# Thai Beverage Public Company Limited — FY 2022 Full-Year Financial Results Briefing

Event: FY 2022 Full-Year Financial Results Conference Call
Date: 25 November 2022
Issuer: Thai Beverage Public Company Limited (SGX:Y92)
Provenance: automated speech recognition (asr) of the issuer's public conference-call recording
Source recording: https://thaibev.listedcompany.com/wp.html/t/audio/e/FY22financialresults
Official record: https://www.thaibev.com/ir.html
Presenters: Mr. Thapana Sirivadhanabhakdi — President and Group Chief Executive Officer, Mr. Sithichai Chaikriangkrai — Director and Senior Executive Vice President / Group CFO, Mr. Michael Chye Hin Fah — Chief Executive Officer, Beer Product Group, Ms. Namida Arthachinda — Head of Investor Relations
Words: ~5,418

Unofficial machine transcript. Prepared by SMID Research from the issuer's public conference-call recording by automated speech recognition, without a full manual check: expect mis-heard names and figures. There is no speaker attribution: the source recording carries no diarisation, so cues are shown as timestamp and text only; timestamps refer to the recording. Not a company publication. Thai Beverage Public Company Limited's own investor relations page (https://www.thaibev.com/ir.html) is the authoritative record. Copyright in the briefing rests with Thai Beverage Public Company Limited; contact contact@smidresearch.com for corrections or removal.

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[00:00:00] Good evening everyone and thank you for joining the Thai Beverage FY2022 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, Ms. Nam Fon, Aung Soo Toh and Run Tse, Thai Beth's Head of Investor Relations and the members of Thai Beth's Senior Management team. Thank you. Please go ahead. Good evening, ladies and gentlemen. Welcome to Thai Beverage, fiscal year 2022 ended 30th of September 2022 financial results conference call. I am Nam Foon, Aung Soo-Thang-Shee, Head of Investor Relations.

[00:00:42] For the conference call tonight, I will start with summary of the full year results. Then we will open the line for Q&A session with our management team here. For the summary of the full year results, total sales revenue of the company for the year ended 30th September 2022 was $272,359 million an increase of 13.2% when compared to last year. This was due to an increase in sales revenue of our business segment. Net profit was $34,505 million an increase of 26.2% year-on-year. This was due to an increase in net profit of beer business, non-alcoholic beverages business, business and associated companies, although there was a slight decrease in net profit

[00:01:35] of space business. The board of directors has proposed to issue a dividend of 15,072 million baht or 0.6 baht per share, which is higher than 0.5 baht per share of last year. The The payout ratio for 2022 dividend is 50.1% payout ratio. Please note that the interim dividend was paid in June 2022 at 0.15 baht per share and the final dividend will be 0.45 baht per share. In 2022, the company's spritz business generated sales revenue of 116,177 million baht, a 1% increase year-on-year, while total sales volume increased 0.1% year-on-year. The spirit's business reported net profit of 21,902 million baht, a decrease of 1.1% year-on-year,

[00:02:37] due to changing in product mix and higher packaging costs, although molasses costs started to come down in the third quarter of 2022. mitigate the impact the company made appropriate price adjustments. The company's bear business recorded sales revenue of 122,489 million by in 2022, a 23.5% increase compared to the previous year. In view of higher bear sales volume following the relaxation of COVID-19 control measures in Thailand and Vietnam. Total sales volume increased 14.5% year-on-year when including sub-ego sales and increased 3.7% year-on-year when excluding sub-ego sales. Net profit shows a satisfactory increase of 143.6% year-on-year to 7,597 million baht.

[00:03:34] The company's non-alcoholic virus business generated sales revenue of 17,432 million baht, up 14.6% year-on-year. Total sales volume increased 10.9% year-on-year, mainly driven by higher demand for drinking water, carbonated soft drink, and ready-to-drink tea products. Although there was an increase in materials costs, the non-alcoholic virus business reported net profit amounting to 586 million baht increase 27.8% year on year, mainly due to the improvement of production efficiency and the cost-saving initiatives. The company's food business recorded sales revenue of 16,433 million baht in 2022 for 45.7% increase year on year following the resumption of that in services.

[00:04:31] profit increased significantly by 177.1% year-on-year to $376 million. This was mainly due to an increase in sales as well as the prudent management of distribution costs and administrative expenses. The company's international business recorded sales revenue of 78,872 million in 2022. A 37% increase year-on-year. The increase was mainly due to a 46% increase in BSL revenue from Sabikor, in line with Vietnam's strong reopening momentum. Sales revenue was further boosted by a 7% increase in revenue generated by the international spritz sales, on the back of higher contribution from Grand Royal Group in Myanmar, as well as from the Scotch Biscuit sales and the sale of Chinese spritz.

[00:05:27] That is the summary of our full year 2022 financial results. Now we will open the line for any questions on our result. Operator, please help open the line for Q&A. We will now begin the question and answer session. How to spin these questions to pose, please press 01 on your telephone keypad and you will be placed in the queue. To cancel the queue, please press 02. Our first question is from Hong Han. CISA, please go ahead. Thank you so much for the patience. The first question I have is on pricing. Can we try to understand this year, how many times has Changbir raised prices? I understand there was a price increase

[00:06:09] in first quarter sometime in March. Has there been any price increase subsequently after that? And will management be planning any in FY23? Thank you. Yes, we did a price increase across the entire portfolio, all brands and all SKUs in the first quarter of this calendar year. For the rest of the financial year, we did not make another price increase, although there are plans in the works for another one within the financial year. Sure. Sorry, maybe I didn't hear you clearly, sir. You mentioned that next financial year FY23 you may have some plans to raise kindness again, right? Yes, correct. Because these are forward-looking statements so I cannot give you in any clear definition,

[00:07:01] but yes it's within the plan for this financial year that we will do another price increase. Okay sure, understand. And the second question I have is on the inventory. You know, in regards to the beer business, can we try to understand in terms of the procurement or your raw materials, how much has it changed compared to a year ago when you were buying them, say in December, November in 2021, but just now in November, December, 2022, can you give us some sense in terms of the increase? Hong Han, you talk about the raw material for the beer? Yes, that's right, that's right with regards to the model.

[00:07:51] Don't worry, we have already secured our mode, you know, for, I mean, to the end of this year production at a lower price than market. And also for the next half year, next year, we have already secured our mode price. It will be higher than this year, but it's still significantly, you know lower than the market price now which is above 800 euro a ton but we have CQL. Okay sorry I think your voice was breaking out a little bit I think what I hear is that the price that you are buying now is higher than last year but it's a lot lower than market price

[00:08:32] am I correct? Yes you are correct but we have already booked for the next half year. The price of next half year will be higher than average of this year, but still lower than the market price. We are so lucky that we have booked it ahead of the game. Can we try to understand how much lower is the market prices? Is it like a 5% lower or is it like 10-15% lower than market price? Higher than that, higher than 5% for sure. Much more than 5%. You will be surprised, but the people tell me because otherwise for the average cost of this year, extremely low, lower than the market price.

[00:09:17] Next year will be higher than this year, but still cheaper than the market price because we move ahead of the game. Sure. If I were to try to understand what's the price difference between your buying loss, what you bought last year, is it like 30% more? Is there some kind of guidance you can give, sir? Hong-Hang, I'm afraid this one is kind of forward-looking because it will tell you how much we it's more than you can guess the number. Sorry about that.

[00:09:49] No problem, it's okay. Thank you for the question. Thank you so much. Thank you. Thank you. Of course I do. Thank you once again.

[00:09:59] Thank you. Our Q&A session is still open. If you would like to ask a question, Please press 01 on your telephone keypad now. We have got Pirmara Darmono from UBS. Please go ahead. Hi, good evening, Madison. Thanks for some of the input. Any comments on the Outlook or put molasses? And just how will you plan to tackle the packaging costs? I suspect the packaging costs have increased a lot of aluminum. Is that right? On molasses, which is related more of the spirit in Thailand, we use molasses that are input caused. Packaging white, we use glass bottle. So aluminum can will probably be more related to the beer business in Vietnam, because it's

[00:10:54] used a lot more aluminum can than the beer business in Thailand, which is mostly glass bottle. On the last slide, the last crop reported in previous meeting that prices have been better than the year before and we are now expecting a much higher sugarcane crop this year. Should be expecting sugarcane, which should start harvesting in the middle of December. based on the government forecast, it seems that at least 15 to 20 percent upward in term of output. So with that, it should allow for more molasses in the market and that will allow us to acquire more molasses. Pricing-wise, we see quite stable

[00:11:50] pricing. Due to recent bad weaknesses have caused some of Molasses' price to stay firm due to export price of issues. So that's where we are, but I think bad have, Thai bad have strengthened that. So when the crop start harvesting and the product is available to purchase we expecting that price would be softened then currently that's where I am on Wallach's aluminum cans I will let my colleague answer. The Alucan the price you know comes down already you know and we enjoy it also that one I can The price of the Alu can come down quite significantly from its peaks. Got it. Thanks for the color. And just on domestic spirit, the sales volume growth seems to have

[00:12:55] adapted this year and I understand that's because of the brown spirit. As Thailand continues to reopen, tourists continue to come. I know spirits generally or tourism doesn't really benefits spirits too much, but as the economy reopens, how should we think about the spirits volume consumption? Will it recover further? And what's the reason behind the relative increase for this fiscal year? Okay, in terms of the browse rate, we have started to see in our last quarter, July, August, September, the higher increase in consumption, and even the latest number in October, and this is not our number, third party, the big company, third party market research,

[00:13:50] that means those, acquired those data, the consumption for buyers within Thailand have increased, I think last quarter, over 20%, and the latest number in October, I've also seen a number of 20% of the third party data. So that's in line with the level we are selling in. This is the baseline. Last year may be a bit low because of the kind of tail end of COVID with the social distancing and all that. So I think we're looking very positive with the recovery of the virus with consumption. And the reason in fiscal year 2022 of the relatively slow growth of spirit?

[00:14:38] In terms of profit-wise, actually, Thailand is representing about, say, 90%, 92% of those numbers. There's some, there's parts of 8% that are coming from Myanmar. Myanmar-wise, we are doing very well for some high volumes as well. But in terms of Myanmar, as everyone knows, the currency has been weakened rapidly due to change in the political environment there. And so with that, the profits that came in, although they actually, our business in Myanmar made record profits in local currency, but in that, when we transferred back to our reporting currency, the profits declined twice. So that's the thing that I would add. In terms of switching Thailand past year,

[00:15:30] is the cost structure that cost raw material packaging that we have to deal with. We have some price increase, but not offsetting the overall increase in structure cost on the input. So that's why we need to put a slightly lower number. Understood. But what about the top line? Because the top line grew only by 1%. So just wondering what's the driver. because like in FY21, I think was better, right? Yeah, I think the overall, I would say blame on economy. I think we were quite large in terms of the volumes and these are all number based out of what the economy would generate. And this past year, like again,

[00:16:23] the tail end of those COVID and the government's income support and the general economy start to soften quite a fact, but again, to the last quarter, we start to see a lot of better side in terms of recovery in spending by the consumer. Thank you. And last question from my side. Any views or any kind of indications of excise tax increase? There's no excise tax increase at the moment. It's unlikely at this point that we have a new government. According to the government term, the new election should be called by the four-year parliament term ending in March. So between now and then, there should be a new government and therefore, any excite exchanges

[00:17:21] will probably be the policy of the new government. Q. Thank you so much and have a good evening. Of course, best of luck for the first quarter of fiscal year 23. Really appreciate it. Thank you. Thank you. Our next question is from Divya Gangaha. Morgan Stanley, please go ahead. Thank you. Good evening. Two questions for me. The first question is just on the spirit margins. Can you help us understand why the spirit margins at the operating level are much weaker than what we saw in the first half of this year? So we are seeing about a 200 basis points lower margin in the second half of the first

[00:18:06] half and even versus last year it's down about 50 basis points. So while I understand the raw material side, the gross margins are actually still higher but it's the operating margin which is lower. So just want to understand what SG&A increases are you really seeing on the spirit side. That's the first question and the second question is if you can comment on the law on the progressive legal law that's been debated in Thailand now, based on the bill that's been passed, the changes that you see, I mean, what do you expect, how do you expect that to impact the business? Thanks. I'll take the new law first.

[00:18:47] The new law actually passed by the government under Ministry of the Law. So that allows for home brew. People can do beer and drink at home. People can drink at home for their own personal consumption. But they are not allowed to sell a disability outside of their premises. And there are limits to how much they can actually produce for their own use per month. So with that law, the changing that law, and some additional part is that the smaller, they call it a village product, have allowed, we are being allowed to increase the capacity. But those products are less likely to part

[00:19:44] the home consumption, we do own things at home consumption. It's not going to, we do not see it as it's going to change the landscape of the consumer. Because I think home consumption or home doing has always been there, whether regulated or regulated, which is being regulated properly, and people have to have a license to do that. And this deal with your own spirit is also come with a lot risk in terms of quality. So those are something that we do not support that thinking that it's just too risky for the consumer, but we don't see it going to change the landscape of the competition.

[00:20:26] As for the additional capacity from the low cost spread, it potentially will increase the competition of that low price spread. That low price spread has always been in a space where tax collection has not been effective. So I think it's the questions of the government who are trying to collect pack as the producer show their true size that the capacity increased, although the capacity probably already increased from the beginning, but they're not quite regulated and supported by law. So I think these two parts of the law are actually being out there to regulate what have been reached of the law. So we don't see that as much changes to the way we do with the business.

[00:21:21] Because our product, our price, although our product, the price, we call it low price, but it's low price that we didn't understand that mass margin. These products we talked about, they will pass the price much lower and again at lower quality as well. Back to the gross margin or brain margin, can you ask me that question again because I wasn't sure what you're asking. I understand that you want to know. Sure. So what I was saying is that in terms of the spirits margin, like I understand that at the gross profit level, the margins have actually been better on an year-on-year basis in the second half of this year, but what we've seen is that the SG&A spends have gone up quite

[00:22:11] a bit in the second half of this year. So if I look at the SG&A spends, it's the reason why the operating margins are actually lower year on year. I'm trying to understand where the pressures have been on the SG&A spends, and are there any one-offs, or do you expect these kind of margins to persist? Because the spurious margins are now below 21% in the second half. Yeah, I think this is done. We don't break down into different countries, but I think most of it you see is in Thailand. What happened really on the product mix, we have a lot of widespread mix at the beginning of the year.

[00:22:55] So that from the volume perspective might be a help supporting that baseline in terms of when you calculate the margin back. The second half, the price rate volumes are much lower than the normal half, because we did price increase in the first half, so a lot of volume is loaded up front. And in the fourth quarter, as the browse which start to return is increasing growth, we also have to increase our spending. on the browser. So that's been increasing in administration of more sale in Q1 and Q2. So I think with that mix, it's probably, you see, maybe a shift of margin, devotions, but I think it's just happy to do with the mix where we cut the first answer.

[00:23:53] I wouldn't put much weight on that change. But basically marketing spends is what you're saying has been increased in the second half to support the Brownsburg business as you have more on trade comebacks. Yeah. It is then and so that's anticipating of sale in the first quarter. And just my last question is on a bear market share in the domestic side. Could you help us understand like it seems to be that the volume growth in the second half has been 3-4%. How have your market shares trended in bear within Thailand? Hi, this is Lester here. Our market share has been climbing. In fact, by the end of September,

[00:24:45] the gap between our competitor and ourselves was the smallest in the last 13 years. So our share continues to grow. It's been trending up since the market opened, in fact, even during the COVID period. So trending upwards, although we're not number one yet, but we're getting there. Thanks, Lester. Any number, like I mean, is it 41, 42% in numbers, you think, right? I don't think we are allowed to share the share numbers, but you're close. What do you say there, you're close? Okay, got it. All right, thank you very much. Well, again, let's stay here. And before we continue, I just wanted to go back to the question

[00:25:31] that Hong Han raised earlier about price increases. I mentioned that we had plans in the pipeline. Actually, we did a price increase in October already. It is public information, therefore I can share it with you. I thought that we're not supposed to talk about FY23, but because it's public information, we did do another round of price increases in October already. Thanks, Lata. The Q&A session is still open. If you have a question, please press 01 on your telephone, keep that now. We have a question from Leithan Pan-Yirong, you will be Kian, please go ahead. Hi, thanks for taking my question. So just a clarification on that.

[00:26:20] The price increase in October was for the Chang beer in the ocean island, but can I ask for, is there any price increases for the Phuong Vietnam for the product knowledge in Vietnam? For Vietnam, we have increased our price in October as well across most of the products. Oh, okay. Thank you for that. No other questions. Thank you. Thank you. We have a follow-up question from Divya, Morgan Stanley. Please go ahead. Thanks. Let's start on the October price hike. We're curious to know if you can share how much has the price been increased and if competition

[00:27:15] has followed in line and what is the current price gap between Leo and Chung. Divya, as usual, we're not allowed to give you the number, but it was at different percentages across the different SKUs, but for now it was a low single digit increase and the gap Right now, we're pretty close to Léo already. We still have a ways to go in terms of on a per-cotton basis, but we're pretty close. Got it. And just an overall question on the outlook for next year. I mean, it's an election year. Typically, there is a little bit more cash floating around. I mean, you maybe comment on what you expect on, you know,

[00:28:03] overall consumption trends for next year for both spirit and beer for the domestic business, for Thailand particularly. Divya, you refer to election in Thailand, Divya? Yeah, I'm just saying, it's an election year, so does that kind of play into the consumption outlook, or you think it's... Yeah, which I hear, which I hear. I think, Divya, you've been follow us for the last 10 years. You know, every time we have elections, I think our business is doing very good because it seems to be a lot of drinking, A lot of free beer, free spirit. Yeah, we expect it to have some good impact in Thailand. No, I said, compared to this year,

[00:28:48] West Peritz was actually weak. You do expect to bounce back in volumes for next year, given you'll have the additional catalyst of the election. Yes, we hope so. I think we always expect for the best or better. It's going to be good. It's going to be good. It's going to be good. All right. Thank you very much, Vanuja. Thank you. Thank you. Our next question is from Ong Kang Tran, CJS CIND. Please go ahead. Hi, good evening. Thanks for taking my question. I guess just now we touched on election, but I guess that's a near term event, FIFA World Cup. Can you comment a bit about the mood in Thailand right now?

[00:29:36] Since FIFA World Cup, I guess the timing is quite favorable. Are we seeing pretty strong sentiment and how does it compare to the last round of World Cup? Okay, well, the World Cup has just only started. And unfortunately, I wasn't in the beer business four years ago, so I can't really, I don't have a basis for comparison, but I was walking around in Chiang Mai on over the weekend watching all the preparations for the first game, or sorry, the second day of games. And I can say that at least in the market in Chiang Mai and in Bangkok, you see that a lot of, there's a lot of, not hype,

[00:30:21] but a lot of energy surrounding the World Cup. So a lot of interest there. We also will be having viewing tents, the beer viewing tents around Bangkok and a couple other cities to tap on this towards the end of the tournament where the bigger matches will be played. So I can say for now that as the market reopens, we're starting to see a new energy and the World Cup is helping with that. Let me add because this year there's four games from 5 o'clock, 7 o'clock, 11 o'clock and then late night. The first three games are very good for drinking. So we have long drinking hours.

[00:31:04] I mean compared to last time it's not like this. But I have to mind you that we just come back from the Covid incident. So right now, it must be about 80% of the entrees is open. But a lot of people during the game start from early evening until about midnight. On it, that's good. So I guess, good that you increased the price of your beer before the World Cup. Can I confirm that the price tag is only for the beer? Have you adjusted the pricing on a spirit site recently? Yeah, brother, we always go together. We're in different timing. Yes, definitely yes. Got it.

[00:31:43] Last one is more of a housekeeping question. I'm not sure, sorry, if you can break down the mix for your spirit business, I say Brown versus white in terms of revenue contribution. How is it like in third quarter and fourth quarter of this financial year? And how does that compare with pre-COVID levels? Thanks. We don't disclose that. I mean, we have not, we never been doing that in the past. So, if you cannot share it, then maybe some qualitative commentary would help.

[00:32:25] No, we don't. That's the way we disclosed it. Thailand represented about 92%, and we got about 8% coming out from Myanmar, and then 1-2% coming out from the international market. That's how we disclosed the number. Got it. Thank you so much for all the questions. Yeah, I'll jump back to the queue. Thank you. Our Q&A session is still open. If you'd like to ask a question, please press 01 on your telephone keypad now. We have a follow-up question from Permana Delmono. UBS, please go ahead.

[00:33:09] Thank you for the opportunity. I just have two questions related to the beer business. The first This one is to either Bennett or Alan. Alan's also on the line. There's been a worry about the bond market in Vietnam and Seveco has some 20.6 trillion dong in terms of short term financial investment. According to the notes, it's all term deposits. I just want to confirm that you don't have any exposure to the bond market in Vietnam. I can take that. Yeah. So, a quick answer today is they are all short-term deposits, fixed deposits with the bank. And these are our kind of banks that are pretty good credit expense to the market.

[00:33:54] In high interest rates. That's encouraging to hear. And then the second question is in relation to the beer marketing spend plan in Thailand, as the economy fully reopens, as Thailand reopens, how should we think about marketing expenses going forward in fiscal year 2023? Should it be an increase in a year on your basis? What kind of sort of advertising to sales ratio that we should think about particularly coming out of Thailand in terms of marketing sense? Okay, this Lester here, I think to compare year on year against last year would be an unfair comparison because it was the COVID for the entire year. So definitely marketing expenses will be going up. What we've seen in the last quarter when the

[00:34:49] market opened in July, what we saw in the last quarter of the financial year was that our marketing expenses went up. But compared to 2019, the year before COVID hit us, our spend on a part per liter basis continues to be lower than 2019 and we intend to keep it that way moving forward. That's great, Colin. Thank you so much, Dr. Much appreciate it. Those are all my questions. Thank you again. Thank you. We've got a follow-up question from Lisa and Tanya Rong, the OBK. Ian, please go ahead. Sorry, my reception was a bit bad. I couldn't, I didn't catch the question about the price increase or the period.

[00:35:38] So, I'd just like to clarify one final clarification. Was this, was the price increase, was it hand-in-hand with the PSA? Sorry about that. So, to make you repeat, I think, that's what I said. Yes, that's what I said. That's what I said. We do have a price increase plan. In fact, in October, we increased some of the SKU. Okay. Okay. Thank you. Thank you. Our Q&A session is still open. If you would like to ask a question, please press 01 on your telephone keypad now. We have a question from Silviana. Are we doing HSBC research? Please go ahead. Sure, thank you very much for the opportunity management and thank you very much for the

[00:36:33] presentation. I have a follow-up question with regards to the earlier comments around advertising spend and this question is probably directed to both Lester as well as Bennett. How are you observing your competitors behaving in terms of their marketing spend? Do you have the sense that they are spending less than they did in in 2019 in Thailand and Vietnam as well. How can you speak also about you know qualitatively how their behaviors have changed this time around versus let's say 2019. Thank you.

[00:37:17] Hi, Salviana. Lester here. I will start with Thailand and then I'll pass it on to Bennett after this. I think that because for Thailand the market only reopened in July so fairly recently only. We have not come back to the types of levels that we saw prior to COVID hitting us in 2019. But I'm saying that I'm seeing the trends starting to pick up. We start to see more and more activities in the market. We also have had some big events happening. So like the MotoGP, which is an international race coming to Thailand. You had the APEC meetings just last week as well. And then now you have the World Cup.

[00:37:57] So we see more and more opportunities for marketing activities to take place. So therefore the trend will be continuing to pick up. But in terms of have we reached 2019 levels yet? I don't think we've reached that level yet. It may come during the financial year, but on our end, we're looking to control it. So that on, like I said, on a bad per liter basis, we continue to be lower than 2019. Okay, for Vietnam, I think our main competitors have increased their spend, particularly for this year because last year, the southern poor business was locked down and I think they are very strong in the south, so they lost quite a lot of volume last year.

[00:38:44] So they are trying to regain share this year, so they are spending a lot more. And also I think they have more brands now, they have to take the marketing budget and spread over more brands and I think that it's going to be tough moving forward. But for us, I think we've been managing our spend, although absolutely increasing, but as I said, we know we're trying to manage it on a unique basis to remain or lower if we can over the coming years. But we expect the marketing activities to be very, very aggressive in the next months and years. But we will prevail, so we will be more efficient.

[00:39:22] Got it. Thank you very much. On the Tai Beth slide, we would like to thank you for joining Tai Beth's conference call tonight. If you have more questions, please feel free to contact the IR department at IR at TaiBeth.com. Thank you and have a good night.