Good evening, everyone, and thank you for joining the Thai Beverage first half 2023 results call. All participants have been placed in a listen-only mode. Later, we will conduct a question and answer session, and instructions will be given at that time. I will now hand over the call to the presenters, Miss Namfon Aungsutornrungsi , Thai Bev's Head of Investor Relations, and the members of Thai Bev's senior management team. Please go ahead. Thank you.
Thank you. Good evening, ladies and gentlemen. Welcome to ThaiBev, the first half 2023 ended March 31, 2023 financial results conference call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the conference call tonight, I will start with the summary of the first half results, then we will open the line for Q&A session with our management team. The summary of the first half financial results. Total sales revenue of the company for the six months ended March 31, 2023 was THB 148,295 million, an increase of 3.7% when compared to the same period last year. This was due to an increase in sales revenue of the beer business, non-alcoholic beverages business, food business, although there was a slight decrease in sales revenue of the spirits business.
Net profit was THB 17,781 million, a decrease of 3.2% compared to the same period last year. This was due to a decrease in net profit of the beer business, non-alcoholic beverage business, and food business, partly offset by an increase in net profit of associated companies and the spirits business. ThaiBev's board of directors agreed to propose an interim dividend payment of THB 3,769 million, or THB 0.5 per share, the same as last year. For the highlights of the first half operations, the spirits business recorded sales revenue of THB 65,161 million in the first half 2023, a slight decrease of 0.04% year-on-year.
This was due to an 8.5% decline in total sales volume from a high base in the first half of last year. That was a result of sales agents accumulating inventory ahead of price increase during the period. Despite price adjustments and changes in the product portfolio mix driven by increased consumption of brown spirits in Thailand, the spirit business continued to face cost pressure, particularly in relation to packaging costs. Nevertheless, the business reported a net profit of THB 12,839 million, showing a 0.18% increase compared to the first half of 2022. The beer business saw a 4% increase in sales revenue of THB 64,434 million in the first half 2023.
Despite 2.2% decrease in total sales volume year-on-year, the growth in sales revenue was due to price increases implemented. An increase in brand investment and marketing activities during the festive season, coupled with an increase in key raw material and packaging costs, resulted in a net profit decline of 29.5% to THB 2,532 million. The group's NAB business recorded 15.1% rise in sales revenue to THB 9,439 million in the first half 2023, lifted by 7.7% increase in overall sales volume. This was mainly driven by higher demand for drinking water, ready-to-drink tea, and carbonated soft drink products as consumption improved post-pandemic and economic activities returned to normal.
Net profit declined by 35.2% year-on-year to THB 284 million, taking into account increased brand investment and marketing activities, higher distribution costs, and material costs. The decline was partially offset by production efficiency resulting from increased utilization due to the volume growth. The food business recorded a 21.8% year-on-year increase in sales revenue to reach THB 9,365 million in the first half of 2023, in line with the rise in dine-in traffic at the restaurant. The group's ongoing efforts to improve brand visibility and accessibility, along with pre-operating costs incurred in conjunction with the opening of the new stores, cost push factors, as well as increased operational and administrative costs to support the sales growth of the food operation.
These have led to 51.2% decrease in the net profit to THB 82 million. The international business recorded a year-on-year increase of 6.5% in sales revenue to THB 39,262 million in the first half. The increase was attributed to 19.8% surge in international spirit sales, driven by strong sales performance in Myanmar, increased bulk sale in India, the UK, and Japan, and higher case sales in ASEAN and some North Asian countries. The international business also recorded 3.9% growth in the beer sales, mainly driven by sales revenue in Vietnam and higher strong soda sales in China. That is the summary of our first half 2023 financial results. We will open the line to any questions. Diana, please help open the line for Q&A.
Will do. Thank you. We will now begin the question and answer session. Participants with questions to pose, please press star one one on your telephone keypad, and you will be placed in a queue. To cancel the queue, please press star one one again. Our first question is from Divya Gangahar, Morgan Stanley. Please go ahead.
First question was on the beer business. Could you help us understand, you know, how the beer business has done in Thailand in particular? When we see the overall numbers, it seems that revenues have declined 3%. If you could comment on the domestic business because the industry growth shows a negative number of 10%. Just want to know how ThaiBev has done in Thailand, and if the volumes have indeed declined, what's the reason for the decline given that the on-premise would have come back in a bigger way this year compared to last year? My second question is on the spirits business. Could you quantify the price hikes that have been taken for brown spirits overall, and when were these taken?
What is causing the spirit volumes to be lower versus pre-COVID levels? Is it in Thailand or is it in Myanmar? If you could explain the reason for that gap. My last question is just on the outlook for the domestic beer and spirit margins for the second half, with respect to your raw material coverage and if you expect marketing spends to increase further from the current levels. Thank you.
Yeah. Respond one and three together.
Good evening, Divya. Hi, this is Lester here. As Kunwichai has just suggested, I will be addressing question one and partly three as well, talking about the domestic Thai beer market, as well as where we see spending going in for the rest of the year. Looking at the total Thai beer market, really, you know, on a month-to-month basis, it's almost like a roller coaster. It goes up, it goes down. We know we're not seeing the nice recovery, smooth recovery, you know, at the end of COVID. But I have to say that it is mainly in the green territory. Half-year versus half-year last year, we are about even with last year.
What the nice part for us at the domestic level is the share number. As of December last year against our number one competitor, we broke the share gap came to a single digit. At the end of the second quarter, that share gap is now has been halved. We're catching up in terms of share between the number one and the number two brands in the market. When you ask me about how I see the outlook for the Thai beer market, especially for ThaiBev, I remain very positive in terms of where we're going to end up in terms of share. In terms of costs, you talked about costs a little bit as well.
You can see from the numbers that the COGS has increased quite dramatically year- on- year. Total of just, you know, all the categories, raw package, raw materials, packaging materials, utilities, everything has gone up by a total of 19%. That is quite significant. We took a couple price increases earlier this year. Enough to cover, but although in terms of pricing, we are at about the limit, so that if there's any further raw material prices, price increases, I am not so confident that we are able to increase prices again for the rest of this year. We're looking to try to see how we can save in other areas, and therefore we come to A&P.
When you look at A&P, yes, year- on- year comparison versus last year, it has gone up quite significantly because, again, last year was the tail end, the COVID year. This year we're in an open market again, so A&P activities have come back in full force. What I like to say is that when we do a comparison versus 2019, which is the last, which is the pre-COVID year, on a similar comparison, our baht per liter spend for A&P has actually come down by 19%. We are being more efficient in the way we spend our money to get the volumes that we have. You know, your question looks forward as to how do I see the second half of the year. Obviously, we do have measures in place.
We do have a ring fence in case we need to defend the bottom line. We do a ring fencing program in place that we can return money to the company to protect the bottom line. Looking forward, moving forward, overall, total very confident that in terms of share, we will continue to gain share. I'm also very hopeful that the market will continue to grow so that, you know, our share numbers pick up from there. When it comes to cost and the bottom line, again, confident that we should be able to deliver by the end of the year.
Okay. Good evening, Divya. This is Bob. I'll answer the second question, third questions as well. You're asking the second questions on price increase in Thailand, how that's go. Let's just recap this. In the first half of last year, 'cause we compared six months against last year. In the first half of 2022, we had a price increase in rice bread
Quite a good price increase. Their high level of wide spread sale in that first half resulting in lots of trade loadings. Okay. I jump to explain to the declining in volumes. If we look at wide spread in Thailand, the first half of this year, the volume against the first half of last year, experiencing decline because of that high base has a lot of inventory loadings in the system. I think we actually, if we normalize it, we probably have a very small single digit decline on wide spread in Thailand. I think that being said, the volume in Thailand and around in other, I say in other markets, have experiencing all more double-digit growth.
Our Brown Spirit experienced more than, you know, it's double-digit growth for the same period. Our Grand Royal Whisky also experiencing double-digit growth. Our international spirit out of the UK that engage in brand sale together with bulk sale, volume-wise experiencing double-digit growth as well. In, in that combinations, it resolve into a slight decline of total volume that reported as you can see. Having said that, it's a fantastic result. This is the first half EBITDA that we reporting is probably the highest since listed, including GP and EBIT as well. To answer to the last other questions on price increase, what we have done for Brown Spirit is this first half, we haven't finished that.
We only done probably half of what we plan to do this year, meaning the number of SKU that need to be reflected in price increase. In the second half we'll probably have a bit more price increase to be done in the remaining SKU. I will leave it at that. Yeah. In price increase, sometimes we have volume fluctuations, but we believe the baseline increase in brown spirits consumptions, and that's also reported by third party market research. We're still looking at a double digit increase in consumptions for the first half of this year as well. I think that's all good news. Cost-wise, the first half this year, the cost have pretty much been reflective what's supposed to be our COGS throughout the year.
I don't think in the second half we'll see surprises in our cost of goods. That's what we're seeing. Okay. Hope that answer. Thank you.
Yeah. Thank you very much. If I could just have a very quick clarification, and maybe from Lester, on the market share gain. Could you just maybe talk about that a little more in terms of what do you think are the drivers of that gain? Is it distribution-led? Is it marketing-led? Any new products out there? After the price hikes that you've taken, what's the gap now between Leo and Chang? Basically did Leo also follow or whoever took the price hike first?
Yeah. The, Divya, so when it comes to is the gain in share really is not about new products. We haven't launched any new products, but mainly it is. We do have a program in ThaiBev where we go out into the market as a complete team, all the product groups together. I think that efficiency that we're gaining in the market as well as the collaboration that we see across the product groups gives us a lot more distribution strength in the market. We're penetrating a lot more outlets in the across Thailand. That is adding to the growth in our share.
When you ask about the numbers, between Leo and ourselves, like I said, in December, for the first time in many, many years, the gap was a single digit, and by the end of the second quarter that number has halved. We've gained quite a lot, you know, because of this program that actually has been led by Khun Kosit. It's non-ale, spirits, and beer together. And we approach the market as one total ThaiBev group.
Got it. Then the price gap between Leo and Chang right now?
The price gap, you know, because all of us have taken price increases at various different times, across different SKUs as well. The gap after all the price increases will come back to the same, the same gap as we had before the price increases. It's like at the retail level, it's a couple THB for the big bottle at retail, at retail pricing level.
Okay. Got it. Yeah. Thank you very much for that. It's very helpful.
Thank you. Our next question is from Sylviana Aripin, HSBC Limited. Please go ahead.
Hi. Good evening, and thank you very much management for the opportunity, and thank you for the presentation. My question is first with regards to goodwill. I see that there is a decline in the number in the quarter ending March as opposed to September. Can you clarify where this is from? Is this from spirits or from the beer side? Can you clarify what's going on over there? The second part is with regards to specifically inventory and in particular raw materials. I noticed that raw materials have actually gone up. Presumably, this is from beer. Can you clarify what's going on there? Is that loading, or is that something else? Can you clarify from a pricing versus volume as well? Those are my two questions for now. Thanks.
Kap khun ka. Hi, Selviana . This is Kista speaking. For the goodwill that you see at the end of the period that we, year-on-year, is lower. Mostly came from the foreign exchange translation on the financial statement because of most of the, when we dominate by the Baht, right? Baht strengthen, so when we translate from international operation, the goodwill also part of that one. It will be lower when we recognize as a Baht in the Baht sheet. That is reason that year-on-year lower in terms of goodwill. It's nothing about any significant change in terms of the transaction. Yeah.
This is with regards to both Vietnam and Myanmar?
Correct. This is include the Vietnam. In the past is, when we have the investment associate with the F&B and F&N as well. The majority will be the Vietnam. Yep.
Okay, got it. Can you explain from an accounting perspective, what happens when Baht actually weakens, let's say, six months down the road or one year down the road? Will you reverse back the goodwill?
If you see in the past year, right? You see in the equity part, right? You see the section called other comprehensive income, right? When the Baht is, you see last year, Baht is quite depreciated, right? The part of equity and also the goodwill is up both the asset side and equity. You will see that this is kind of the accounting standard when we do consolidation from international, we will be up and down based on the translation of international operation, Khun Selvania. Yep. You can check the last year.
Okay, got it.
Yeah, yeah.
Thank you very much.
Savina.
Thank you.
Could you repeat the second question?
Oh, sorry. With regards to my second question.
Repeat your second question, Selvania.
Sure. Thank you. The second question is with regards to, I guess, the increase in working capital, particularly from in inventory. I'm assuming that this, you know, sort of comes from beer, particularly with regards to raw materials. There is actually a marked increase there. Can you speak about what is going on there? Are you loading up, or is that because of pricing? Can you explain what's going on over there? Thank you.
Savina, Kista again. When you see the working capital year-over-year, right? Last year, actually, we kind of the some of the reduce on the inventory based on the deplete the stock when the sales. This year sales is going up, we have some of the build the stock is going up and also the receivable also going up as well according to the growth of the sales. That's why you see year-over-year working capital is quite get some of the cash that we need to build up the working capital in this area. Yep.
Okay. Specifically on raw materials?
I think both our material and the finished good as well. It's not only the raw material, it sells, Kun Savina.
Sure. Sorry, can you explain, is that because you're loading higher volume in anticipation of, you know, future volumes? Or is that because of a function of pricing?
I don't think it's because of the loading the volume, Kun Selviana. Last year, actually, the cover the inventories is already down, right? Because we have the deplete of stock. This year is sale coming back, revamp the business. Sales is going up, so it's normal operation that we need to build the stock to support the sale growth during especially on the summer side. Yep.
Okay, got it. Thank you.
Thank you. My apologies for earlier. Our next question is from Llelleythan Tan, UOB Kay Hian. Please go ahead.
Let me ask this question. I just have one question. It's, it's about the, about tobacco in Vietnam. I'm just trying to understand what caused the fall in year- on year- revenue for Vietnam. I understand that, of course, the beer and the beer segment may also suffer from their front-loading. I'm just trying to understand why, what really drove the fall in revenue. Is it like inflationary, high domestic inflationary pressures or high inflation that caused consumption volumes to fall? Yeah. Thank you.
Hello. Can you hear me?
Yeah. Yeah, I can.
Okay. Okay. I mean, in general, I think if you know the GDP numbers for Vietnam has come down. I mean, from the third quarter last year, it was 13.7% to about 5.9% in the last quarter of 2022. The first quarter was actually dropped down to 3.3%. In the south, in particular in Ho Chi Minh City, it dropped down to 0.1%. GDP growth is one. The import exports of Vietnam has come down also, resulting in a lot of job losses in the industrial park. The general sentiment, consumer sentiment is no good. I think I'm sure you read-
Our competitors' result as well. I mean, the drop was even more drastic than ours, I think. Generally, I think consumer sentiment because of the economy. I think we are pretty positive. I mean, in Vietnam, in about 2 weeks' time, about 1 week plus time, the Chinese tourists are coming in. I hope that, you know, the interest rate has stabilized, will stabilize in the coming months. I think, you know, with the raw material stabilizing, I think we are very confident. I think in the next few months going forward, we'll see growth. Yeah.
Okay. Okay. Thank you. Just have 1 follow-up. Is it possible to share the first quarter and second quarter volume just for SABECO?
Sorry, Leyton. Normally we disclose the volume for Thai Bev is under the beer group together.
Ah.
We're not separate. Sorry about that.
Okay. Okay. Yep. No, it's okay. I'll jump back to the queue. Thank you.
Thank you.
Thank you. Our next question is from Thitithep Nophakit from Kiatnakin Phatra Financial Group. Please go ahead.
Hello.
Go ahead, Thitithep.
Can you hear me?
Yes.
Okay. I have just one question, Kap. If you look at the consolidated level, your SG&A as a percentage of sale used to be about 16%, and then you cut it to around 14% during the COVID because of there was no marketing activity. Right now, your SG&A sort of come back to about around 16%, 17% again. I'm wondering that whether I should assume that the ratio would stay here or it would go up further because my understanding is that, you know, SABECO is spending money to build brand given the competition right now. That's the only questions I have.
Bennett, do you want to answer that, Bennett?
Yeah, I lost the question. sorry. I couldn't hear clearly.
It's about the A&P.
Repeat.
Yeah.
Yeah. Okay. A&P, I think we continue to spend, but we have mentioned many times, we are trying to focus on efficient spend. On a per liter basis, trying to keep it constant or lower than last year. With the volume coming down, we also have ring-fenced our spend. I think we're confident that still keep it manageable. I think we'll be protecting our bottom line through ring-fencing some of the advertising spend. I think in general, in when the economy is down, we do not cut drastically, but we will try and keep it to a per liter spend that's not higher than the previous year. I think that's how the way we manage it.
Thitithep, Kap.
Right.
This is Papakon, Kap. I think your question is on consolidations and the % of SG&A. Whether it's, we have reversed back to trend, I think the answer is what you see in the first 6 months probably start to be what we will maintain. I mean, we have. It is true that we have started to spend, the spending on a % of sale is probably be at this level. We don't actually expecting a higher % going out, but nor that it gonna come down. Yeah.
Right. Okay. That makes sense. Thank you very much. That's the only questions I have. Thank you.
Thank you. Our next question is from Permada Darmono, UBS. Please go ahead.
The opportunity. I have a couple of questions. With the higher mix of brown spirits, could you just let us know in terms of first, as of first half the sales volume mix between white and brown spirits domestically in Thailand, and, you know, approximate kind of revenue mix? Related to that, I'll just ask it one by one. I saw that government data suggests that molasses production is actually below the government forecast. What's the outlook for molasses prices? Because I recall that in the last quarterly briefing, sorry, half yearly briefing, you're anticipating for molasses prices to actually, you know, increase and therefore price outlook for molasses would be quite benign. Any comments on that? Spirits mix and molasses.
Okay. Well, this is Prapakon. I'll answer the molasses questions. On the spirit mix, we don't disclose the mix of our white and brown. As we answered in the earlier questions that we're experiencing double-digit growth in our brown. Our white spirit, if in on normalized basis, probably have declined in a very small single digit for the quarter, for the six-month period. On the molasses, the output of the sugar plantations that were just in this crop that just ended just right at beginning of April this year, have a better harvest than about the same, better or about the same as last year. The molasses, is it true that it's below what the government was forecast, but the number of...
The volume of molasses that came out for this harvest is up at or about the same as the last year. Our input cost for molasses this crop is higher than a year before. That's true. That's the answer, what we have experiencing in term of input costs that came in. Thank you.
Thank you, Prapakon Thongtheppairot. What about on barley? Because barley is a derivative of wheat prices, right? Wheat prices is down significantly from the peak. Should we anticipate lower raw material prices in terms of barley for beer?
Pisanu Vichiensanth, can you respond to Pramada? Pisanu Vichiensanth, can you respond to the question?
Yes. Yes, please. I didn't hear the question properly. About the price of the barley, right?
Barley situation. Just tell Pramada on-
Oh, the-
barley. Okay.
Yes, yes. The barley and the malted barley, the price has been weakening down quite dramatically from last year. Firstly, you know, probably because of the freight costs. Secondly, the situation of the geopolitics is quite relaxed now. You can be rest assured that the price of the malted barley will be less than the previous years. Thank you.
Thank you.
Any more question?
A-
I'm happy.
Yeah.
to answer you.
Yeah. The next question is on, I, you know, sadly read about Bennett's planned resignation from SABECO, and I understand that's part of normal people reshuffle within the ThaiBev Group and Lester will take over. Can you just sort of clarify management changes plan? You know, on the domestic beer side in Thailand, who's gonna take over? Will Lester head up both SABECO and Chang? Just in terms of this market share gain that you mentioned, the distance in market share halving at the end of second quarter, is that just to Leo? You know, it's aggregate Leo plus Sing. Some color on that would be useful. Thank you.
Yeah. Pramada, we will make announcement on Lester's replacement, so just hold on. I think it will be out shortly. Okay? On the other question, Lester, please.
Pramada, about the clarification on the share gains, we measure Leo against Chang total brand. For them, it's all the variants, Leo Eight. For us, it's also all the variants, Chang and Chang Cold Brew together.
Got it. Thank you, Lester. Appreciate that. Lastly, just, in terms of, you know, your strategic plan with, based on your disclosure, the intent to privatize Oishi is really to separate the food and beverage business side. From a strategic standpoint, can you give us some color on the intent and, you know, in the future of why separating it would be a good idea? How should analysts or investors think about this step going forward? Thank you.
Hi, this is Tip Nongnut. I'm taking care of the food business and also Oishi. Actually, there's not much trading volume of the share of the company. This will provide the opportunity for our shareholders of the company to sell their company shares. I think the second one, ThaiBev is actually currently is in the process of producing the feasibility study into the restructuring plan of the operations of food and the non-alcohol business. We believe that this will enhance the management effectiveness and also enhance the business potential. Last but not least, I believe that the delist of the company will provide a cost saving which would have been incurred in the connection with the company being publicly listed entity. Thank you.
Thank you, Khun Nongnut. Is there a change in strategy on the food side? I mean, for example, KFC in Thailand is run by three different companies, right? Is ThaiBev looking to potentially consolidate the market? CVC as well is publicly disclosing that they're looking to sell their stake in QSR in Singapore and Malaysia. You know, is there, is there an ambition to actually grow the food business much larger through this privatization program and so forth?
Pramada, at this moment, we did. We can't disclose too much because we are now in the process of working on this one, on this plan. We will disclose when we are ready. Sorry, Pramada.
No problems. I had to ask. Thank you so much anyway.
Thank you. Thank you, Pramada, for-
for addressing my question.
For your understanding.
Thank you. Have a good evening. Thank you. Happy Friday.
Thank you. Our next question is from Andy Sim, DBS Vickers Securities. Andy, please go ahead.
Me? Hello.
Go ahead, Andy.
Hi. I have two questions. The first is actually, hi, Khun Ueychai . The first question is actually more of a follow-up from the raw material price. I think Dr. Pisanu mentioned earlier that raw material price has weakening, you know. Can I just check, you know, when would we, you know, how long forward you have been purchased forward in terms of barley, malted barley, as well as, you know, like things like aluminum? When, because these are all coming down, and when will we see the positive effects flowing through? That's the first follow-up question. The second one would be in terms of the election.
I think, about 6 months ago in the last call, Khun Ueychai , you mentioned that, you know, you're hopeful that, with the election, you know, in the run up, there would be positive effects, seen in terms of consumption and spending. Just wanted to get your sense on, you know, the company's sense on how is this flowing through and what you're seeing on the ground with respect to this area. Maybe more of some commentary on that. Yeah. Thank you.
Can I take the first question, please?
Go ahead, Doctor.
As about we are quite lucky. We are about to deplete the stock of our malt of the old year price. That's been, we are lucky in a way that we get the new lower price, you know, by the end of the last quarter of this year. That's why I can tell you that we can rest assure that our malted barley, the price gonna come down. That is quite lucky. About the aluminum, when we hedge, we hedge every three months. Lucky again that, you know, we are going to use the new price, new lower price, you know, real soon. I think commencing from next month onwards. I think again, about the cost of the can will come down. That is my respond to your question. Thank you.
Thanks, Doctor.
Andy, the second question. This is Ueychai . I observe a lot of consumptions until tomorrow at 6 o'clock. By law, we have to stop drinking for 24 hours. That time it will be thirsty. After that, I think they will resume drinking for another month to celebrate. Then, I mean, that's the impact of election.
Is it tracking, you know, versus your optimistic view, about six months ago when we had the last call?
Yeah. I think the consumption will continue. I think they have been good consumption for the last month.
Okay. That's good to hear. Maybe a follow-up in terms of probably just elicit some commentary in terms of the outcome. I know it's still out in the works, but how should we see, you know, in terms of implication, seems like the opinion poll seems to favor the pro-democracy, i.e., PDP as well as Move Forward. You know, would this so-called reignite the Progressive Liquor Bill, you know, or some form of that with respect to this post-election? What's the view on that?
Andy, I can't comment on that because I, you know. We prepare for all, whatever happens, you know. I think we've been watching this closely for each party and what is their policy and all. We just prepare for any outcome.
Okay. Got it. Got it. Thank you. Thanks, Kun Yu Chai.
Thank you, Andy.
Understand.
Sorry, everyone. Sorry, this is Alan Ku from SABECO. I would like to take Andy's question for point 1 because I think it's important to address that from a SABECO point of view. In any case, Andy will probably ask me next Wednesday as well. If I may, from an input cost point of view, as you are aware, Andy, you know, for SABECO, we hedge, you know, forward about a year. Where malt prices are concerned, I think with 2023, I'm likely to see higher cost than 2022. The lower barley cost will probably set in in 2024 for, from a SABECO point of view, calendar year-wise. All right? For the cans, currently I'm hedged 6 months ahead.
Currently, I'm looking at the LME prices, hoping that it will I mean, it's on the way down. We will probably try to lower the hedging costs, you know, and we are looking at it very carefully. We still have opportunity there to lower the cost. The benefits will kick in more likely in 2024, calendar year-wise.
FY 2024.
For us.
For SABECO's financial year, right?
Yeah. Yes. Yes. That's right.
You mentioned that.
Just want to let you know.
Yeah. Understand. As mentioned, FY 2023 would be unlikely lower than 2022, right? Unlikely.
Yeah. It will be higher than 22. No. 23 will be higher than 22. That's a given.
Yeah. That's what we know. Yeah.
Based on the way that-
24, there's potential. Understand.
Yes.
24, there's a potential, given the current trend would be-
Yes.
would like, could be lower. Could be. Yeah. Okay. Got it.
Correct. Thank you.
Thank you. Thanks for that.
Thank you. Our next question is from Chu Peng, OCBC, Bank of Singapore. Please go ahead, Chu Peng.
Hello. Hi. Can I check just to confirm that the molasses price was higher in first half year-on-year, but in second half, are we expecting it to lower so that on year-on-year basis, the price will be lower than last year? Is that correct? Hello?
Okay. Chu Peng, just wait.
Sure.
I think Chu-.
Chu Peng, can you ask your question again because we are not clear.
sure. My question is on the raw material cost, molasses. I heard that actually the price in first half this year is higher year-on-year. Are we expecting the price to come down in second half this year?
Okay.
on year-on-year.
Chu Peng. I think molasses price is an annual crop, an annual crop harvesting in December to April. When I refer to the input cost for this harvest that have ended last month, is priced higher than the crop of the year before. That's what I meant. There's no expectation because this is a price for the whole annual crop that we have already purchased for whatever we needed and for whatever being sold to us have been closed. I mean, the purchase negotiation for this crop is over for us, meaning it's finished already. As for next year crop, we would not know the price until the start of the harvesting, which is December. We would not know this price because it's an annual, just like annual agricultural farm price. Okay?
That will be depend on the weather and depend on other factor as well.
I see. Noted. My next question is on the beer's volume. Historically, during the election, previously, how much of the volume from beer, you know, can actually increase based on the historical number? Do you have any, you know, any sense?
Well, I think we roughly 10%-15% during the before the elections. Roughly that.
10 to 15-
Yeah.
Oh.
Because it's free drink.
Okay. Okay. For the spirits, I guess, there will be not much, you know, boost from the election, right? It's only the beer portion.
Yeah. It's more beer than spirit. Correct.
Okay. Okay. Got it. Okay. Yes. Yeah. That's all from me. Yeah. Thank you.
Thank you. Our next question is from Phasin Ratanalert, Albizia Capital. Please go ahead.
Hi. Thank you very much. Can you hear me clearly?
Yes, we can hear you well.
Oh, okay. Thank you very much. Just a few questions for me. The first one is regarding your the spirit and beer business in terms of utilization rate in the, in the, in the half year. How was the utilization rate during the first half, and how does that compare to the pre-COVID level for both spirit and beer? The second question is particularly regarding the beer in Thailand. As you mentioned, going forward, you probably prioritize the market share over, you know, the margin and profitability. Can you give us a guidance of, you know, the selling expense, and particularly marketing, in terms of % of sales for the rest of the year?
Is that going to be, around 12% as you see in pre-COVID level, or how do you look at that? My last question is regarding the consolidated level, interest, expense, 'cause, we see interest expense overall didn't increase, from last year, but actually your interest income increased, significantly. I think that's because of the rising interest rate. Can you, help me understand why the interest expenses, didn't increase year-over-year? Thank you very much.
Okay. I think, in terms of utilization, start with beer in Thailand, then Vietnam, please.
Phasin , let me talk about Thailand utilization. I'll also go into the A&P spending towards the end of the year. I think for both questions, generally... Sorry. For capacity utilization, we're generally about the same. We have not increased our production capacity. Our volumes are... In fact, our volumes are better than pre-COVID levels. Generally, it's about the same utilization, about 60%. No major changes there. When you're looking at A&P spending towards the end of the year as a % of... You're asking, sorry, % of revenue, correct?
Yeah. Yes.
Yes. In any case, we are planning to have a lower level of spend compared to pre-COVID levels. A few things, again, we have been looking actively at efficiency of spend. We have had quite a few studies done in the last couple years together with the BeerCo team in Singapore. We are increasing the efficiency of spend. Sorry, maximizing the utilization of $ that we spend. Yes, the levels should in fact improve compared to pre-COVID levels by the end of this year. Thank you.
Bennett, can you respond on Vietnam side?
On efficiency utilization. For right now we are completely around 70% or so. Pre-COVID levels we're going about 90-ish, but we have expanded capacity since then. Right now, 70% or so. On the A&P, I think I've answered that question earlier already. Basically we are trying to keep to per liter spend constant as much as we can and lower even better.
Bob, Pakorn, can you respond spirit?
Um-
Also the interest question.
On the utilizations of our productions, I think the answer would be we have ample utilized key and spare capacity we can utilize. If we can deliver more sale and more growth, we do not plan to have expect to have capital expenditures in terms of spending or adding more capacity. 'Cause in Thailand we came from a consolidation. Our utilization and our facilities have a lot of capacity available. In Myanmar we also still have good spare capacity as well. Also we engage in aged spirit business, so the utilization is not quite a factor in how we run it. Back to the interest rate, interest income and in.
We actually have quite a fair bit of cash on balance sheet and those sorts are mainly sit in the SABECO. When reconsolidating, you see a lot of cash. That have also increasing interest rate, increasing deposit rate, can earn us more money. In term of interest expenses, the reason why it haven't moved, because we have a very good control of our interest expense and hedging. I think before the interest rates start to rise or our interest or our borrowings that are not short-term, mostly in fixed rate. The effect of change in interest rate come through very slowly based on the maturity of debt that due, then we re-fixing with a new loan and new borrowing.
You need to know that, well, not majority, actually, almost all of our debt sits in Thailand, and Thailand has a very low interest rate environment. That's why you don't see a rate picking up, because the interest rate in Thailand has risen but in a very slow rate. We have a very negative real return environment at the moment. Hope that answers. Yeah.
Right. Just to confirm, for the rest of the year, we don't expect the interest expense to increase in the near term, right?
We have modeled the increase, but it's very marginal actually. Cause cannot say it's not increased.
Mm-hmm.
When the our.
Right.
The baht bond that due, when it's due, we refinance it with the new rate, right? We refinance with new rates. I must say that you have to notice that we raise money through the baht bond market, and the last time we raised money in the market was just a few months ago, and we raised four and a half year money at 3% flat in Thai baht. That fixed rate for four and a half years. Our interest costs are very competitive in term of what we can get from the market.
Okay. Thank you very much. That's very clear.
Thank you. Our next question is from Kang Chuan Ong, CGS-CIMB. Please go ahead.
Hi. Good evening. Thanks for taking my question. My first question is on the recent heat wave that's hitting Asia. Just wondering, based on your, you know, historical track record, do you see any potential impact to consumer behaviors, like, when it's warmer weather, do people consume more NAB or beer potentially? As well as any potential impact on commodities, price outlook on lower yield, et cetera. Second question is on the outlook for white spirit sales in the second half. I think the brown spirits momentum sounds pretty strong, but just wondering if you can share your thoughts on white spirits. Third question is on SABECO. I saw the target put out for 2023 during the AGM was pretty bullish, especially in terms of revenue number.
Just wondering if there's any exceptional factors impacting your top line in first quarter, for example, trip loading, et cetera, or has the sales volume just been trending weaker versus expectations after the target was put out due to macro environment? Thank you.
Hi. This is Kosit. On the NAB side, I think the heat wave is just happening in May, right? I think it just there's no effect during the March and April. I think during that time, we have more like pollution from the PM, right? That's, I think, pretty much is the key why people are not going out as supposed to be, right? Yes, but we do see an increase in consumption. I think that's just to answer your questions on the heat wave. Thank you.
The questions on the outlook of the business, I think, we can't give you a forward-looking statement as to what we're expecting, the brown or the white will be. I think what we can say is that, currently, well, this Sunday we'll have an elections and, you know, a full function government coming up. We are expecting the new government to do a lot of spending, including increasing minimum wage. That's what they've been saying it. So that in itself should give more money to the mass market consumer and allow us to have a better outlook in term of consumer spending.
That's what we can see for the next six-12 months if you want to talk about consumer spending coming from new government in charge. Yeah.
On SABECO, I think during our board meeting before the AGM, we had an opportunity to further reduce the target. I think we decided to hit the target, although it's a bit stretched. I mean, if we, if all the things are aligned in terms of, you know, the tourist arrivals coming from China, especially coming this month, plus the, you know, the inflation rate stabilizing, exports, yeah, increasing, we think that it's possible to hit our target. It's a stretch, as I said, you know. It's a little bit of a stretch, we believe that if everything align, I think we will be able to hit our target. If not for revenue, at least the PAT.
I also want to add on that. Sorry, just add on that, you know, for tourist arrivals, it's not only about the tourists. I mean, when the tourists come, they create jobs and the economy will be affected as well. I think it's not only the tourists itself, but the industry itself will benefit from this.
Understand. Yeah, Mick, can I just quickly go back to the first question on heat wave? Traditionally in the past, when weather is really hot, does that favor beer sales or ready-to-drink beverages? Just wondering. Or is that minimal impact?
I, I think-
For Vietnam, beer.
Sorry, I couldn't catch that.
I think, well, depend how you see it, but the footprints where we are, the weather doesn't change that dramatically. We're not talking about, you know, Northern Asia, Europe, where you can see that in the hotter month, when it get too hot, then you sell more beer than less hot of summer. 'Cause in Thailand, we have three kind of weather, hot, hotter, and hottest. We just have more hottest month than other hot. I think it's seasonality from weather doesn't affect us, but it's more seasonality that affect from consumptions from New Year's, from Christmas, New Year, Chinese New Year, Thai New Year. We have a lot of New Years too. Our first half tend to be bigger than the second half. That's what we can say. Yeah.
Got it. Thank you so much for sharing.
Thank you. We have a follow-up question from Selviana Aripin, HSBC. Selviana, please go ahead.
For the opportunity. Two follow-up questions. One is around CapEx. If I were to look at your CapEx run rate, that's below the depreciation and amortization run rate. Can you speak about why this is the case and how long this can continue? That's my first question. Second question is with regards to tourism, particularly in Vietnam, following up with what Bennett alluded to earlier. Can you give a sense how much of the beer spent is coming from the tourists, given that this should be somewhat of a tailwind? Thank you.
Savina, can start again. I think when you look at the financial statement, right? We kind of have some higher amortization and depreciation higher than the CapEx. this is kind of the timing different that we still have some investment continuous, but it's just about the timing that we probably need to plan and also investing in the future. probably in the future, we'll be reflecting more sustained in term of the capital spending. this is kind of the timing different only, Savina.
Okay.
Got it, thanks.
Bennett, please.
Yeah. For Vietnam, in 2019, the tourist number, tourist arrival is about 15 million or so. It's relatively small compared to Thailand. This year, I think we are expecting about probably 9 million to 10 million. While the tourists don't drink as much, I think they create jobs for the hospitality industry. I think that is the impact. When you say it's big, it's not as big as Thailand, but it's still significant. Sorry about that. I'm in a train.
Got it. To follow up with that, Bennett, can you speak about what sort of inventory levels you are seeing in the channel in Vietnam? Is it low? Is it high at this moment in time and going into the rest of the year?
We manage our inventory through a S&OP process, which we review every day. I review it monthly. I mean, the good news is that we don't have much inventory. In fact, most of the distributors are not willing to keep as much inventory because of high interest rates. In a way, if the interest rate come down, it's actually gonna see a bump up in terms of sales because the distributors will start keeping stocks again. So we have a very healthy inventory, not high. Moving in with lower interest rate and better consumption in the future, I think we're gonna benefit from it.
Got it. Thank you.
Thank you. We currently have no questions in queue. If you would like to ask a question, please press star one one on your telephone keypad now. We have a question from Alvin Yong, Asia Resource Corporation. Please go ahead, Alvin.
Hi. This is Alvin from ARC Research. I'd just like to ask a question regarding for the first half result. I noticed that volume for Sabeco has come down and as a result, the beer unit has also come down. I just wanted to ask what are the reasons for that? You mentioned that I think from Sabeco's announcement is that it was due to a decree, Decree 100. Is that resulted in poor sales volume? I noticed that your competitors are also not saying the same thing. Were there other factors or reasons that led to the poor performance for the first half for Sabeco? Thank you.
I think I said the answer in earlier already that it's mainly because of the economy. Consumer sentiment is down. People are still losing jobs. Consumer sentiment is still down. Not much drinking compared to the past. Of course, it's further affected by Decree 100, right? That's generally the market. The market has slowed down. We did not slow down. We actually slowed down lesser than the market. We grew market share during this 1, 2 quarters, because market slowed, but we did not slow down as well as the market. Sorry about that. If you look at our competitor, our competitor has announced a lower, higher drop than us in terms of revenue.
Yeah. Yeah. Thank you so much for.
Yeah. Lester will respond on the Thai market.
Alvin, just to talk about the Thai market itself. As you can see, because of the price increases that all players in the market have taken, the growth has been a little bit erratic, up and down over the months. You see it's flat. What we are seeing is that our share has been growing quite dramatically. Because of this growth in share, we like to think that our competitor is actually suffering in terms of volumes. Moving forward, again, fairly positive for the outlook for the next six months, hopefully this carries into the new financial year as well.
Yeah. Thank you so much for answering this query. You know, just one last question regarding your debt levels. Are there any, like, plans or initiative that you guys are planning to reduce the debt further? If I understand that, back in 2017 when you guys made the SABECO acquisition, you took on something like around THB 5 billion in debt. Yeah, has this debt been reduced over the past few years, and are there any further plans to accelerate this debt reduction?
The overall net borrowing has been reduced. I mean, this quarter, this six-month report, we reduced by about another THB 3.6 billion. Thanks. All in all, I think, the continued reduction in debt is our goal. There is no major activities or that will resolve into a major reduction, but the reductions are coming from cash operating cash flow.
Thank you for the response. Yeah. Thanks, Lester. Thanks.
Thank you. We currently have no questions in queue. If you would like to ask a question, please press star one one on your telephone keypad now. If you would like to ask a question, please press star one one on your telephone keypad now. As there are no further questions, we will now begin closing comments. Please go ahead, Ms. Namfon Aungsutornrungsi.
Thank you for joining our conference call tonight. If you have any more questions, please feel free to contact our IR department at ir@thaibev.com. Thank you and have a good night.