Good afternoon, everyone. Thank you for taking the time to participate in today's call. We appreciate your continued interest in Avia and welcome you to our quarter three 2026 earnings call. For your information, we uploaded the presentation materials to our website yesterday. Please note that all comparisons are to the same period of 2025, unless otherwise stated. The plan for today is to start with a quick presentation, followed by a one-hour Q&A session. If you have any questions during presentations, please use the Q&A chat box, and we will answer them during the Q&A session. For those who cannot join us now, the webcast of this event will be uploaded to our website not later than tomorrow. Thank you again for being here today. Allow me to start by introducing myself.
My name is Andreas Timothy Hadikrisno. I'm the Head of Investor Relations at Avia, and will be moderating this earnings call today. We are joined today by three other presenters, starting with Mr. Ruslan Tanoko, the Vice President Director of our company, followed by Mr. Robert Tanoko, the Operations and Development Director, and finally, Mr. Kurnia Hadi, the Finance Director. In quarter three 2026, Avian Brands generated total revenue of $130 million, while maintaining a consolidated gross margin of 41.9%, an EBITDA margin of 23.8%, and a net profit margin of 19.2%. The quarter's performance demonstrates our ability to maintain strong and stable profitability amid a challenging market environment. Supported by our diversified brand portfolio, nationwide distribution network, and disciplined operational execution, Avian Brands continue to outperform the broader market and strengthen its market position.
Looking ahead, we will continue to pursue market share gains while maintaining a prudent balance between growth, profitability, and sustainability. This approach remains central to our commitment to delivering sustainable long-term value for all stakeholders. This page summarizes Avian Brands' financial performance in quarter three 2026 compared with the same period last year. The company delivered strong top and bottom-line growth despite continued global uncertainty and without any meaningful improvement in demand. This performance reflects the consistent and disciplined execution of our strategy, supported by the reliability, consistency, and customer-focused solutions that differentiate Avian Brands in the market. At the same time, we continue to optimize our operations and exercise disciplined cost control. These efforts enabled the company to maintain a stable margin profile during the quarter while continuing to strengthen its competitive position and gain market share.
During quarter three 2026, Avian Brands introduced two new products in the waterproofing and instant cement segments, further strengthening its portfolio in these strategic categories and offering more comprehensive solutions to meet evolving customer needs. Innovation continues to anchor our long-term growth strategy. With these latest launches, Avian Brands has now introduced a total of 11 new products in the first nine months of 2026, reinforcing our position in high-potential segments and expanding the breadth of the solutions we offer customers across different applications and price points. During the third quarter, Avian Brands continued to expand its distribution footprint with the addition of three new wholly owned distribution centers, bringing our total network to 150 DCs nationwide. This continued expansion strengthens our ability to bring products closer to customers, improve delivery speed, and support deeper penetration across existing underserved markets.
A robust distribution network remains one of Avian Brands' key competitive advantages, allowing us to sustain high service levels and respond more effectively to changing customer demand. We will continue to advance our distribution expansion plans through the remainder of this year and in the years ahead. However, each new opening will be assessed carefully, taking into account prevailing market conditions, customer demand, and the long-term potential of each location. Despite continued softness in the market demand, Avian Brands sustained double-digit growth through the third quarter. Total sales for the quarter grew by 13.9%, reaching IDR 2.3 trillion. This brought consolidated sales for the first nine months of 2026 to IDR 6.9 trillion, up by 16.7%. Our customer reach also continued to expand, with transactions recorded across more than 59,000 retail outlets in the first nine months, representing an addition of over 1,100 customers.
This expansion demonstrates our ability to deepen market penetration and capture opportunities despite challenging industry conditions. Avian Brands remains committed to being a reliable partner by prioritizing product availability, consistent service quality, and solutions relevant across all price segments. I will now pass to Pak Hadi to continue the presentation.
Thank you, Pak Andreas, and good afternoon, everyone. The composition of our sales presented in this slide continues to reflect the resilience of Avian Brands' business model. Architectural Solutions remained the dominant contributor to revenue, accounting for 78% of total sales. Within this segment, the wall, wood and metal, and waterproofing categories remain the main contributors. Traditional retail outlet remain our largest customer segment, representing 92% of total revenue. This reflect the depth of our retailer relationship and the extensive market coverage we have established across Indonesia traditional building material channel. Meanwhile, our wholly owned distribution center contributed around 91% of total revenue, reaffirming their role as the backbone of our nationwide sales execution, service consistency, and customer reach. In Q3 2026, Avian Brands generated consolidated gross profit of IDR 975 billion, with gross margin held at around 42%.
For the first nine month of the year, consolidated gross profit reached IDR 3 trillion, with gross margin improving to 44.2%. The margin performance highlight the resilience of our business model despite continued volatility in raw material prices and foreign exchange movement. Our integrated operating model, in-house production capabilities, and disciplined cost management enable us to manage key cost component while maintaining product quality and competitiveness. Avian Brands continue to demonstrate strong and stable profitability despite the challenging operating environment. In Q3 2026, the company generated consolidated EBITDA of IDR 555 billion, equivalent to an EBITDA margin of 23.8%. This brought EBITDA for the first nine month of the year to IDR 1.8 trillion, with the margin improving to 26.5%. At the bottom line, Avian Brands recorded quarterly net profit of IDR 446 billion, representing a net profit margin of 19.2%.
Cumulative net profit for the first nine months reached IDR 1.38 trillion, translating into a net profit margin of 20%. The Architectural Solutions segment maintained its positive sales momentum in Q3 2026, recording its ninth consecutive quarter of sales growth despite continued softness in market demand. Segment sales rose by 11.7% during the quarter, while volume decreased by 6.3%. The softer volume reflects the impact of two price increases implemented by the company during Q2. For the first nine months of 2026, segment sales reached IDR 5.3 trillion, up 16.4%, with cumulative sales volume increasing by 3.5%. The company remains on track to meet its full-year 2026 guidance and is committed to delivering its target. Amid challenging market conditions, Avian Brands sees opportunities in accelerated market share growth, supported by our nationwide distribution network, which continues to serve as a powerful shield against market disruption.
We continue to gain market share across key segments, including the wall, further strengthening our position as the market leader. As shown in this slide, the Architectural Solutions segment served more than 55,000 transacting retail outlets during the first nine months of 2026, representing an increase of over 1,300 customers. This continued expansion reflects the strength of our strategy and disciplined monitoring of sales execution in the field. Our customer gathering event, held regularly across multiple regions, remains an important part of our engagement strategy. This event provides a valuable platform to strengthen relationships with retail partners, gain direct market insight, and communicate our latest products and commercial programs. This consistent engagement has supported stronger customer loyalty, new account growth, and continued market share gain. The Trading Goods segment maintained its strong performance in Q3 2026, recording sales growth of 20.8%.
This makes it 12 straight quarters of double-digit growth, a track record that speaks to the segment's resilience and consistent execution. For the first nine months of 2026, segment sales reached IDR 1.5 trillion, representing an increase of 17.7%. Customer reach also continued to expand, with the segment serving more than 51,000 transacting retail outlets during the first nine months, an increase of over 1,900 outlets. Trading Goods remains an important complement to Avian Brands' Architectural Solutions portfolio, enabling us to offer a broader range of products, increase our relevance to retail partners, and capture a greater share of their overall spending. This slide presents the gross profit contribution and margin profile of each business segment. In Q3 2026, the Architectural Solutions segment generated gross profit of IDR 860 billion, with a gross margin of 49.6%.
For the first nine months, gross profit reached IDR 2.7 trillion, translating to a margin of 51%. The Trading Goods segment recorded gross profit of IDR 116 billion during the quarter, representing a gross margin of 19.5%. For the first nine months, gross profit reached IDR 324 billion, with a margin of 20.9%. Overall, both segments maintain healthy and stable profitability despite the challenging operational environment. I will now pass to Pak Robert to continue the presentation.
Thank you, Pak Hadi. Avian Brands maintain a well-controlled cost structure during the first nine months of 2026. Operating expenses remain stable as a percentage of sales, reflecting disciplined cost management along with continued investment in commercial activities that support market share growth. Based on the current condition, the price increases implemented in Q2 have been sufficient to address the recent movement in raw material cost. As a result, we currently have no plans for further price increases. At the same time, ongoing initiatives to improve production efficiency and supply chain management have helped mitigate cost pressure during the period. Should conditions change materially, whether due to raw material prices, currency movements, or broader macroeconomic developments, we will consider appropriate and measured actions to protect profitability and support the company's sustainable long-term growth.
Turning to capital management, Avian Brands continue to manage its working capital prudently during the first nine months of 2026, with working capital representing approximately 30% of sales. Capital expenditure amounted to IDR 348 billion, equivalent to around 5% of sales, while routine capital expenditures accounted for around 2.8%. Our investments remain focused on supporting long-term growth, including the continued rollout of tinting machines across our retail network. Supported by a strong free cash flow generation, Avian Brands remain committed to its dividend policy of distributing at least 50% of total net profit to shareholders. Our strong liquidity and healthy balance sheet provide Avian Brands with flexibility to consider strategic acquisitions that can strengthen our market position and expand growth opportunities. We will evaluate each opportunity carefully and with clear focus on strategic fit and long-term value creation.
As shown on the far right of this slide, we maintain an on-time account receivable collections rate above 90%, despite challenging conditions in the market. This performance reflects the strong, long-standing relationships we have built with our customers and the trust our retail partners place in Avian Brands. As a result, retail outlets continue to prioritize their payments to us. This trust has been cultivated through the company's commitment to supporting our retail network, and we remain dedicated to maintaining and strengthening this relationship going forward. The company maintains its full year 2026 guidance and remains committed to achieving its target. In light of recent developments in the industry, we are stepping up our market initiative to further strengthen our position.
We remain focused on being our own catalyst for growth, which means taking market share and serving customers better than anyone else, and creating opportunities regardless of the market conditions. These are areas where Avian Brands continue to excel, and we intend to leverage them to reinforce our position as the market leader. The image on the right shows the Avian Brands app, the company's integrated digital platform that powers our multi-level loyalty ecosystem, connecting retail outlets and painters through a seamless rewards experience. Retail outlets earn points on their purchases that can be redeemed for hundreds of attractive rewards, while painters redeem coupons found inside paint cans directly for cash. With no similar program offered by competitors, the Avian Brands app has become a powerful differentiator for the company, leading to sustainable business growth and continued market share gain.
To illustrate this further, allow us to play a short video about the app.
With more than 1.4 million downloads, the Avian Brands app serves as the digital backbone of our multi-level loyalty ecosystem, connecting retail outlets, painters, and end users on one integrated platform. For retail outlets, the app enables points to be accumulated across products, principles, and distribution channels to give customers greater flexibility and redemption power. Retail outlets can redeem their points for an extensive selection of rewards, from gold bars and electronics to household appliances, office equipment, e-vouchers, and even automotive rewards. Reward points adjust to market prices in real time. This reward catalog will be updated regularly, offering new and exciting options over time. Beyond loyalty rewards, the app helps retailers manage their businesses more effectively. It provides invoice due date reminders, product and pricing information, real-time order tracking, and visibility into ongoing promotions.
Retailers can monitor their progress toward becoming an Avian Brands priority customer, creating greater visibility and encouraging continued engagement. For painters, the app supports our painter loyalty program by enabling coupons found in paint cans to be scanned and redeemed directly into e-wallet cash. Together, these capabilities deepen customer engagement, strengthen loyalty, and support Avian Brands' sustainable growth and continued market share gains.
That concludes our Q3 2026 presentations. Thank you very much for joining today's earning call. I will now pass to Pak Andreas to moderate the Q&A session.
Thank you, Pak Robert. We can now proceed with the Q&A session, which will last for one hour. The first question coming from Robin Sutanto. "Hi, team. How do you see selling in or out and purchasing power in 4Q 2026? Are there plans to increase the B2B segment such as cooling wall paint, water pipes to data centers, military housing, or et cetera? Thank you.
Hi, Robin. Thank you for your question. I think as we have indicated in the previous earnings call, in Q2, we exhibited very high demand because of the last-buy moment, and that's why a correction was noted in the Q3 this year. However, if we now move to the fourth quarter, we believe that the inventory levels at the store have normalized, just like what they basically bought from us in the last month. And we're basically seeing that, I think, demand will pick up again. As Hadi mentioned earlier, we're still confident that we will meet our full-year guidance, whether that's on the volume or on the value. The plan to increase into the B2B segment, including cooling wall paint, water pipes to data center, and everything else, is actually a part of our strategy through the innovation centers that we have.
We have been looking at cooling wall paint, like what has been published in a Singapore newspaper, for instance, and we're actively looking to see how they can be implemented in the Indonesian climate since we have a lot of similarities with Singapore. Water pipes to data center, another area of possible business expansion that we're also looking to see what are the differences in product quality and everything else. Thank you.
Thank you, Pak. Next question coming from Chung Kohan. "Hi, I'm retired investor from Singapore. I've been following closely since Avian listed and keep expanding. In last few earnings call, Avian shared the keen opportunity for M&A with AkzoNobel Indonesia to strengthen the decorative market share and keep Avian as market leader. The anticipation makes me invest more, share via open market. However, the last official statement that Akzo selectively sold to Nippon, and this news is not in line with my expectation. What do you plan to do as preventive measure to secure market share and profitability as the threat of combination for Akzo and Nippon?
Yeah. Thank you for the question, Colin. First of all, let me illustrate that we have been putting a lot of work towards the M&A for the AkzoNobel for the business in Indonesia. However, our interest is very limited to the Indonesian country, not the entire of Southeast Asia. I think that is the biggest difference between us and Nippon, who managed to acquire the Akzo business, because they make a bid for the entire five countries, including Indonesia and other countries in the Southeast Asia. We believe that the price that we put in was actually higher than Nippon's, but nevertheless, we are limited to Indonesia, and I suppose Akzo took that into considerations, and that is why they chose Nippon Paint.
Another angle that we could think of is perhaps Akzo is also thinking about Nippon acquiring their China business, which they will put up on sale in the next one or two years, we believe. A good question about what do we do as a preventive measure to secure market share and profitability. If you guys remember, before 2017, Avian Brands was always the number two paint company in Indonesia. We have been the market leader in Indonesia since 2017. With the merger of Nippon and AkzoNobel Indonesia, we will return to a number two position next year when the merger is completed. Well, a few things that I have in mind, right? Number one is that we need to continue our aggressiveness, and in fact, we have put in place a lot of strategies in trying to regain our market leadership positions in Indonesia.
There is a lot of strategies that we have been doing as part of our multi-strategy approach to continue and gain market shares, and we will continue and intensify those activities. Beyond that, we continue to basically stick to our working strategies, whether that is on the innovation side, as well as the superior service of quality and expansion of DC network. Thank you.
Thank you, Pak. Next question coming from Satya Anggara. "Hi, team. What is the current plan for inventories? We have seen a significant increase in this post from IDR 1.679 trillion in December 2025 to IDR 2.233 trillion in September 2026.
Yeah. Go ahead, Hadi.
Yeah. Thank you for your question. I think, yeah, we did increase our inventory to anticipate the rising material costs. However, what matters most to us is to monitor our overall working capital, which is, I think it is still in very reasonable at 30% of the total sales. Thank you.
Thank you, Pak Hadi. Next question coming from Rindi. "Hi there. With the Dulux has been acquired by Nippon Paint, what will change in terms of the approach by Avian, and will Oscar's position be retained for the future?
Yeah. Thank you for the question, Rindi. So, we have a very good relationship with Oscar, and which is why we basically ask him to join our board. I continue to have routine dialogue with him, and his engagement with us is really not only limited to this AkzoNobel merger and acquisition. Even without this M&A that we have been successful at, Oscar will continue to guide us and advise us on many other things using his more than 35 years experience working at multinationals, and the longest company that he worked for was, in fact, AkzoNobel.
We will continue to improve all aspects of our company, whether that is on the governance side, whether that is on the sustainability side, and everything else that we believe we need in order for us to have a similar standard as those multinational companies, whether that is in the U.S., Europe, Asia, and India, for instance. Thank you.
Thank you, Pak. Next question coming from Yosef Eugene Lumaindong. "Hi, management. Thank you for the presentation." Yosef has three questions. Number one, "On margin pressure in third quarter 2026, how much of the higher-cost inventory has already been reflected in the earnings, and do you expect further margin compression in the fourth quarter 2026? What is your margin outlook for 2027?" Number two, "With the AkzoNobel bid loss, what is the plan for your current cash? Should we expect a higher payout or buybacks restarting, or are you still looking at the other acquisitions?" Number three, "Following Nippon acquisition for AkzoNobel Indonesia business, which segments and price tiers do you expect the most overlap with Avia range, and are you seeing any change in competitors' pricing or promotion going forward?" Thank you.
Yeah. Thank you. I will ask for the margin, yeah, the question regarding the margin. I think, yeah, our gross margin and EBITDA margin moderated in quarter three as higher raw material costs begin to flow through. Yeah. And Q3 sales were also somewhat softer as retail shop was still carrying elevated inventory following last buy purchase ahead of April and May price adjustment. Yeah. But we expect sales to pick up again in quarter four, supported by normalized inventory level in retail outlet. And based on our current monitoring of product-level gross margin, we do not see a need for a third price increase in this stage, but we remain agile for that. We will continue to manage costs closely and push to achieve Q4 margin at least in line with Q3.
Overall, we remain confident in our ability to have a healthy full-year margin with a slight moderation from last year number.
I will answer number two. Go ahead, Hadi.
Yeah. I think we have also some strategy to maintain margin. Number one is pricing power. We are able to carefully adjust price if necessary. Number two, we have procurement management. We try to optimizing our buying cycle by strategically building raw material buffer during favorable price window, allowing us to smooth out sudden spot market spike. Number three, we have research and development optimization. Our team continuously perform value engineering to optimize formula without compromising product quality. Also, on the operation level, we always looking for a more efficient system operation. Our goal is to balance margin protection and also long-term volume growth. Thank you.
I will take the second question. With the AkzoNobel bid loss, what is the plan for the current cash? Should we expect higher payout ratio or buybacks, or still looking at other acquisitions? I think the short answer is that we are still looking at other acquisitions. Unfortunately, as I have indicated previously, there are not that many companies which fit our criteria to be acquired. There are a few that we remain hopeful that one day will open its door to be acquired by us. I think for now, we are still committing to at least distribution of 50% of our net profit margin.
When there are not any other CapEx plans that we have, we are almost done with our expansion CapEx, for instance, for the third factory in Cirebon, then obviously we will try to maximize the dividend payouts as what we have been doing in the past few years. Number three, following Nippon acquisition for AkzoNobel business, which segment and price tier do you expect the most overlap with Avia range, and are you seeing any change in competitors' pricing or promotion going forward? Nippon and us, we have a lot of similarities. Nippon also have price categories from premium all the way to economy, and so do we. In terms of overlap, we have always had a lot of overlap with Nippon.
Nippon's premium product wall paint will be strengthened after the acquisition of Dulux in Indonesia, and that's something that we also need to start focusing even more than what we've done previously. In terms of area of focus, we're going to be looking at the premium wall paint and trying to see what it is that we can do to make that difference. Because at the end of the day, we still have the best business model in the sense of that our distribution network and our relationship with our customers are still one of the best in the country. Thank you. In terms of pricing, promotions, nothing much really. Everything that we've seen in the market, even after the news of the Dulux-AkzoNobel transaction, it's still pretty much the same.
None of the competitors are being extremely aggressive, and pricing are as the same as they have been in the second quarter. Thank you.
Thank you, Pak. Next question. We have some question coming in from Hamdan Mustamir. "Hi, team. With 60,000+ GT stores, how do you keep street prices consistent and stop GT store price wars?" Number two, "Mr. Ruslan, why build one large Cirebon plant which costs IDR 750 billion instead of regional plants, knowing that Indonesia has many islands? Is the Cirebon plant owned or rented?
With 60,000 customers that we have, obviously it require a bit of method in order to try to avoid price wars. Nevertheless, as with any other products, if you have the number one position in certain categories, competitiveness for those products are very high. That's why the Avian Brands app is allowing us to mitigate some of these price wars. What I mean by that is that if you have points instead of direct cash rebates, obviously people way of perceiving the value for each point could be slightly different, right? Because if I give you cash rebate, then the cost for all shops are the same.
But by the time that I look into the point system, if you would decide to buy an iPhone and somebody else decides to buy gold coins and somebody else decides to buy a motorcycle, for instance, the value that they allocate each to these points could be different. And we believe that it is one way to mitigate price wars. The second and more important thing is that we avoid giving discounts, especially on products which already achieved number one position in the market. And we purposely do that so that our customers do not redistribute to other shops. So redistribution for us is really bad because we have all these DC networks, and we do not want our customers, our GT customers, to compete with us selling the same products.
So I think these are the two things that we implement in trying to keep the price wars from getting worse. The second question is regarding why build a large Cirebon plant instead of a regional plant, knowing that Indonesia has many islands. So I think if you know anything about paint company, the best and most ideal way for a paint company to operate is not having it in multi-locations, but having it in one massive location. Because then, keep in mind that we are a vertically integrated company, so we have other products that we manufacture in-house, including resins, additives, and some of the packaging. So if the companies are scattered in multiple areas in Indonesia, I think that will create more inefficiency for us.
And the other thing is that, I think Hadi can add to it, our transport cost is very, very low because paint is relatively high value. If you compare us to other building material products, let's say cement, we're extremely much more higher in terms of price per kg. And if you even look at ceramic tiles, our pricing is also a lot higher. To give you a bit of illustration, one container of ceramic tile is worth anywhere between IDR 150 million- IDR 200 million, maybe around IDR 150 million is more accurate number per container. Whereas for our products, it's between IDR 450 million- IDR 550 million. So with that in mind, that's the cost contribution for our product is far smaller than any of the competitors. Hadi, you want to add about the number?
I think it's quite clear, Pak. I think it's quite clear.
Okay. All right. Thank you.
There are some other additional questions from Hamdan.
Oh, yeah. Sorry. Is the Cirebon plant owned or rented? No, we own it. The land is owned by the company, the Lisko, and everything in there is owned by the Lisko.
Okay. Other than that, Hamdan asked two more questions, Pak. The next one is, sales grew by 16.7%, but volume grew by 3.5%. After two price increases, are you seeing store destocking or customers trading down to economy brands? If material price goes down in 2027, will you hold price or give some back? There is another one. Mr. Ruslan, i n regions where Avian is not yet the leading brand, what has been the most effective in turning a newly stocked retailer into one that actively recommends Avian and consistently reorders?
The first one with regards to sales growth compared to volume growth. As we've mentioned earlier, all of our customers decided to increase their inventory levels with the two back-to-back price hikes, which took place in the second quarter, namely in April and May. Because of that, corrections are basically happening in the third quarter. Destocking or customers trading down definitely are happening, but keep in mind that we do have products to fulfill every level of demand from customers. If you look in all of these categories, we have prices across all price range. If they are trying to go down in terms of their brands because lack of money, then we can also capture that. Margin difference within our product is also in low single digit. Even if they are trading down, it's not going to impact our margin significantly.
If material price goes down in 2027, will you hold price or give some back? We've never actually reduced our price ever in the almost 48-year history of our company. None of the paint companies in Indonesia has actually done this. For other commodity products like thinners, for instance, solvents, yes, prices can go up, but they can also go down. If we're talking about paints, paint prices never go down. What would happen in a case where raw material prices decline next year is that promotions will intensify. Price will not go down, but you will see companies doing more promotions in their attempt in trying to get more market shares, but price will remain the same.
The next question, "In regions where we're not yet leading brand, what has been the most effective in turning a newly stocked retailer into one that actively recommends Avian and consistently reorders?" This is a question which ties very closely to our principle, which is to provide the best service quality. I think when you have the whole DC network like we do, it needs to be accompanied by trying to also aim for the best service level in the country. We're not only competing in the paint segment, but we're also looking in the broader category of building materials. We're basically trying to give our customers, when they order today, how can we do same-day delivery? When they order today, how can we deliver the next day? So far, our strategy has proven successful.
I think everywhere you go, even in areas where we're not yet market leaders there, which is only a few cities, and if you conduct your own survey and ask building material shops who provide the best service, without a doubt, you will hear our name being mentioned. This is critical in trying to convince them to push more of our products, because they don't need to keep a lot of products in inventory. One of the feature that we added in the Avian Brands app, just less than two months ago, is the digital way to look at pricing points for our products. If you can imagine, when you step into a building material shops, the number of physical price list that they carry maybe could be as thick as that, because they sell maybe more than 25, 30 different principles for paint.
They also sell some ceramic tile and many other products. When you want to find something, how do you want to do it? If you are looking for one line item and you have to comb through all these price lists, it is going to give you headaches as the store owner. We realized this and decided to actually launch a digital way to find products for all the products that we have. We launched this two months ago, and within the first few weeks, more than 15,000 or 20,000 customers have already used this function. We continue to monitor how these functions are being used by our customers, because let's say you want any metallic paint.
You just type in the word M-E-T, like a Google search, and then our products will come up, the can design will pop up, and the cost for you will also be there. You save plenty of time trying to comb through your thick price list, and then things that will take minutes can now be done in maybe less than five seconds. That will also help us in trying to make the lives of our new customers, or even existing customers, easier, and therefore, it is likely for them to push more of our products and reorders. Thank you.
Thank you, Pak. Next question coming from Brett Virbitsky. Number one, gross margin. "What drove the drop in gross margin? Which parts will reverse in quarter four?" Number two, about volume. "The first nine-month volume is up 3.5%, but Q3 volume fell year-on-year. Is that weaker demand, destocking by retailers, or giving up volume to protect price? What did October look like?" Number three, inventory. "Inventory rose significantly. Is this to come down before year-end?" Number four, cash. "What are the options you consider for the significant cash position outside of the M&A?" It is Parvin, actually. Parvin Mamedov from Equinox.
I will answer the first question here. We did not feel the effect of raw material price hike in Q1 because of our inventory buffer, and also price increase during that period gave us some extra cushion. But in Q3, the more expensive inventory started hitting our COGS. But keep in mind that, as we discussed before, we do have some strategy to closely monitor our margin.
I think we're expecting our Q4 margin to be at least in line with our quarter three margin. I think that's the one part that I can just add. Second question, the nine-month volume is up 3.5%, but Q3 volume fell year-on-year. Weaker demand, destocking by retailers, or giving up volume to protect price? It's definitely happening because of the destocking by retailers, because the Q2 price hikes was very unique, Parvin. It basically happened not only for the paint categories, but it happened across everything within the building materials. I think FMCGs also experienced the same thing, and simply, this is an action that never happened.
I think the last time this happened when everything basically, prices went up was during the Asian financial crisis, but that was driven by the weaker rupiah to the US dollar, whereas this one, this time around, were driven by rising in raw material prices. October actually is very, very good. It's very high in terms of our growth, so that's why we basically mentioned that we're still having a lot of confidence in trying to achieve our full-year guidance, whether that's on the value or the volume. We're expecting November to also be very high. December is the month that we're always quite cautious because it's the end of the year, and more competitive promotions will generally come from our competitors. But as we mentioned, we have enough ways to monitor and try to keep our margins as well as our sales target in the fourth quarter.
Third quarter about inventory. Hadi, you want to take that one?
Yeah. I think for inventory, as we discussed before, I think what really matter for us is we try to monitor that as a whole, working capital is still in historical number, reasonable, around 30% of sales.
Maybe one thing to add on the higher inventory level is that in this past nine months, we have launched 11 products.
Whenever we launch new products, we have to keep a stock buffer in our DCs so that when customers see it and then when they want to order, the products are ready. I think that definitely also led to a slightly higher inventory buildup at our DCs. Lastly, I think we mentioned this about the significant cash positions outside of the M&A. We will continue to distribute as much dividend as possible. We are planning, as usual, we are expecting to do an interim dividend in the month of December, and this year is no exception. We will announce this as we get nearer the month of December. Thank you, Parvin.
Thank you, Pak. Next question coming from Sherine. "Hi, is there any plan on increasing the paint price, considering the material cost is also fluctuative?
I think in the short term, Sherine, we probably won't because the overall demand on the consumer for building materials is definitely not going to be as strong. We are confident that we are able to meet our target, our guidance this year, because we have been taking it from our competitors, specifically the smaller competitors, right? These small competitors have done nothing on the promotion sides, have done nothing on the innovation sides. When we want to grab market shares, it is definitely easier to take it from them. If there is a need, and if we see that our gross margin is going down by the rising raw materials, the first thing we will do is not increase our price, but we will immediately reduce the promotions that we have.
The below-the-line promotions that we're giving to the shops will be the first line item that we will adjust so that we can still maintain our margin. Thank you.
Thank you. Next question coming from Avinash Bhaskar. "Hi. In this tough demand environment, how are smaller paint players reacting? Are they giving higher credit or not, increasing prices, or losing market share? Also, do you see if this current tough environment persists, is there any possibility that many smaller players may go out of the business over time?
Yes. Very good question. As I've mentioned just now, Avinash, small players have done nothing in Indonesia. If we look back in the past two decades or so that I've been involved in the company, the typical way that smaller competitors behave was always taking the wait and see. They know that weak demand cannot be there forever. They know that high raw material prices cannot be there forever. But at the same time, many of these small companies essentially just rely on one or two products that have been able to sustain them for multiple decades, and they still believe that, "Well, hey, I've been doing just this one or two products, and I've been here for more than five or six decades. I think I'll still be able to survive." I think this principle that they have will actually lead them to their downfall.
We believe that some smaller competitors are already heading in that direction because products demand changes. Give you an example. There's one very old paint company that is more than 60-year-old company. We're 48 soon. They're more than 60 years. My grandfather used to sell their products back when he was owning a paint shop. They only have one product. So this one product is within the wood and metal paint category. But if you look everywhere you live, surfaces which are made out of wood and metal have declined significantly over time. Fences, for instance, used to be made out of metal. Now, not anymore. Window frames, door frames, or even doors itself used to be made out of wood. Not anymore. They have glasses, stainless steel, and plastic, and everything else that protect. So demand for some of these products will definitely go down over time.
But this company has done absolutely nothing. In fact, not even their packaging design has changed in the past six decades, and they are proud of it. "Well, we just keep the same one." I think there are better things to be proud of rather than being proud of your packaging. But many companies are behaving like this. They do not really pay attention on their innovations. They do not really pay attention on their market or store penetrations, and they continue to rely on third-party independent distributors who are getting old now, right? If you look at the apps that we showed you guys earlier, if you give them another 30 years, they will never reach that kind of capability because they do not think it is necessary for them.
But now, as we continue to look more in the Indonesian market, many of our older generations are being replaced by their sons or daughters, and they are people who are very savvy in technology, who require the use of apps. That is why we decided to launch this app at the beginning of the year, and that is why we will continue to tweak and improve our apps. Everything else that we have there will be more suitable to the younger generations who will take over from the older generations. But small competitors are not a threat at all for us, and we will continue to eat market shares, and we believe some of them will start to disappear. Thank you.
Thank you, Pak. There is one more additional question from Avinash. "As an investor from India, the news flow from Indonesia is scary. As a consumer company, can you give a broad view of what exactly is happening with the typical Indonesian consumers? Do you see demand being suppressed today that could rebound maybe in three to five years, similar to what happened during COVID?
Yeah. Not only for you that Indonesia is scary, Avinash. For us, Indonesia is also scary. To be honest, I think the current government, who has been around for two years, is really over-promising during the presidential campaign. I do not think they are wise in their way of rolling out their ideas. If you look about the free meals program, for instance, right? I mean, if it was me, I would roll it out in stages, right? I will not just do everything all at once in Indonesia. You know Indonesia is a big country. We have more than 17,000 islands, right? Trying to give free meals to everybody, to every kid in Indonesia, is not an easy feat. It will take you time, right? So, I think that is one of the thing that I believe that the Indonesian government has not been doing.
Now, beyond that, we are being hit by multiple problems. You are talking about the forest fire. You are talking about shortages of fuel that basically is happening in Bali, and the demonstrations that has been taking place in the past few days, also in the capital of Jakarta. So, Indonesia is really not in the best place. However, as proud Indonesians, we know that this is the country where we all grew up. This is the country that we will still need to be, and this is the country where we know one day will only get better because we are supported by almost 300 million populations, and these people are basically only going to contribute to the wealth of the country. Now, we just have to get through this problem.
We just have to get through all these problems that Indonesia has been facing, and trying to see what it is that we can do as a company to better prepare ourselves so that when things turn around, we will be in a much better position than any of our competitors. That is why with our strategies, you will definitely continue to see us with our DC expansions, tinting machines, and product innovations. Thank you.
Thank you, Pak. Next question from Calvin Kurniawan. "With the combined Nippon-Akzo entity now potentially overtaking Avia in both tinting machine density and overall distribution reach, how does management plan to defend its retail shelf space, and what specific strategy will Avia deploy to counter competitive pressure now?
Okay. Let me correct you on one thing, Calvin. The tinting machine density for Nippon and Akzo combined is going to be higher than us. However, when it comes to distribution reach, we will still have the best distribution reach in the country, even after the Nippon and Akzo combination. Because Akzo, to begin with, did not have good penetrations in the country. They are strong, and they have the top of mind for the premium wall paint category, but in terms of distribution, they never had a good one compared to us or even Nippon. So, we will still have a very good position when it comes to the overall distribution reach.
In terms of shelf space, I think this is again where the innovation center that we have will continue to play a critical role, and that is why you saw us launching 11 products in these nine months, because we continue to identify areas of potential market that we still did not have. The product on the left here is for a cement additive. It is a waterproofing for cement additive. We have never had a product in this category, but we saw that this is a product that has been accepted very well in the market of India, for instance, and the product there by Pidilite called Dr. Fixit.
We say, "Well, hey, if Indian market can accept this product and it is widely used in India, I think we also need to participate in the Indonesian market so that we do not get left behind." This is another way for us to continue to not only maintain our shelf space or defend our shelf space, but to continue to gain more shelf space across all categories and across all distribution reach. Keep in mind, we definitely have the best service quality. I think that also plays in our favor to get more shelf space within our retail outlets. Thank you.
Thank you, Pak. There is one additional question from Parvin. Given your distribution reach, are you considering adding additional non-paint products?
If you look back in the past few years, the Trading Goods segment have been sort of hovering between 20%-22%- ish. We have been somewhat careful in adding products, but we are going to add more products as long as these products are able to be distributed through the same retail network that we have. All right? We started off, let us say, maybe more than a decade ago on paint accessories. We are the first paint company in Indonesia that launched into that category. Nippon followed suit a few years after that, and so has another paint company in Indonesia. They decided to also participate in selling paintbrushes and rollers and things like that. Any expansion into the other categories that we have will have to be very close to the products that we currently have.
You will not see us selling ceramic tiles all of a sudden, because ceramic tiles is quite far from where we are. But paintbrushes , rollers, or we look at the Trading Goods. If we have pipes, if we have other products, okay, what else do our customers sell, and would they like to buy it from us? Would they prefer to consolidate their purchases through our DC network because we have the best service quality? If the answer is yes, then we definitely need to look into that product as part of our product expansion strategy. Thank you.
Thank you, Pak. There are some additional questions from Hamdan again here. "Looking back at Avia's expansion, which decision appeared to accelerate growth but later proved costly? What early warning would you watch today?" Then the next question, "which marketing spending actually creates additional profit? How do you protect premium pricing while serving price-sensitive customers? Which sales and incentivize creates healthy growth?" I think we will stop until—
Okay. Yeah. If we look back on which expansion that appeared to accelerate growth but later proved costly, I think everybody makes mistakes along the way. We are certainly no exception. But what we do after that is to put in place some measures to make sure to prevent us from doing the same mistakes. Give you an example. Every time now we do a branding on any customer retail outlets, right? In the past, we would do branding because our customers asked us to do it, and then we'll say, "Okay, well, hey, if you do branding, help us with the sales." Some of that could be implemented, and then the sales did not come, and therefore it could be very costly to us. Now we change the method.
If any of our retail network require us to do branding, we'll say, "Okay, what kind of branding? How much space do you have? What is it that you would like us to basically do branding on?" Before we agree to anything, we basically give them, "Look, whatever branding that you require us to do, we'll need, let's say, $5,000. With this $5,000, you need to help us to buy paint of at least $50,000," let's say, right? If that number is too high for you on a yearly basis, I mean, on the first year that we do the branding, then maybe we need to reduce. I don't need to spend $5,000 on branding. Maybe I just spend $2,000 on branding, and therefore you only need to buy $20,000 from us instead of $50,000.
Essentially, with anything that has cost us, any mistakes that we have made, we will try to rectify the problem and make sure to avoid the same mistakes to be repeated in the future. There is a lot of measures that we put in place on some of the whatever spending that we have. Second question is that, which marketing spend actually creates additional profit? How do you protect premium pricing while service price-sensitive customers? The first one, which marketing spending actually creates additional profit? I think the idea of expanding into the Trading Goods, maybe 15 years or so ago, was driven by the fact that we realized that there was a lot of synergies between the paint products that we sell to whatever we sell now, including PVC pipe, including paint accessories, and including adhesive and sealants from Dextone, for instance.
I think in terms of trying to do additional profit, we always look at a few things. Number one, I mentioned earlier that we will not do ceramic tiles. Why are we not doing ceramic tiles? Number one, the retail network which sells ceramic tiles is not as high as the PVC pipe, for instance. Number two, the cost to transport ceramic tile is very high, and the difficulty in that product is also quite high. They are quite brittle, and they can break. The handling in the warehouse is also not so easy. You always require forklift. We do not have forklift everywhere, only in a few areas. Some of these things basically play into our considerations. In order for us to get more profit, we need to look at products which fit our criteria. Number one, it must not be bulky.
Because we have limited warehouse spaces, so the products that we sell cannot be like a water tank. If you have seen a water tank, it is basically hollow inside, but it is very bulky. So those type of products does not meet our criteria. If they do not meet our criteria, it basically means that our cost will go up, and therefore margin will suffer. The second question, to protect premium pricing while serving price-sensitive customers. Again, with all the product categories that we have, we always have the most expensive, the middle kind of level, and the more economical level. Same thing for premium products. We have premium product which is the most expensive because it has the most feature. We call it Sunguard All-In-One, for instance. Then we have the mid-tier, which is just called Sunguard. The less premium is called Sunguard Basic.
That is what we do to try to capture the more price-sensitive customers, to make sure that we have product portfolio to meet all these needs. Lastly, the question from you, which sales incentives create healthy growth? We have been trying to balance out the below-the-line spending that we have been giving to our customers with the commission and incentives that we are giving to our internal people. I think to continue and add more profit to customers is not a healthy approach. I would rather give more to our internal team so that they are more motivated because they bring more money to their families, rather than giving an extra 0.5% o r 1% to our retail network. Because at the end of the day, retail network make enough money.
That is why for us, we have been focusing a lot on how can we make sure that our internal people are making more money. In the latest report that we do on their tablet, we are basically having a quarterly performance. It is like a mini investor's presentation, but we are just showcasing how much money and commission you made last quarter. What is it that you have made this quarter? When that number is down, we then reach out to them through the tablet and basically tell them, "Look, we are going to have a guidance session so that we can guide you and basically help you so you can make more money." I think that is the one way that we really focus in trying to create healthy growth. Thank you, Hamdan.
Thank you, Pak. Is there any other questions from the other participants?
Okay.
I think if there is no other question, we can conclude this earnings call and finish it. If you have any other questions that have not been answered, please do not hesitate to reach out. I will coordinate with the management and get back to you as soon as possible. Once again, we appreciate your participations in our quarter three 2026 earnings call today, and look forward to seeing you at our earnings call next time. Take care.
Take care. Bye.
Thank you.
Thank you, everyone.
Bye.