the performance by quarter. Overall, I think after H1, we have a share loss which is a bit higher, that THB 500 million for Q1 and Q2. We told you that the share loss that we planned for the whole year is at - THB 950 million. It means that we are planning roughly to have a share loss which is between THB 400 million-THB 500 million in H2 2022. We do expect the situation to improve a bit in Q3. Q4 will again be the seasonality. Q4 is always weak at Red Lobster.
We do expect the sales loss in Q4 compared to Q3 to be higher just from a pure seasonality point of view, even if the price effect will be really effective in Q3 and in Q4. We do expect the turnaround to happen gradually, Q3 and then in Q4, the seasonality to happen again, and then in Q1 2023 to be back to profit at Red Lobster.
If any further questions, please feel free to submit them in the chat box. If not, maybe Ludo, can you talk a bit about w hat is the outcome of the price negotiation in Q2? Have we managed to pass on, pass through the costs, for our material, raw materials, ingredients, packaging, et cetera? Is this sufficient for the full year?
Thanks, Nina. Here you have seen, of course, the pricing, the price impact are very significant in Q2. Overall, the output of the negotiation was positive. We did get some price increase, which are much higher compared to what we have historically. I n some of our part of our Ambient business, usually we only get some net price effect of 1%-2% at the best. This time we get, depending on the countries again, 7%-12% price increase. I think here all the retailers, they do acknowledge the exceptional circumstances we are facing with this inflation in terms of logistic costs, in terms of packaging, ingredients, and even utilities. Of course, the war between Ukraine and Russia doesn't help.
We all acknowledge that we are facing with unique circumstances, and this is why overall negotiations were quite positive with the retailers. We got some price increases, which were much higher compared to what we are doing usually. However, you can see of course it's not enough for the time being. You can see overall our profitability is declining a bit compared to last year. What does it mean? It means that, first of all, we have to get some new price increases. I mentioned to you the specific case of our salmon business here, where the raw material prices remain very high. We will try to get a fourth price increase. Of course, it's not easy. The discussions are tough with the retailers, but we believe these are the must.
It's not the only one price negotiation we told you. It's the first lever that we have. The promotion intensity is something which is also very important. We told you that when the price increases are not enough to absorb the cost increase, we can always try to adapt and to decrease our promotion intensity. Of course, it means that we are ready to lose a bit of volume, but we are fine with that. The priority that we have right now is really to focus on our gross profit margin. We want to protect our margin, even if it means that at one stage maybe there will be some negative impact on our volume. The cost efficiency management is something which is really key. Right now, we always trying to move to something which is less expensive, okay?
The value engineering, the review of our portfolio, removing some loss-making SKU, is something which is very important. Of course, reviewing the specs of all our products and trying to remove all the expensive ingredient that we have is something which is key. It's not a new topic for us. We are doing this every year. This year is really critical on this one. I give you one example. You know that the sunflower oil price here has been rocketing high on this one. We do try to discuss with some of our retailers and to say, "We do want to remove this one and replace with some other oil which are less expensive." We have all this work which is ongoing. This is really key for us.
Also that we have been investing a lot behind automation over the past few years. It's not new for us, but of course, we need to do more again in this area. I've not mentioned the cost of the utilities, but that I think this is something to be highlighted to you. The cost of utilities have been really up everywhere in Europe, in the U.S., and also in Asia. I think it could be also a good opportunity for us. Because maybe some trade-off that we were not doing before, on the decision to move to more sustainable utilities by moving away from the fuel, moving away from the coal. I think before financially it was a bit difficult to justify.
Now with these very high costs and so coming from the coal, coming from the fuel, it's easier for us to decide and to move to some solar panels and other stuff. I think here we are pushing very hard also on this one to decrease a bit our dependency on the coal price and also on the fuel price. Again, we need to remain very agile on this one. The situation is highly volatile. We don't know what will be the development between Ukraine and Russia. You've seen also all the tensions between China and the U.S., the tensions around Taiwan. We do remain very agile on this one. We need to closely monitor the situation, and I think this is what we are doing.
We are not the only one to face with this inflation. I've seen, you have seen all the food and all the industries have been facing with the same inflation, everywhere, and we are all trying to find some good solution on this one. We have a bit of drop of our profitability in Q2, but I think we are very positive on the outcome for Q3 and Q4, and we do believe we are going to be able to improve our performance in H2.
For the Red Lobster, the other income line that we show on Red Lobster, how should we expect it to be in 2023?
I think at this stage, here the question is what can we consider in our preferred shares interest for 2023. I didn't mention. At this stage it's a bit too early for us to provide any guidance on this one. It will be directly connected to the situation on the interest rate. Right now the consensus is for 2023 to have some further increase, but much lower compared to what we had in H1. Again, in H1 2022 the situation was very unique. We don't expect such increase to happen again in H2 or even in 2023. If we have some further increase of the interest rate in 2023, we have to calculate the impact in our fair value. We don't expect to have some further expenses.
I really believe this is a one-off that we have some negative amount coming from the discount rate on this one. Now we have to see. Usually we are enjoying some interest which were something around THB 250 million-THB 260 million every quarter. Are we going to be able to have the same 2023? I think it's a bit too early at this stage to mention this one. We will have to provide you with the guidance in our Q4 communication, when we have some much better visibility on the situation on the interest rate.
Regarding the new regulation about the upcoming wage hike in Thailand of 5%-8%, do we expect to see any changes to our current wages, or are we already significantly above the rates, so we don't expect any changes?
Yeah. This is new news on this one because I think it was just official this afternoon. Yes, there will be some impact because we have a portion of our people which are paid with the minimum wage, so there will be some impact. We need to understand exactly the way to apply this one. I t's a salary increase which will happen at the beginning of 2023. From what we read, there is a range from 5%-8%. We need to understand a bit deeper what does it mean exactly. Yes, there will be some impact for us. It's not a surprise. Just to make it very clear, we were expecting this increase to happen even a bit earlier, at the end of the year, 2022.
I think we just have to realize the fact that we are facing a situation of inflation very high. We need to support the people. Here we do understand the proposal from the Thai government to increase the minimum wage on these ones. Yes, there will be some impact for us. I think we are not concerned. Of course, we have to negotiate some price increase. We are not the only country where we have some such situation happening. We will have some increase happening everywhere. Of course, it's an additional pressure for us, but that we are moving to more automation, so we are trying to decrease the number of people who are using our factories.
It's another lever for us that we have an initial pressure to move to more automation on this one.
Okay. Maybe for the final question, regarding our gross profit margin target of 17.5%-18%, in the first half we achieved 17.2%. Can we expect the second half to be higher than 17.5% to compensate the lower profit margin in the first half?
Yeah. I think this is absolutely correct. We do expect the gross profit margin in H2 to compensate H1. Keep in mind, just on H1, indeed the performance after six months is 17.2%. However, you have some impact coming from Rügen Fisch in this number. If you remove this one, after six months we are at 17.4%. Okay. We are not. We are very close to our guidance. It's true that we do expect our gross profit margin to improve in H2 compared to H1, and this is why our full year guidance, we are planning to have a growth compared to our H1 performance.
Okay. Thank you, Ludo. If no further questions, and as we have reached the hour, I would like to thank Ludo, Khun Ead, Khun GiGi for the presentation. Thank you all participants for joining today. Before we end the session, we would like to invite those of you in Bangkok to please join our analyst meeting tomorrow at Okura Prestige Hotel in Ploenchit from 9:00 A.M. onwards. We will have a special alternative protein innovation food tasting booth and also some special product showcase for SEALECT Do raemon. Then we will also have the analyst meeting for Thai Union Feedmill. Yeah, please join us. Ludo, if you have any final words.
No, just a quick one. I really encourage you to come tomorrow, to come physically to the meeting or to join online if you cannot join physically. We want you to test our AP products, and they are surprising. I think we did some really good progress on this one. We want to have your advice, your feedback on this one. We will elaborate also a bit more on the performance. We talked a lot about the numbers today. The idea tomorrow is to go deeper maybe in the strategy. Thiraphong Chansiri will be here. He's back from a trip in the U.S., few weeks trip in the U.S., so he will be able to provide some good feedback with you. Okay. Thanks a lot to all. Stay safe, and looking forward to see you tomorrow.
Thank you.
Thank you.
For those of you joining overseas, please feel free to also join at 9:00 A.M. Bangkok time or the event starts at 9:30 A.M. exactly. Thank you. Have a great evening.
Thank you so much. Have a good day.