Good evening, everyone, and thank you for joining the Thai Beverage FY 2021 results call. All participants have been placed in a listen-only mode. Later, we will conduct a question and answer session, and instruction will be given at the time. I will now hand over the call to the presenter, Miss Namfon Aungsutornrungsi, Thai Beverage Head of Investor Relations, and the members of Thai Beverage Senior Management Team. Thank you.
Good evening, ladies and gentlemen. Welcome to Thai Beverage 2021 ended 30 September 2021 financial results conference call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the conference call tonight, I will start with a summary of the 2021 results. Then we will open the line for Q&A with our management team here. For the summary of our results, total sales revenue of the company for the year ended September 30 2021 was THB 240,543 million, a decline of 5.1% when compared to last year. This was due to the impact from the COVID-19 situation, which was more severe than last year. Net profit was THB 27,339 million, an increase of 4.9% year-on-year.
This was due to positive change impact from last year non-recurring costs and deferred tax utilization related to beer business restructuring of THB 2,660 million. The board of directors has proposed to issue a dividend of THB 12,559 million, or THB 0.5 per share, which is higher than THB 0.46 per share of last year. The payout ratio for the fiscal year 2021 dividend is 51% payout ratio. Please note that the interim dividend was paid in June 2021 at THB 0.15 Per share, and the final dividend will be THB 0.35 per share. For the highlights of this year, the company's spirits business remained resilient in 2021, despite the closures of entertainment venues and restaurants, as spirits are mostly consumed via off-trade channel.
The business generated sales revenue amounting to THB 115,052 million, or 1.9% decrease year-on-year. Taking into account a 1.8% decline in total sales volume, the spirits business delivered stable net profit of THB 22,138 million, along with an improvement in the net profit margin. The company's beer business recorded sales revenue amounting to THB 99,157 million in 2021, a 7.2% decrease compared to the previous year in view of lower beer sales volume due to the strict COVID-19 control measures in Thailand and also in Vietnam. Total sales volume decreased 11.1% year-on-year when including SABECO sales, and decreased 4.4% year-on-year when excluding the SABECO sales.
The net profit of the company's beer business declined 11.4% year-on-year to THB 3,119 million. However, beer business in Thailand reported an increase in net profit from cost saving in initiatives. The company's non-alcoholic beverages business generated sales revenue amounting to THB 15,205 million in 2021, a decrease of 6.6% year-on-year due to a 7.6% decline in total sales volume. The net profit from normal operation rose 51% to THB 548 million year-on-year as a result of conscious cost management by reducing advertising and promotion expenses, as well as controlling administrative expenses, and excluding the margin of insurance claim on property damage from fire incident of Oishi Trading factory recorded in the previous year.
The company's food business recorded sales revenue of THB 11,280 million in 2021, a 14.4% decrease year-on-year, mainly due to impact from the government-imposed containment measures to contain the virus spread, including restaurant closures in the shopping mall and the prohibition of the dine-in services. The business undertook active mitigation measures, such as enhancing home delivery and takeaway options, and by managing costs prudently. Nevertheless, the decrease in sales revenue led to a net loss of THB 488 million for the food business. The company's international business recorded sales revenue of THB 57,394 million in 2021, an 8% decrease year-on-year. The decrease was mainly due to an 11% decline in beer sales following the lockdown and strict social distancing measures in Vietnam.
This was partially mitigated by a 5% increase in revenue generated by the international spirit sales due to the growth in contribution from Scotch whisky and also Chinese spirits. Now we will open for the call to any questions on our results. Operator, please help open the line for Q&A.
Thank you. We will now begin the question and answer session. Participant with a question to pose, please press zero one on your telephone keypad, and you will be placed in the queue. To cancel the queue, please press zero two. Once again, zero one on your telephone keypad. First, we have Thitithep. Please go ahead.
Hello?
Hi, Thitithep.
Hello.
Go ahead.
You can hear me right? I have a few questions. Maybe I go one by one, if that's okay with you. Number one, can you update us on the situation in Myanmar? It doesn't look good, both in terms of the violence, the riot, and then also the COVID. How was the sales in Myanmar during the past six months? Your view on the future sales growth would be appreciated.
You wanna go one by one, right? I will ask Khun Prapakon to respond to you on the first question.
Actually, on Myanmar, if the question is relating to COVID, I think in the past few months, we start to see that Myanmar have returned to normal in term of COVID cases have dropped and the vaccination rollout actually done quite well. In term of staff, we also have full vaccination rates, and that's even provided by the government. That's something not of concern. The concerning topic that everyone's operating in Myanmar today would be probably the economic environment, the banking system, and how cash or banking system operate due to instability of the government. I think that's just the risk of being in Myanmar for every businesses. For our business, we remain profitable. In fact, we close the year in local term.
I'll touch on foreign currency in a bit. In local currency terms, we close the year actually for the Grand Royal business, net profit after tax are higher than last year. We remain very confident. We have no aging receivable issue. In fact, our aging receivable report is actually healthier than before, all this economic environment or stable government. Because I think we, since the beginning of the year, we decided we put even more control on aging receivable, because that to prevent the risk of not be able to collect our revenue on sale. That's check. The foreign currency itself has been fluctuate and but start to get stabilized since October.
The currency was running around MMK 1,300, MMK 1,400 per USD. Then toward about May, June, July, it went all the way exceeding MMK 2,000 . The government have put in quite a number of exchange control and asking the exporter to convert their dollar back into cash in local currency. That start to stabilize the foreign currency. The latest is that their foreign currency start to stabilize around MMK 1,700, MMK 1,800. That's about just about where we budgeted for the year. We think that anything below MMK 2,000, it's still a bearable level of FX. I mean, it's not possible to expect the currency to remain in that level before. I think all in all, we remain confident.
There is an important material risk that coming with the FX rates being higher. I think all the producers in Myanmar have started to incorporate a price increase into the segment. All the segments that can increase price would increase price. We also incorporate in our budget some price increase, so we are moving toward that direction to basically absorb basically pay for the raw material price upward. I think in terms of the sales, it's not so much softened a bit, but I think due to the economy. We believe that there are certain consumer preferences over toward alcoholic beverage brands that don't relate to the current government.
With that shift in demand, all the producers that are privately owned, just like us, I mean, in Myanmar, and are really private sector owned, have benefited from the spillover effect of that demand. All in all, the answer on Grand Royal is that we're in a good position given all the risks involved in Myanmar. We remain very confident with our business.
Thank you, Khun Prapakon.
Great.
Khun Thitithep, your next question, please.
Yeah. I have a follow-up questions on Myanmar. Before the coup, Myanmar was an attractive market because of GDP growth, it's pretty steep. I believe the FDI, the foreign investment, was one of the driver of the GDP growth. After the coup, I highly doubt if they would still enjoy the same level of FDI, and without GDP growth, would you change your outlook on Myanmar market? I'm talking about in the next three to five years. Do you think that it would still be a growing market like it was in the past three years?
I think so. We have to take it from a different kind of risk perspective. We're a Thai company, and Myanmar is a neighbor country. We see that as an integrated market into the future. It is the place that we will continue to invest at the right opportunities. In fact, when there is risk, there are certainly more opportunities. We actually think that there will be more opportunity in the next two years available for us to expand and over the long term. We do not think that we will write off this country in terms of growth.
We think that, give it another year, it will be more stable, and there will be foreign investment, but maybe from a different segment of the world or maybe a different geographic part of the world that are going to invest in Myanmar.
Thank you, Prapakon. My second question is on the commodity price. You know, especially the malt and then the gas price, because I believe you use gas in your glass bottle factory. How much would they be concerned about this price? You know, do you think it's going to affect your glass margin going forward?
Thitithep. This is Ueychai. Since the cost push is relating to all beer, spirit, NAB, and food, I'll take these questions. We have to admit that this year, the cost, not only commodities, but packaging, gasoline and all, are one of the critical problems for all business here. We put all this on the table and discuss this almost every meeting anyway. I think we already sort of commit to the board our budget, and then we found out that the cost push will probably have a chance to jeopardize our P&L. We sit together and then work to mitigate that. Of course, on the commodity price, I think there are malt and then molasses.
We're still happy about it because I cannot tell all my secret, you know. With some of them, we have forward buying, and then which probably lasts until many months ahead of time. That one we do not have any concern. The other one is packaging. Packaging, as you know that in our alcoholic beverage business, the highest cost will be on the bottles. We are talking about how to manage the percentage between returnable bottles and the new bottles. Of course, we have aimed to increase the returnable bottles percentage because that is controllable and manageable by our team. With that, it can help mitigating a loss a cost push a lot. Of course, the remaining gap, we are considering our price increase.
I think it's on the drawing board for all the brands, sorry, all the BU, which we believe that can really close the gap, which mean that we probably have to increase the price on our key products here. Bottom line, yes, there will be problem on the cost push, but the management will focus on it, and then we can assure you that we will, we'll be able to manage it, okay? Really sort of stick to the commitment that we have with the board and the shareholder in term of our plan. Thank you Thitithep .
Right. I have the follow-up questions on that. You know, if you pass on the higher cost to consumer by raising the price, but then the demand in the market now is still quite weak because of COVID mainly, do you think the higher price is going to affect the volume?
Of course, we also consider that seriously, but we probably have to manage to the level that is acceptable, okay? We don't want to increase the price until you jeopardize the volume and market share, definitely. The level of price increase will be different, and we closely monitor the consumer acceptance. It could be down to the details of by SKU, okay? We are sure that we can move up the price. Of course, that we not plan to lose any volumes from this price increase programs. It's gonna be tough, but we cannot avoid it because cost push is not only in Thailand, but I think all over the world. I think everybody have to face that and how we manage that.
You probably can hear from the news, even the big beer, international beer, they have put in the headline that no more cheap beer, which mean that everyone has the same problems, and then you have to move up. Yeah. Bottom line is we will move up very carefully, and then we will consider timing and also down to the SKU, which mean not all the brand will probably not increase like 5% for all SKU, no. We have to work by the SKU. Okay? Thank you.
Right. Thank you, Khun. My last question. Thai government gradually relaxed the lockdown, I think starting from September and starting from November, they allow the restaurant to sell alcohol in certain provinces. I think the activity of Thai people start to go back to be normal gradually. Is it fair to expect that in the first quarter of fiscal year 2022 the sales of your product in Thailand should improve Q1 too? Is that a fair statement in your view?
Yeah, it's a bit forward-looking, but anyway, it's true that restaurant is open and allowed to drink. Please remember the pub, bars, and everything will not be open until sixteenth of January. That's still a problem with us. The opening of the bar and restaurant actually benefit our food sector the most because as you can see now, department store and everything, they're allowed to dine in. Definitely, the food will benefit from that. For the alcohol, I think like beer and brown spirit, we probably have to wait until January sixteenth to go full-blown. As you know, our spirit business mainly are on white spirit, big chunk are on white spirit, which is home consumption. That's why our spirit business, we believe to be very resilient.
Right. Okay.
Thank you.
Okay. Thank you very much, Khun Ueychai.
Thank you. Thank you.
Appreciate it. Thank you.
Thank you.
Thank you. Next we have from UOB Kay Hian, Llelleythan Tan Yi Rong. Please go ahead.
Hi. Can everyone hear me? Hello?
Yes. Hello. Hi. We can hear you, Llelleythan .
Hello. Oh, hi. Hi.
Hi.
I had three questions. I think the first two were already asked by the previous analyst. Maybe I just go on to my last question. With regards to the beer IPO, I understand it's been postponed or actually might even cut off. Could you share some updates on the beer IPO?
Yeah. I'll ask our CFO to address that. Khun Sithichai will respond to your questions, the ThaiBev Group CFO.
Now, you all know that because we make announcement on 16 December this year for the deferred BeerCo IPO due to the COVID. Now the situation, even in Thailand and Vietnam, are recover. Now we're gathering all the FA and LA and auditors back to the office and then to restart again. Yeah. Whenever we have any significant that need the announcement, we will announce to the stock market. We definitely have to do this to be success on this one. The timing, you can see on the announcement to the stock market.
Thank you, Khun Sithichai.
All right. Thank you for your answer. I have just one more last question, if you don't mind. A simple question. For the beer business, the net profit, could you share what is the percentage split between Thailand and Vietnam? Is that okay?
Hello. Hi, Llelleythan Tan. In terms of the split between Thailand and Vietnam, actually, we do not disclose for ThaiBev Group. For the beer, we include everything together in just the beer segment. We do not disclose separately. Sorry about that.
Okay. No, no, it's okay. Fair enough. Yeah. Okay, I think I will jump back to queue and then move on. Okay. I'll stick to last question. Thank you so much for answering that.
Thank you.
Thank you. Next question we have from Morgan Stanley. Divya, please go ahead.
Thank you very much. I had a couple of questions. The first question was just on the spirits business. If you look at the implied fourth quarter revenues, they are down about 19%, and the volumes also seem to be down 19% year-on-year in the fourth quarter, despite the beer business, at least from the domestic front, looking more stable. Could you comment on, you know, what happened on the spirits business in the fourth quarter? That seems to have impacted margins also for the spirits business. That's the first question. The second question is on Thai beer.
Just wanted to get a sense on how the market share has been for the fiscal year 2021 and how's the performance of those new launches that we had mentioned earlier this year on Cold Brew and Espresso. Just to follow up on the first question that was asked on price hikes, I mean, has Bundaberg taken any price hikes yet, or has nobody actually moved in the Thai beer market? Just the last question would be on, you know, just your comments if there's any noise on excise tax changes that we should be aware of, or any regulatory changes in Thailand or in Vietnam. Thank you.
I think, Prapakon, can you address the first question, Kun Prapakon? Second question should be Lester.
Um, um-
Third question, we have to check.
Divya, so Thailand, sorry, the spirit business, generally, so in majority of it, and over 90% are from Thailand. In quarter four, the slowdown by COVID impact in term of consumption really hit hard because I think, since the government have the lockdown in April, May, it start to show up in term of consumption. The government provide less support in term of income support to the people who are out of the jobs as well. In Q4, that started to show, and I think it's just a very slow quarter for us. That's what we see basically. In term of managing it, we have basically looked at it from the overall full year basis.
I think we look at the number on full year basis. We're reporting a good net profit and EBITDA for the year comparable with the year before. I think what we just wanna see from that perspective. I think from this Q1 currently, we have put in place some gradual price increase. In October, November, we start to see some factor loading that coming back in the Q1 numbers.
Looking forward to the opening of the segment, I think on the ground we are getting information that, you know, even though the government is saying that people cannot be allowed to be drinking in pubs and bars and on-premises in many locations, but it seems that people generally start to disobey and they start to drink. Because I think people have had enough of it. It's getting to New Year's, and people probably have enough of it. It's not something that we're encouraging, but it's just that we see that on the ground. If that's happening, the consumption of alcoholic beverage of our portfolio delivered by our company will probably get some benefit.
Right after the New Year's, if pubs and bars open in January, we will start to see a lot more pickup in terms of on-trade sales as well.
Lester, please.
Hi, Divya. This is Lester here. Let me go to your three questions one by one. The first question you asked was about market share for last year. I'm very happy to report that we picked up share. This is in spite of a lot of cost savings in our A&P, as what Khun Namfon mentioned earlier. The share pickup was mainly due to better use of resources and better execution on the ground. That part, we picked up close to two percentage points in the market over the year. Your second question was about Espresso. This one, not as good news as I would like to report. Basically, Espresso is mainly sold in the modern trade channel in the convenience stores.
The success of the Espresso variant really is dependent on how well convenience stores do. You see that last year in the market, the convenience segment took a big hit. In fact, there were a lot of closures of stores. We kept activity to a minimum for Espresso. What I would like to report is, you know, Espresso was also done for two reasons. One was obviously to excite the market with new products, new exciting products. The second is when we launch new products, we would like them to be higher margin. While Espresso being a higher margin item did not do so well due to the market, I'm happy to report that Cold Brew, our next higher margin item, actually did well. Our share continues to climb.
I think we are approaching the other brand in the market that is sold in a green bottle also. Our share is coming up against them. We hope to surpass them in the near future. Your third question was about Boon Rawd. Have they had any price increases? At the moment, no. We have not observed any price increases on their end. Obviously, we do keep a very close eye. I think both of us keep close eyes on each other. Again, we will move accordingly. At the moment, on their end, no price increases yet. Thank you.
Thank you, Lester. Divya, I didn't get your third question, the third big questions. Would you repeat it again slowly?
Sure, Khun Ueychai . The third question was just any information on, you know, excise tax changes in Thailand or in Vietnam, or any other regulatory changes related to the sector that we should be aware of?
I will respond on the Thai side. I think the government has already increased the cigarette tax. As normally, the spirit and beer will come in. We didn't hear anything yet. As I always mention, every time we have these kind of sessions for these questions, tax increase is unavoidable. Okay? We cannot influence the government, but our track record, we always manage it well. Every time we have a tax increase, it's our opportunity to move up the price to cover the tax, plus slightly more higher margin. Okay?
In normal day or normal situation, if you move the price, the consumer complain, but with the tax increase, I think we can do a bit of that, and then don't get any, you know, complaints from the consumer. Bottom line, we don't know. Okay? The government has already increased the cigarette tax. In the past, it's only few months after then they announce the tax increase for beer or spirit. They haven't done that this time, so quiet. We'll follow up closely, our eyes and ears closely to these matters. For Vietnam, I don't have any idea. Bennett, are you there? Can you give a
Yes.
Okay. Can you respond that, please?
Okay. I will do that. Thanks, Ueychai. Okay, for Vietnam, there's always rumor that the excise tax will increase and the government wants to increase their tax collection. But for us, we have been working as an industry. As an industry, we've been lobbying or talking to the government to ask to tell them that we shouldn't increase excise tax. We are very hopeful that there will be no tax increase. We're very, very hopeful. Having said that, you know, even if there's a tax increase, I think we have demonstrated that in the past, we always are able to pass on to consumers, and we never had problem passing on to consumers. Just for a fact, I mean, In fact, I mean, we just announced the increase of our price in December.
Sometime in December our price will increase. That would even mitigate, even if there's an excise tax increase coming. I just want to re-confirm again that we are very hopeful that there will be no excise tax increase in the coming year. Thank you.
Thank you, Bennett.
Great.
Thank you, Divya, for your questions.
Can I just have one clarification from Khun Prapakon on the spirits business? Because I'm still struggling to understand why the fourth quarter was as weak as it was. Could you comment on this October, November? You mentioned that there's some price hike that's been taken, like when exactly was this taken? And how's the volumes? Have the volumes improved in the first quarter, or are they still pretty low? Because typically, I mean, spirits has been resilient. It doesn't get impacted so much from COVID-related restrictions. Just wondering what's the latest update on spirit volume and when exactly was this price hike taken and how much? Thank you.
Okay. Divya, let's separate the two angles. One, price increase, another one is the momentum or consumptions in the market. Okay? The consumption in the market have started to suffer from the longer shutdown by the government, so the consumption start to have some problem in Q4. That's what we see. And more so in the brown spirit front, but not so much in the white spirit side. The relaxations of the social distance and lockdown start to, you know, get better in October. Okay? So that one, take note. Like our company, Thai Beverage, we came back to the office in the middle of October, and we came back in full in the first week of November. We are now back in the office, so it's not like, you know, work from home.
It's not that doesn't work for us anymore. That's just to show this is happening. We start to see traffic jam in Bangkok. That's a good thing and bad thing. You know, the pollution is a bad thing. When you see traffic jam in Bangkok, that means you're back. You know? That hasn't happened in the past years since COVID arrived. We start to see that. We believe the economic activity has returned in October and November. We start to slowly coming back. The government now relaxing and have more tourist arrival and also have program for domestic traveling as well. At the moment, as we speak, we start to see a lot more moving back to normal. The only thing that's not back to normal is just the pub and bars and.
That are not allowed to open right now, and it will be after the New Year's. The rest of the thing, we see it kind of back. People on the, in the provincial side start to, you know, have more money, and they will start to consume, you know, FMCG products, consumer products that like us. Okay, that's from the economic front. Consumer front in terms of Q1 that we see. In terms of price adjustment, we have been planning this. In fact, the planning of our some adjustment price increase have been postponed due to COVID for a while. Before COVID, we have price increase adjusted to our brown spirit right before COVID arrived, in April last year. April 2020. Believe it or not, it's less than two years ago.
That has been delayed, and we start to roll this out in October this year, a gradual price increase adjustment in our white spirit portfolio. We believe that. In the past 18 months, we do not see any drop in the demand of white spirit, and therefore justify the change in price that we incorporated in. We are confident that over the long term, you know, looking out one year, two year, that is not going to impact our long-term consumption. That's how confident we are in terms of price increase. The price increase will help also pay for obviously a lot of commodity prices that are being pushed up and some of molasses from the last crop that are quite expensive for us has also started factoring into our P&L and our cost of goods, okay?
The outlook for spirits in Thailand, the outlook for raw material, especially molasses in this crop are much lower. It's about 20% lower than last crop. This crop we're expecting a lot more sugar from sugarcane. The harvesting will start in early December this year, and we understand the forecast that there will be about 20% more in harvesting sugar, so therefore there will be 25% more supply in molasses and bring down the price. I think that factor in nicely with our cost of goods being under control. We are also starting to see, especially in the last quarter, higher level of used bottles in both Ruang Khao white spirit and Hong Thong brown spirit.
I think we probably can push that up a bit further this year to help mitigate those cost increase from glass bottle that have been mentioned by some other gentlemen earlier, okay? That hopefully answer the Q4. One last bit is that last year in Q4 we had trade promotions on our white spirit in July, the first month of the Q4. The overall volumes you see in Q4 last year is a bit elevated slightly due to trade promotions. We did not have it in this quarter because we think it's not necessary, and we're monitoring the level of inventory.
I think toward the end of September, the level of inventory has moved down to a level that we think is suitable, therefore, we roll out those gradual price increases. Long answer, but I think we're not worried so much about it. It's under control. Thank you.
Thank you, Divya, for the questions.
Thank you, Khun Prapakon.
Thank you. Next question we have from CLSA, Hornghan Low . Please go ahead.
Well, hello, everyone. A very good evening to you. Thank you for taking time to speak to us this evening. Are you able to hear me?
Yes.
Yes, we hear you.
Thank you so much. Thanks. I have a few questions, so please bear with me. The first question I have is, with regards to your promotional activities in FY 2022. How different do you think FY 2022 promotion activities will be compared to FY 2021? And do you see the dollar value of A&P spending to be similar or it could increase according to revenue? The second question I have is with regard to the gains in market share in the beer business. Do you see a possibility where your competitors will be more aggressive in A&P to regain market share? And if so, will you also react by increasing your A&P spending? I do recall your market share gain has been quite consistent over the last one to two years.
The third question here is still on beer. Do you have any plans to hike the prices in beer? And if so, when would it be? Last question here will be with regards to spirits. I do recall one of the reasons behind the resilient spirit performance was because I think some of the rural workers have returned back from city areas due to the COVID pandemic. And that is one of the drivers behind the spirit consumption in the rural part of Thailand there. Now, let's assume that Thailand is in the early phases of a long reopening over the next one to three years of full reopening.
In this scenario, where some of the rural workers will return back to their jobs in Bangkok City, how would you see the spirits performance to be in terms of the sales volume? That's all I have. Thank you so much.
I will respond on the A&P questions. You asked whether this going forward, we're gonna spend more. I cannot give you the exact answer because we depend on the situations. Definitely, if situation allow, we will have to come back and spend a bit, but we already learned a lot during the COVID period that which one, which kind of activities is work for us, which kind don't work for us. I think I can say it would be very prudent, okay, in the future. Actually, I hope that the situation getting better, so we can have the activities and really competing with the competitors. Of course, I think we can think like this, and the competitor will probably think the same. This is fact of life, okay? That
To conclude, we don't know. We have to evaluate the situations. We wish we can spend. We can do some activities and then get the consumer excitement and all that. We believe that the competitors will not sit still, you know. You cannot just pretend that, "Oh, they won't do anything at all." I think we are now competing head to head, okay? Because we're gaining 2% market share. Of course, they won't sit still.
Got it. Understand.
Hi, Hornghan. Well, this is Lester here. I just add a little bit. You, the A&P Khun Ueychai just mentioned as well as covered a little bit about how competitors will react to try and get the share back. As Khun Ueychai mentioned, you know, it is a fact of life. We're working in a competitive market. Both sides will try and take share from each other. Hopefully, we will not use money as the tool to buy share back or to buy volumes back. What we've been very fortunate with during the COVID period was that, because of the lack of activities, it gave us more time to actually take a step back and review all the activities, all the A&P activities that we do.
We broke it down into all 14 activities that we do, and we worked out an ROI for each category of activity. We now know which activities do give us the best returns and which ones actually make us lose money in running these activities, and those are the ones that we will stop. When you ask about will we spend more, hard to say, but what I can say is we will definitely spend more prudently, and that money that we spend will be more effectively used to get returns in the market. I think that is clear, that every part that we spend will work harder for us to get volume and to get share from the competitor. Your last question was about price increase. This was answered in the first round already.
Ueychai also mentioned that we will monitor cost increases and also monitor what the competitor is doing in the market. We will have to balance it all together, because while we want to cover any increases in our cost of goods, we also want to have to balance that with potential volume losses if the price increase is too high. It is a balancing act. At the moment now, we are still in the review period. As and when prices go up too high, we will have to seriously consider a price increase when the time is correct.
Got it. Thank you.
Thank you. Thank you for the question.
Thank you. Next question from Credit Suisse.
For this question, is someone able to help you answer?
I'm so sorry.
Oh, I'm sorry. I was referring to the I do have a question in regards to the spirits performance. Is someone able to address with regards to how spirits performance can be, should Thailand return to full reopening? Given the I believe some of the resilience over the past one year.
Yep. Hello.
Was driven by rural workers who returned back.
Yeah. Okay. You're right. Last year, when COVID arrived, I think we see worker migrations in two parts. You know, foreign workers left, so Myanmar, Cambodian left, went back. I think also the Thai workers or staff from more tourist area, really more tourist related area, Bangkok, Chonburi, Pattaya, Phuket, they're all moving back to the northeast. That's what contributed to a higher level of proportion of sales in those areas, in the rural area where we also have strength in terms of distribution. As we expected, as the economy returns, the service sector will open up, we will start to see the better consumption in the tourist towns, which already start to see in Chonburi, in Phuket.
We start to see a lot more consumption. It is anticipated and we have the team ready for the return. In the past year, we see a lot of decline in the channels of modern trade, like in Tesco, Big C, and Makro, those channels. We are anticipating those channels will have higher proportion of sales returning back. That's something we also have the strength in terms of distributions in that channel as well. That's something we are anticipating and be ready for that.
Sure. Thank you. Thanks for the clarity. I appreciate it. Thanks.
Thank you.
Next question is from Credit Suisse. Nicholas Teh, please go ahead.
Hi. Thanks for taking my question. Just three questions from me. Wanted to ask to clarify what you mentioned on the beer IPO earlier, if I heard it correctly, that you've restarted the process now and brought back your financial and legal advisors, but timing is still uncertain. The second question is on the forward buying on the malt and molasses. How far forward, if you could roughly tell us, have you bought forward for? And then the final question is just on SG&A. I guess over the past one to one and a half years during COVID, A&P spend has come down. In terms of other kind of SG&A, are there any permanent savings or cost cutting that you've done through this period that would keep SG&A low, even as we reopen?
Sithichai, Group CFO. Normally, you know that all the FA and LA, they don't want to spend too long. Normally, the process since last time, we complete the offering circular, we complete the MAS approval. Now it just come to update the FY 2021, or even the quarter and the quarter performance on the FY 2022. I think it doesn't take long. Normally for FA and LA, maximum they do is about only six months. If you are over six months, it's they have another job to do.
Nicholas, on the forward buying, I cannot tell you exactly, but I can hint we can sleep well for the next six months.
I think that's referred to more, I think from molasses.
Okay, got it.
Molasses in Thailand, there's no forward buying because it's an annual crop, so it is something that is also mostly domestic annual crop based on the sugar plantations crop harvesting. We generally buy right before the harvesting period, which is about now, and therefore, that's why we have provided some indication that molasses price have come down substantially from last year because we're anticipating and the industry anticipating more, about 20% more sugar harvesting for this annual period.
Your last question about whether we can save more SG&A, I mean. I think we find any opportunity to save, but we will not save until it's hurt our future operational performance. There are some, but I think the key one is the A&P.
Okay, got it. Thank you.
Thank you. Next question from UBS, Permada Darmono. Please go ahead.
Hi. Good evening. Thank you so much for the opportunity. I have a few questions. In terms of the spirit sales in Myanmar, if I look at the financial disclosure in the sales in other spirits, it's up 5% year-on-year. Given the weakness in kyat and the situation in Myanmar, obviously that's an impressive performance. Can you provide some color how you managed to increase sales in both baht terms and volume terms?
Part of the sale outside Thailand or international markets are also covered by our Scotch whisky business. In our whiskey business, we have done very well this year. I think it's also part of the European economy and U.K. and Europe economy return back to normal. That's helped with the demand. In Myanmar, as mentioned earlier, net profit in the local currency have increased for the year. We adjusted for the exchange. We're looking at the numbers and flat in terms of profitabilities. Cost cutting, higher level of control and higher efficiency in plant management. Our direct raw material prices are within our control. Our volumes are down to about 5%-7%, not much for the annual period.
That's why we managed to have a higher profit for the year. Basically, there's no secret to how to run the Myanmar business in this environment. It's about making goods and collecting the money. It's because we sell in credit. As mentioned, we monitor our aging receivables very tightly, tightening it even more so at the moment.
Thank you, Khun Prapakon. I'm assuming that would it be fair to say that the driver of the performance in spirit sales in other, it's more the U.K. and Europe on, from Scotch whisky rather than Myanmar?
That's correct.
Okay. Secondly, on the beer margins, if I can sort of ask Lester. Investor feedback on the beer IPO typically is like investors are finding it hard to predict or forecast what is the sustainable margin of the Thai beer business. It's encouraging to hear your initiatives on focusing on higher return from in advertising and promotion spend. But can I ask if actually you have an explicit kind of margin target for the company on a sustainable basis? And also with respect to tourist spending on beer pre-pandemic, what is the contribution from tourist spending typically on beer sales in Thailand?
Yes. Hi, Permada. Lester here. Just to ask to talk about a specific target for beer margins, no particular target. What we do is we do benchmark other beer players around the world, and we try to reach those kinds of margin levels. Obviously, we are mainly a mainstream player where you do see other international beer companies, they do have an extensive premium portfolio. We know it will be difficult to match them, but we want to be as close as we can. The target for us is to always be improving our current margin levels to move them up. A couple ways. Obviously, one is to sell more premium margin products.
At the same time, we also want to lower the cost and make our spending more efficient. That is the plan. No particular target in mind that we set in mind.
Tourist spending, in terms of the tourist spending contribution historically, pre-pandemic on beer?
We don't keep track of how much tourists spend on our beers. Although, you know, in the tourist areas, again, the bulk of our volumes come not from the tourist areas, but in the traditional trade and the rest of the country. You know, the volumes that we get from the tourists are not small, not large, but again, they're not small either. But they're not major enough to affect our total volumes. Again, like I said, the bulk of our volumes come from the traditional trade in the traditional areas of the country. But we will take as much as we can from the tourists when they do come back. Thank you.
You'd be able to see the fluctuations in terms of the sales from, like, areas like Phuket and Chonburi and all of that, right? Like, between pandemic and pre-pandemic, and without even trying to measure it, you'd be able to see roughly the outcome?
We do see the southern area where most of the tourist areas, the tourist islands, Phuket, Krabi all those areas. The southern region is actually the smallest of all the regions in the country. While we saw a drop in the southern region, what we tried to do was to pivot away from the tourist areas into the local areas, even in the south. But the south is the smallest contributing area in the entire country for us. Not particularly big.
Got it. Thank you very much, Khun Lester. If I may ask, Khun Bennett on Vietnam, we've received a bunch of, you know, or we're tracking the situation there that, essentially, around 20 out of 63 provinces are now in level five in terms of highest risk. You mentioned earlier in your quarterly briefing as well, the reopening by the government is quite cautious. What's the situation from on the ground right now in terms of on-premise reopening? You know, how do you see it in terms of, you know, going back to normal in Vietnam?
Hi, Permada. Hey. If I were to sum it, I think Vietnam is learning to live with COVID. Right? That's the first thing. They will not go back to the kind of draconian kind of lockdowns anymore. We believe that. Because the economy needs to be running, right? That's the first thing. If you see, as in any country, they're living with COVID, the cases come down, and we start opening up again, the cases rise again. However, because of better vaccination rates, you know, the cases that require ICU or oxygen are less. I think we are going through that stage where, you know, Singapore has been through and many other countries been through. The cases are now starting to creep up.
They, I think they are very controlled in the sense that the government will not lock down the entire province anymore. They probably look at wards, look at districts to lock down, if any, right now. We've seen a bit of lockdown here and there, but it's very limited to just districts, wards and so on, not the whole entire province. In a way, we see consumption coming back. In fact, we can see people coming out. We see people dining out more and consuming alcohol already.
I believe that this is gonna be a gradual recovery, and it's, I would say you chart a straight line all the way to July, from now to July, I think you will go better and better and better, barring any big surprises, better and better. Second half of July, we'll see more or less, you know, what we see in the 2018, 2019. If you ask me then, probably hopefully at 2023, we'll be back to 2019 levels. In a way, it's coming back. I see people out. I see people drinking, and people are getting jobs. They're able to afford to buy alcohol. That's good news for us.
Thank you, Khun Bennett. Last question to Khun Nongnut, if Khun Nongnut is around. We are seeing, you know, push from Kentucky Fried Chicken to move into plant-based meats. Recently, one of the companies we cover, Quorn, for example, they said there's going to be a joint statement of collaboration between Quorn and KFC across Asia and Europe on plant-based meat. In Thailand as well, like, you know, MEAT ZERO obviously is around, and so forth. Any plans for KFC to move into plant-based meat nuggets. Secondly, as well, on cannabis, like, the pizza company, you know, has a pizza campaign right now containing cannabis. Any move toward food containing cannabis or drinks for that matter? Thanks.
Yes. Thank you. This is Tip, Nongnut. Actually, we do have the plant-based chicken nuggets and also chicken pop, okay? We do actually test in our two outlets starting in, if I'm not wrong, in August or September, okay? It's doing pretty good. It's a local plant-based meat. We got a very good feedback with the PR communication and also people would like to try, okay? We are having that in our current plan, and probably we'll roll out pretty soon. Thank you.
The supply is local. Is that right, Nongnut?
Yeah, yeah, it's local.
Local. Okay, great. With respect to cannabis, any move toward, you know, cannabis-containing beverages or food?
No, not yet on that plan.
Okay, great. Thank you so much for answering my questions. I really appreciate it. Have a good evening, and of course, good luck for the fourth quarter of the calendar year.
Thank you.
Thank you. Next question from Bayard Asset Management . Deepinder Bhatia, please go ahead.
Hi. Can you hear me clearly?
Yes.
Great. Thank you. The question I have is really around the free cash flows being generated by the company currently, and the dividend policy, as I understand, at 50% as a payout ratio. Could you give some medium-term vision into how you see both cash flows evolving, the policy as it currently stands, debt reduction, investment, either organic or acquisition-based opportunities? If you could just please try and tie together some of these different strands, all of which are somewhat interconnected, that would be great. Thank you.
Thepchai. You can see that we are strongly committed the-
Hello.
Dividend payout ratio not less than 50%, but subject to cash flow. As of now for our. You know that ThaiBev now we are high gearing. Why we still commit 50%, because we have the plan to deleverage for the we need to make announcement for the BeerCo IPO, and now we are on the investor roadshow to do it again. We believe we can delever it, come to low debt on that one. For any big investment, currently we have no any big investment, just CapEx. You can see the FY 2021, our CapEx really low, not big. Normally, our CapEx THB 4 billion-THB 5 billion, but this year just about THB 2 billion-THB 3 billion only.
That's why we have the free cash flow, so we can pay dividends, and we have to make it deleverage, not too high debt.
Understood. So as you look around at acquisition opportunities, are there any that are of interest? If so, what would be some of the areas that you might consider for inorganic investment opportunities? That's sort of my follow-up part one. As to follow-up part two, can you please give an idea, you know, even though we are in somewhat of a lower volume growth scenario currently, post-COVID, during COVID and post-COVID, I just want to understand the capacity utilizations that are currently in place at the current point in time, and how much further capacity utilization is available before you may need to have any specific capacity increases or CapEx increases over and above the level that we are seeing currently. Thank you.
Thepchai. Normally, due to we have so many good relationship with all the bank, investment bank, commercial bank, both domestic and overseas, they propose us so many M&A, but we are consider. Whenever we have inorganic growth, we will make announcement to the stock market. Now no, we just focus on organic side only. For the capacity, I will ask Dr. Pisanu, the chief technology to answer.
Hello. For the capacity, we are using just around 50%-60% of our both our distilleries and the breweries. For the big CapEx, it's not in the near future for sure. Thank you.
Understood. My last follow-up here, if I may, really quickly. You know, based on the scenario that you're describing, capacity utilization in place, dividend payout and debt reduction, it should seem that in not the distant future, your debt levels may be really quite healthy. They're already well-supported, but they may be even quite a bit significantly stronger. You know, I understand that dividend payout is a board matter, but just to understand and get a little bit of visibility and vision into how you're thinking about either relevering, maintaining a certain leverage, or increasing a payout policy or share buybacks. You know, could you give us a little bit of a longer range view here in the absence of any major acquisition, how that would evolve?
I have not even brought up the BeerCo listing. I leave that aside in the current conversation. Even on an organic basis, your debt levels will be very healthy. I'm trying to understand, is there a target level you would like to maintain at, and how you see the payout ratio or share buybacks or some other form of capital return evolving in that scenario? That's my final question. Thank you very much.
Okay. My target debt level, net debt to EBITDA, less than four. Yeah, this is my target level. We would like to keep healthy, you know that. Going forward, since the U.S. now they start, maybe they will start the tapering the QE, and maybe another year or two year, they will start to increase interest. We have to be careful this one. Whenever we have a need to utilize our healthy everything, we will make announcement.
All right. Thank you very much, and good luck for the rest of the year and beyond.
Thank you. We need that.
Thank you. Next question from Phillip Securities, Paul Chew, please go ahead.
Yeah. Thanks. Just two questions on the spirits business. Typically, I mean, after you make a price hike for white spirits, I'm just wondering what has typically been the past behavior of consumers, or is it limited impact since I guess there are no legal alternatives? That's my first question. Can I just trouble you again, just on spirits, like what can help the rural economy, especially in the northeast, to help support the spirits consumption? Just a general Makro question. Thanks. These are my two questions. Thanks again.
In terms of price elasticity for white spirit, it's actually not very high. I mean, we've seen that on the price increase, our demand will catch up quite quickly. With the strength of demand in the past 18 months, we're confident that although the consumer price will rise, it will not affect our volume by that much. I think it's a good payoff in terms of price increase versus slight decline volume near term. In terms of what would drive the northeastern consumption or even rural area, it's just general economy. I think the return of the service industry, the tourist industry generally would allow Thailand as a country to have a higher GDP.
I think the rest of the segment, we think this is quite normal. I mean, agricultural, it's seasonal and, so I think that's all the comment we have on this.
Okay. Thank you.
Thank you. We have a follow-up question from CLSA, Hornghan Low . Please go ahead.
Hi. Hello, everyone. I just want to have one question, if you don't mind, with regards to the timing of the beer IPO. I understand the IPO was postponed early this year due to COVID. If you look at the situation now, we are probably in the early phase of recovery from COVID. In tobacco, if you look at the market share is just starting to improve and get better. There is clearly earnings recovery potential, but it's gonna take quite a bit of time for it to materialize given how volatile the macro environment can be. The key question I have is, why list now? Why not later when the economy or consumption spending patterns are better?
Second question to wrap it up is, with regards to the cash proceeds, is management looking for it to use more for M&A purposes or to deleverage? Thank you.
We see that you can see Thailand. We used to have more than 20,000 cases a day. Now we're down to about 5,000 cases a day. Thailand opened the country for tourists. We have a lot of vaccinations. First dose, 70%-80%. Second dose, about 50%. Even in Vietnam, they can control the COVID. But you know now, since I say that now U.S. or the world debt capital markets, they start to taper the QE. I feel lucky that they still have not increased interest. On my view, it's a good time to restart the IPO. If you wait another year or two years, COVID is a normal life, new normal, other business. You have to get a vaccination, you have to get a third dose. You have to get any proper protection for this one.
If another, you wait another one or two year, if the U.S. start to increase interest, euro increase interest. Difficult for you to sell IPO because the people who like to invest in the debt capital market. They have the exact yield. I think it's a good time to run the equity capital market IPO now. It's better than to wait. If we receive the profit, de-leverage. Main use to de-leverage, and certainly will make for any new opportunity or for making any investment that fits the shareholder, enhancing the shareholder. Major is to de-leverage.
Okay, sure. If I didn't hear you wrongly, I think you're talking about potentially looking to improve the balance sheet with the cash proceeds, right? Not so much for M&A purposes, for the cash proceeds.
Yes. Correct.
Sure. Okay. Thank you. Thank you, sir. Thank you. Have a good evening. Thank you for the clarity in the question.
Thank you.
Thank you. We have a next follow-up question from Morgan Stanley, Divya. Please go ahead.
Thank you. Just a couple of numbers that we're missing from the earlier explanation. Khun Prapakon, could you give us the blended average price hike that has been taken for the white spirits business? And also, what's the current return rate for bottles versus where we were historically before the bottle change? And the second is on the beer business. Could you just tell us the split now between bottles versus cans for both Thailand and Vietnam? Thanks.
In terms of price increase, Divya, in terms of white spirit price increase, ask me six months from now. We haven't finished it, so it's still a trade secret at the moment until we probably finish it in the second Q. I think after our first six-month number, when we have the call, I'll answer that question. In terms of the used bottle return, it's half increased, especially the white spirits, to very close to the optimal level. Last year, I think our used bottle for large and small was running around 30%. This year we are running around 20%-25%. This year we are closing in about 40%-45%.
We think that about 55%-60% will probably achieve high optimal level. We still have about 10%-15% more to go in terms of optimizations of used bottle.
Okay.
Hi, Divya. This is Lester here. To talk about the pack split for beer in Thailand. We are mainly a bottle market. 87%, about 87% of our total volumes are bottles, 12% cans and then the balance 1% is draft beer in kegs. We are primarily a bottle market. I think this is why we focus so much on getting used bottles back, because it really drives our costs down when we use higher amounts of used bottles from the market. Thank you.
Can Bennett respond on the-
Divya, for Vietnam you know I-
Yeah. Thank you.
Yeah. For Vietnam, in the past, I mean, the market is about 50%, 55%, 60% cans. During the pandemic it's gone up to above 70%, and primarily because the on-trade outlets are closed. The lockdown is full lockdown with the on-trade closed. On-trade mainly sell bottles. Even then, with more than 70%, and we expect that to come down over time when the on-trade outlets start to open. We're going back towards the 60%, we believe, in the coming year or two. Thank you.
Okay.
Thank you, Bennett.
Thank you very much for that clarification.
Thank you. There are currently no questions. If you'd like to ask a question, please press zero one on your telephone keypad now. As there's no further questions, we will now begin closing comments. Please go ahead, Miss Namfon Aungsutornrungsi.
Thank you for joining Thai Beverage conference call tonight, and if you have any more questions, please feel free to contact IR department at ir@thaibev.com. Thank you and have a good night.