Good evening, ladies and gentlemen. Welcome to Thai Beverage's the first half 2021 ended the 31st of March 2021 financial resource conference call.

First of all, we would like to say sorry for the delay because we have some technical issue, but right now we start to - we can resume and we can start the call. I am Namfon Aungsutornrungsi, Head of Investor Relations.

For the call tonight, I will start with summary of the first half results, then we will open the line for a Q&A session with our management team. For the summary of the first half results, total sales revenue of the company for the first six months ended the 31st of March 2021 was 131,252 million baht, a decline of 4.3% when compared to last year.

This was due to a decrease in sales revenue of our business segment from the impact of the second way of a COVID-19 pandemic in Thailand. Net profit was 16,076 million baht, increased 8.7% compared to last year.

This was due to an increase in net profit of spirits and beer business and due to last year, there was other non-recurring costs and deferred tax utilization related to beer business restructuring. Also there was a decrease in net profit of non-alcoholic beverages business and associates, and a change in net profit to net loss of the food business.

Thai Bev's Board of Directors agreed to propose an interim dividend payment of 3,768 million baht or 0.15 baht per share. For the highlights of the first half 2021 results, the company's spirits business was marginally affected by the second wave of the COVID-19 in Thailand.

It generated sales revenue amounting to 63,876 million baht, 0.6% decrease when compared year-on-year and total sales volume recorded by the business declined 1.2% year-on-year. Nonetheless, net profit still amounted to 12,866 million baht, an increase of 3.6% year-on-year, due to a rise in gross profit and a decline in advertising and promotional expenses.

The company's business has recorded sales revenue amounting to 53,978 million baht in the first half or 5.1% decrease compared to previous year. Total sales volume decreased 5.3% year-on-year when including SABECO sales and decreased 7.9% year-on-year when excluding SABECO sales.

However, the company's net profit for the beer business reported a satisfactory increase of 84.2% year-on-year to 2,214 million baht. This was mainly due to the decrease in distribution costs and administrative expenses.

The company's non-alcoholic beverage business generated sales revenue amounting to 7,592 million baht in the first half, down 12.6% year-on-year due to a 14.6% decline in total sales volume. However, excluding non-recurring item for other income recorded in the first half of 2020, the non-alcoholic beverage business recorded a significant increase in net profit from normal operation of 98.2% year-on-year due to prudent cost management.

Net profit for the period was 333 million baht.

Gentlemen, this is Ueychai speaking. I will manage the Q&A, since we are working from home.

This is our first time, so I'll do my best. So before you ask questions, please tell your name and your organization.

And then please ask questions clearly and slowly so I can respond - we can respond to your questions correctly. Thank you, please start.

Ueychai, can you hear me?

Yes, yes. Thitithep, please go ahead.

Yes, I have just one question. In this quarter, your spirit sales declined almost 3% year-on-year.

I'm not sure if you can give us a breakdown between the sales in Thailand and Myanmar, and maybe an update on situation in Myanmar, including your production facility and sales and overall situation? Thank you.

This one I will ask Pramote, Prapakonto respond to the questions on spirit and Myanmar. Pramote, Prapakon please.

.

I guess I can't hear you clearly.

All right. This is Prapakon, Chief of spirit business.

Since I understand that on our upload, we also show a quarterly break down and it's showing the overall spirit volumes declined, just very small single digit. The questions you asked have a bit of a few forms .

So I mean, in Myanmar, obviously, there's a situation there, so the sales volumes in Myanmar declined by mid teen in terms of percentage for the quarter, but in Thailand our white spirit still continuing to grow. The reason why the total volume of spirit slightly declined because we have a decline in Brown Spirits sales, it's twofold.

One is last year, same quarter, we actually have price increase so there's quite a fair bit of volume loading in the second quarter of last year and for this year, there isn't. But the overall consumption of brown spirits, you could imagine, given the disruptions in COVID wave two in January and it has impacted the consumption slightly.

So, the two combined showing the Brown Spirits in the second quarter coming down slightly. So - but overall you can see profitability and EBITDA in both second quarter and first six months have improved in the spirit business.

Actually, that's also helping with our other international business in Scotland, although they're small, they are improving and they also remain profitable. Just to cover on Myanmar situations.

We run Grand Royal whisky, the number one whisky business in Myanmar. We own 75% of this business together with our local partners.

The situations, as of now, I would say as of now, meaning as of early May, this is first two week of May, have improved by a lot. People, if you follow the news in Myanmar, you are seeing that in February, there's a lot of disruption, banking system shut down, and continue to disrupt it through the water festival in early April.

And then in mid-April, the water festival basically have a 10-day holiday, so the country gone into more quiet. So in the first two weeks of May, the situation today, I must say, it's improved by a lot.

And in February - we saw basically in February and March, what we have sold, we have to collect in cash, because the banking system is not operational. As of now, we are back to be able to collect money on cash - through the banking system up to 80% of the sales.

So, remaining 20% still collecting cash. And we are paying our employees in cash, because the banking system for the employees are not quite adequate, long line at the ATM queue.

So, in terms of the cash collections, they are back to close to normal.

Right. Could you - Prapakon , I have follow-up questions, if I may.

Since the situation has improved in May, do you estimate improvement in sales as well? Have you experienced any improvement in sales?

And then the second question is, there are certain listed companies in other country that set up provisioning against investment in Myanmar, but I think from what you said, I don't think your situation, I mean, Grand Royal situation is that severe. Is it fair to say that the risk of provisioning against Grand Royal investment is low?

Is it a fair statement?

We do not expect to make any provision as of now to our Myanmar operations. I think the acquisition that we took on in October 17, there's actually quite a good size of good views that we have mentioned that and we believe the business actually - today the business makes more money than when we even bought it.

And even with 10%, 15% decline in sale, we're still making a good EBITDA level. So I think that yes, some of businesses that operate in Myanmar have to make provision, but our business still remain very solid giving the situation.

Thitithep, I am the co-Chairman of the company. We have to admit that the situation is very difficult there but as a Chairman of the company, I'm very satisfied and very happy with the outcome.

It is a lot better than I expect. We are now trying to - even though the sales is - have some pressure, but we tried to sort of maintain our profitability there and the management there is doing well.

We have a good management team there and also a good partner there. So I feel very confident on the GR - on the Myanmar business.

Thank you.

Glad to hear that.

Hello, Thitithep, I will add in. Can you hear me?

Yes, I can hear you clearly.

I would like to add to Ueychai and Prapakon. For the audit of KPMG, one of the auditors thinks they have to check the valuation, the impairment of the investment local service could do.

Yesterday, we had the audit committee meeting, KPMG, they confirmed by the income report this year, they still support our own investment in Thai Bev and still have no effect for any impairment of the investment or either the cross wind and then to have the cross wind - have a headwind took off. Yeah, so I am not talking now that we had a headwind for for our investment, so no impact of anything on this one.

I like to add this.

Right. Okay, definitely clear.

Thank you very much. That's all the questions I have.

Thank you.

Thank you. Next question, please.

Hi. Just a couple of questions for me.

Wanted to check if you could update us on the beer market share in Thailand and also, I guess, given the situation now, wanted to just understand a bit more on what you can do with your marketing and whether you've seen react in any way given that you guys have gained more market share from them over the last year or so? And just want to clarify one thing on what was said on the spirits volumes earlier.

Am I right in saying that, white spirits continued to grow, whereas the brown spirits declined a bit year-on-year? So overall, is Thai spirits a bit flat, and the decline is more so in the Myanmar side?

I will address the second question so to save time. What are you saying is just correct.

Our white spirit is still growing and then brown spirit because of its nature, some of them is consumed on premise, so it declined. So overall it is flat, you're correct in terms of volume.

And then on the profitability, as Prapakon has mentioned, it is still growing nicely, okay. On the beer questions, I would like Lester to address, about high beer market address.

Lester, please.

Yes, sir, thank you. Good evening, this Lester here, heading up the Thai beer business.

You talked about the market share and our AMP spending and how the competitors are going to respond. Let me take that step by step.

Our market share at the moment now is close to 40%. So while the market has declined earlier, you heard Namfon give the overview that revenues have come down.

The beer market has actually declined by about 10% this year. So while our shares close to 40, it has actually picked up share during this period over the competitor.

And we've done this with reduced AMP spending, obviously, because of the COVID period. So moving forward, do we think that they will pick up the AMP, hard for us to say, but what we're saying is - what we feel internally is that we've done very well picking up share with reduced spending and we would like to keep it that way.

So moving forward, we want to focus on the more efficient areas of AMP, spend more on there where we get volume and share returns and cut down on the parts that don't give us as good returns. So moving forward, we expect to pick up more shares and reduce spending compared to a year ago.

Thank you.

Thank you, Lester.

Thank you.

No, I'm okay. Thank you.

Thank you. Good evening, Ueychai.

I just had two questions. The first question was just on the raw material and packaging costs.

I noticed that it's increased for both the spirits as well as the beer business. Just wanted to get a sense on how you're seeing that going forward?

And should we be expecting some price hikes to be taken to offset that? And a question related to that is just if I look at the implied domestic beer ASP, they seem to have increased a bit year-on-year, wanted to get a sense if there's a change in mix in the beer space in Thailand, or is it some sort of pricing the hikes that has already happened.

And then the last question is on just the quarter-to-date trends, because last year, April basically had no sales in Thailand for alcohol, but now we are again going into a restriction period. So if you could help us understand, on an aggregate basis, quarter-to-date, what are you seeing in terms of volume trends for both beer and spirits that would be very helpful.

Thank you.

Okay, there's three questions on the raw materials, on the beer, I will ask Dr. Pisanu to respond that.

And then spirits, I will ask Prapakon to respond that. In terms of beer domestic ASP, I think, Lester can look into it.

I don't know whether it's Vietnam or in Thailand, but please, prepare. On the third questions, I'll just respond myself.

Yes, you're right. Because last year, April, we only sold only one week, but this year, we have a four week sales, so cost is look good.

That's all I can say, nothing much. So the third question is answered.

Now the first question Dr. Pisanu, please.

Yes, you are dead right. Now the commodities are rising up, skyrocketing but however, we are so lucky in the way that we have booked the beer malt ahead of the game until next March.

Okay, so we are really well set on the key raw material. Also the hops, we have already booked in advance.

So now, I also help Lester to answer you about the packaging cost of the beer production. We are doing not bad at all.

We are doing something like over 60%, not quite 65% as we expected but of course, along the year, we will achieve the budget of 65 or a little bit over that for sure through use of returnable bottle. Thank you very much for your question.

Thank you. Thank you, Dr.

Pisanu. So, Divya, you asked this question again mid-March.

So it's okay. I will just do it.

We will pass along. We will respond to your question.

Divya, can you repeat your questions again, please?

The raw materials - go ahead. Go ahead.

Divya, go ahead.

Yeah, okay. So Prapakon, I was just wanting to know that the raw material and packaging costs have gone higher but despite that the spirit gross profit margin also improved.

So can you just comment on what's driving that improvement? And how should we think about it in terms of April and May, if you have any - I know, some of it are answered, but just wanted to get a sense that when you look at it on an aggregate basis, how's the current sentiment on the volume run rate?

Okay. In terms of - I commented on Thailand, just because I think, a majority of our spirit business over 90% is still coming from Thailand.

And in terms of raw material, there's a good, there's a bad part. I mean, there's a good part is, well, the negative part is there somewhat higher molasses and input costs, people who have news they know that molasses for this quarter is a bit short compared to a year or two ago, so that's why price are moving up a bit.

We have to - we have changed some - say, change the packaging material or changed bottles shape of Hong Thong brown spirits 700 ml, so we switched to 100% new bottle for the time being and we will - hopefully in the future we will get more used bottle coming back in six months' time. But at the positive side is that the collection of our brown - I am sorry, white spirit bottle we use because our majority of our volumes in Thailand, actually, are white spirit and white spirit bottle for Hong Thong, the use rate that we can collect and use are improving, moving to our target range.

So, these have started to pay off. So, these two are offsetting each other that's why we have a good control on costs for the six months and AMP wise because this six months is compared to a six month years ago, prior to COVID.

Actually COVID have been around with us just about a year, so I think didn't really hit Thailand till late March last year, so the six month prior year actually we had no COVID and therefore we have good spending in term of AMP and that AMP have been tightened, because we continue to live in this new world of new normal. And we have basically used less spending on AMP in both brand and trade marketing.

So that's why the two combined giving us a higher profitability. Okay, Divya, I hope that explained.

Yes. And Prapakon, you don't need to take - so there's no need for you to take a price hike in spirits.

I mean, is that something that would be considered or it's not required, given where your raw material costs are locked in?

If there is an opportunity to take price hike, I'll take it any day and every day. It's just that the opportunity has to be reviewed, I think we run a very profitable business.

But in any cost approach, if there's an opportunity to move price up, that will not impact our long-term sale volumes, we will do so. So I think we have certain review.

In last year - six months last year, we actually took price up on brown spirit prior to COVID. Yeah, so this year, when we look at brown spirit six months - on six months, I think the decline somewhat has to do with overbuilding stock from price increase, and somewhat decline in consumption due to COVID and it's not really due to price increase.

So I think we are quite safe on that. As far as white spirit, we haven't taken any price increase for the past two years.

So you're asking the right question. So we're looking at the opportunities.

Okay.

Thank you, both. Thank you, Prapakon.

Next question, please.

Alright, thank you. This is Tunde from Harding Loevner.

Actually, my first question is on raw material cost inflation, which you've answered the previous question. Thanks for that.

But I also wanted to ask a bit more question on Vietnam. Two questions there.

First would be on the drunk driving law. I know there's been no mention of it recently but I wanted to ask you if that law is still there and if it's impacting volume trends in Vietnam.

Hello, sorry that we got disconnected for the Vietnam side. Do you have other questions regarding Thailand?

Namfon, it is not . Mike, maybe you can answer that the Decree 100.

What is the impact? Any impact, is it worse or better?

Miko, please.

I think the Decree 100 is still there. And obviously, it still has an impact, but certainly not as bad as when it was initially implemented in Vietnam.

I think people get used to it after a while. Plus, during the current situation, it's very hard to see the impact, especially when the COVID pandemic has shut down a lot of - has caused shutdown on many restaurants and parks and other establishments in some part of Vietnam.

So I think that would be the correct assessment. Thank you.

I think from our experience in Thailand, same thing happened in the beginning, everybody so tight, the consumer at Thai really, really excited. And the governments are very tough.

And after the while, the consumer used to it and the government are losing up a bit. Actually, this is the same thing that we are seeing now.

Thank you.

Thank you very much for that. Thanks.

It is very clear. The second question is on the new product in Vietnam, Saigon Beer, my last update was that, a lot of last year, you guys had some problems with the channels, with competitors trying to block it, is there any update on that in terms of being able to address that issue.

And how's the reception of that new product for instance? It's been about six to eight months now that has been launched.

Is it doing good? Is it doing beyond your expectation or below expectations?

Okay, Ojo, let me check whether Bennett is coming back. Is Bennett there?

If not, Ojo, I will lead this question when Bennett connects back again, okay.

No problem at all. No problem at all.

Thank you. Thank you.

Thank you.

Maybe we will move to the next question.

Hello, everyone. Thai Bev management, can you hear me.

Yes, go ahead.

Hi, Ueychai. Thanks for the call.

Good to hear from you all again. I just wanted to check on the AMP you have done really well in terms of cost control, but also noted that there was mention of market share coming up, despite this AMP not being spent.

Can you just give us some color on what you have been focusing on and maybe what the measures have been? Because previously pre COVID-19 AMP was actually one of the biggest things that helped to drive this market share, what are the big changes, if you could share, please?

Is it beer or spirit that you are asking?

It will beer.

What country?

Thailand.

Thank you. Lester, it is your call.

After Lester, I'll come back to Banjong.

Alright. Hi, Cezzane.

This is Lester here. Really good question.

What happened, obviously, because of COVID, a lot of the big events were canceled or postponed, mainly cancelled, especially at the end of the year, the December period. In December period, a lot of beer parks and a lot of festivals going on but also during the cold season, lots of music festivals going on.

So all those were canceled or postponed to a later date probably next year, so big savings there. So what we did, actually, is to use the money for distribution, what we tried to do is to improve our distribution, and therefore getting the sales or at the end of the day, it's a lot of sales driven activities now, rather than that big events and big, big, mega events to build a brand.

That's main part of this decrease.

I see, in the last call, I think there was some talk about events going around and all. I can't remember whether that was more for spirits or the beer side, or is that across the board in Thailand, is that one of these distribution measures that you're referring to?

The distribution that we're doing is more area management. So we get very focused into selling into outlets - selling into the outlets first and then if we already solved it to improve the sales per point of distribution.

So it's really down to at each particular individual area around the country, our guys are pushing out and getting more distribution, getting more sales performing our distribution.

Okay, got it.

So the big effect, the big effect for sales really, is to get our stock out there. So when we increase our stock rate, the volumes go - the sales volumes go up and that's what we've been pushing on.

Okay. Got it.

Thank you.

But I like to add that because I think there are two wars for both beer and spirit, off-trade war and on-trade war. The on-trade, because of the COVID we stopped, because I think we have to admit that in the on-trade, the more you spend money, the more you win and then the competitive spend a lot of money.

On the off-trade, we are very strong compared to the competitors. We have 1200 cash vans running around the country covered about 300,000 outlets out of the 450 universe.

And then when COVID happened, people are moving back. I mean, workers are moving back to their home.

So they're going to the upcountry which will - actually we are very strong in that area, we are lucky to increase the number of cash van, 200 cash ran last year on time with the COVID coming in. So I think that is the advantage and benefit that we get on the beer side.

Okay.

Got it.

So I would like to go back to Ojo's question since Bennett is here already. Bennett, Ojo asked about - to give a color on the new products on your Saigon Beer, would you give response to Ojo please?

Bennett, are you in?

Yeah. Can you hear me?

Bennett, I am hearing you.

Yeah. Ueychai, I thought you asked - you or one of you asked during our quarterly briefings just about a week ago right and my answer is the same, it is within our expectation, but we think that it can grow even faster and that's why we invested a little bit more in the first quarter of the year.

That's why you see extending expenses in the first quarter increases. So in short, I think it's within expectations, we think it can improve and we're investing more in the brand.

Okay, clear. Thank you.

Thank you.

Sorry. Sorry, that's all for me.

Thank you.

Hi, good evening. Thank you for the opportunity.

My first question is in mid-April, I read from the local papers that the government was talking about, essentially increasing excise and introducing new tax measures, like for new products liked canned drink and also tax for existing categories like alcohol. Any color on that in terms of the latest thinking from the government?

You read from the local newspaper, what country?

Thailand.

Thailand, I am in Thailand, so let me respond. Let me respond to that question.

I think the government is now busy with their pandemic, they always talking about right. That's quite normal.

But I mean, we didn't hear anything yet. Normally, we will hear things two or three months ahead.

At the moment, I can say at this date, we haven't heard anything movement on that track yet, but I cannot guarantee that the cost will not increase because at the end of the budget year, they probably discuss again, the budget year here is in September. And this year, they spend a lot of money on the COVID pandemics thing.

They may talk about it, but I didn't hear anything yet. I didn't hear anything on the other spirit or on alcohol yet.

I mean, in response to that, I think Thitithep previous was also mentioning that, as increasing prices as part of an excise management strategy, is management going to try to increase prices ahead of potential excise increase?

No, no, because right now, the tax systems is based on the price, percentage on price, so the minute you increase, then the tax increase. That's why I believe that because of the new system, now, based on your retail price, the government will not increase the tax in terms of rate very much, because the minute you increase your price, your tax is coming in.

So that's what. I think what we do - one thing we can assure you that anything happened on the tax rate, our policy is to maintain the margin percentage, not even the absolute margin in baht, but margin percentage, which means that if the price increase 10 baht, we probably have to increase like 14 to cover the margin.

Okay, that's have been practiced during the past 16 years of handling this, for this company. Thank you.

Great. Thank you, Ueychai.

And second and last question, with the deferral of potential beer IPO, are there any other sort of potential strategic actions that management is exploring to maximize shareholder value and previously in 2019, Thapana was saying that he was open to collaboration with international brewers, partly the rationale to look at opportunities to deliver as well as knowledge transfer, product capabilities transfer, and those rational continue to hold? Are there any sort of other measures that you will continue to explore to crystallize value?

I think what Thapana has mentioned earlier is cover everything and we're still exploring that seriously, because we are still open for any opportunity coming in. And then for the shareholders, I think we will make sure that we can enhance the shareholder value anytime there is an opportunities that I can respond for Thapana like that.

Thank you.

Thank you. Thank you so much and all the best for the quarter ending June of course and hope the situation improves in Bangkok.

Thank you.

Thank you. Thank you.

Thank you. We need that.

Hi, good evening management. Thank you very much for the opportunity.

Firstly, is just a housekeeping question. I just want to clarify for spirit.

Just now we mentioned about the roughly flat volume for domestic spirits and mid-teen kind of decline in the Myanmar side of volume, was it referring to just the march quarter itself or is it six months performance? That's my first question.

Prapakon, have you listened to the question? Would you respond to that?

Yes. The answer is, it's both.

We'll have about mid-teen decline for the six month year.

Right. So both the quarter and the half year, the six months is - both the performance is similar like flat and mid-teen flat for domestic -

The first quarter declined due to COVID. There was some COVID problem, also leading to the election.

And the second quarter has to do with the change in political environment. Okay.

Right. Understood.

That's for from Myanmar, right. Yeah.

Right.

Okay. Got it.

So, okay - so I wonder if the domestic ones, if possible that you could kind of break it down for us for the December quarter and the March quarter, is the volume quite similar of flat year-on-year for both quarters?

I think it is flat for six months, the domestic volume in Thailand is flat. And I mentioned that there's a decline in volume and there is increase in wine but very low though.

So overall, six month number remains about flat compared to last year.

Okay. Okay, thank you very much.

And my second question is on the beer side, I do notice that the overall beer in the March quarter itself, in terms of the gross margin, there is a slight decline year-on-year. So, just now I know, that the management has elaborated, it seems to suggest that our gross margins are pretty robust, but I just wonder what it's been causing some of this gross margin decline in the year.

So it looks like the back half, the margin, gross margin is actually expanding year-on-year. So I wonder whether that implies that domestic gross margin is under a little bit of pressure on the year-on-year basis.

Yeah, thank you.

You refer to Thailand or Vietnam, please.

Beer. We only have an overall beer - yeah, overall beer, we only have overall beer gross margin number.

So we can only kind of imply what should be their domestic, so it will be good to have more color. Yeah, on the domestic side.

On the gross margin, one that you notice that, you know the reason. There is a bit details.

Anyone? Anyone can - yes, please.

I think the main reason for it is I think, as Namfon did allude to it that our target bottle recycling rates were not hit yet, although we are hitting that direction. So, less usage of bottles plus there's some increase in some raw materials, raw material costs as well.

Okay. Thank you, Michael.

Thank you.

Okay.

Yeah, returnable usage percentage will be increased, for sure, don't worry.

Okay. Go ahead.

Your last question.

Okay. Got it.

Yeah, like last question is on the refin - in terms of the debt management, I understand that, we refinance the bonds with some bridging loan, I wonder the bridging loan in terms of the average interest costs, what is it and versus the bonds that we pay down. Yeah, so it will be great to have some color on that.

Thank you. This is Sithichai, can you respond to this question and Bob can support.

Yeah, Sithichai speaking. Our debt as of March this year totaled 42.58 billion baht, average cost is about 2.5% per annum, but our bidding loan, two year bidding loan, will be another two years.

Average cost in the related stand about 1.7% only.

I see. Thank you very much.

Thank you. Thank you, Sithichai.

I heard that Singapore have a curfew right. There should be no more questions.

Go back home. I think that there should be no more questions.

Namfon you can thank the attendance please.

Sure. Then we can close the session.

So thank you everyone for joining Thai Beverage conference call tonight. If you have more questions, please feel free to contact IR department at [email protected].

Thank you and have a good night.

Thank you all. Thank you.