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Edited Transcript of MINT.BK earnings conference call or presentation 5-Mar-20 10:59am GMT

Q4 2019 Minor International PCL Earnings Presentation

Bangkok Mar 27, 2020 (Thomson StreetEvents) -- Edited Transcript of Minor International PCL earnings conference call or presentation Thursday, March 5, 2020 at 10:59:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Emmanuel Jude Dillipraj Rajakarier

Minor International Public Company Limited - Group CEO, COO & Director

* Namida Artispong

Minor International Public Company Limited - IR Director

* William Ellwood Heinecke

Minor Corporation Public Company Limited - Founder, Chairman and CEO

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Presentation

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Namida Artispong, Minor International Public Company Limited - IR Director [1]

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(foreign language) Good morning, and welcome to Minor International's 2019 Analyst Meeting. It is our pleasure of introducing the presentation in which you will hear from Mr. William Heinecke, Chairperson of Management Committee. During Q&A session, other management will be joined Mr. William, too, are Mr. Dillipraj Rajakarier, Group CEO of Minor International and CEO of Minor Hotels; Mr. Brian Delaney, Corporate CFO; Mr. Chaiyapat Paitoon, Chief Strategy Officer; Ms. Jutatip Adulbhan, Vice President of Investor Relations; Mr. Kosin Chantikul, Chief Investment Officer; and Mr. [Javier Avekapenisha], Assistant Vice President in Investor Relations. At the end of the presentation, we will open the floor for Q&A.

Now I would like to hand over to Mr. William for the presentation.

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William Ellwood Heinecke, Minor Corporation Public Company Limited - Founder, Chairman and CEO [2]

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Good morning, everyone. Thank you for coming and in spite of our virus that seems to be causing a lot of panic but not a lot of damage to the real economy. Unfortunately, the panic has caused travelers to change their routine, and as a result, we've seen a slowdown. And I'll go through the details of that as we get into the presentation.

I think, first and foremost, I really wanted to take a look at our 5-year performance and recap in one slide. What this really shows, and I'll start the presentation with a recap of the performance over the last 5 years, our revenue showed a CAGR growth of 25% while EBITDA grew at 21% and net profit grew by 10%. But if you look at our enterprise value/EBITDA of over the past 5 years, we've seen it coming down and, today, trading only at 13x compared with the historical multiple of over 20. Maybe our multiple is temporarily under pressure because of the COVID-19 situation. But I'm hopeful that when the situation improves, we'll see our multiples go back near the level that we used to trade.

Rest assured, we remain disciplined with our balance sheet and leverage ratio as we've delivered our promise in the past on the back of various strategies we have in the pipeline, and we'll make sure that any investments that we make will be accretive to our earnings. We're also committed to deliver growth even through market perception is that growing into a developed market, we will see a slowdown of our growth trajectory. But I believe that NH is an exceptional case, as you've seen their performance over the past few years. And I'll give you more details on that as we go through.

Let's drill down a little bit further into the '19 -- 2019 performance. And I apologize if you can't see the screen, but hopefully, you've got the little booklet in front of you. In 2019, revenue increased by 57% and our net profit increased by 23%. As you can see from the graph, the increase is primarily from Minor Hotels, organic operations and the consolidation of NH Hotel Group. The acquisition of NH has helped alleviate the soft performance of our food and lifestyle business, which have been impacted by the weak Thai domestic economy.

Also last year, we recorded noncore items, which were primarily gains from our successful asset rotation transactions, the sale and leaseback of the 3 Tivoli Hotel assets in Lisbon in July and the sale of the joint venture of 3 Maldives properties later in 2019. Including noncore items, our reported net profit more than doubled in 2019.

In 2019, our performance was negatively impacted by the strengthening of the Thai baht when we translate our international operations to our reporting currency, which is baht. We were also impacted by the additional lease payments that we started to pay for the Tivoli assets in the second half of 2019, and we'll continue to have that impact in 2020 as we pay for the leases on -- following the sale of those assets. If we strip out these 2 items, so we can see our like-for-like performance, our net profit would've increased at a higher rate of 32%.

Today, Minor is present in 65 countries across the globe. Correspondingly, our revenue contributions from overseas increased to 73% in 2019. So don't think of Minor as a Thai company. We're truly a global player. According to the new 5-year plan, which was approved by our Board last November, we expect the overseas contribution to remain at around the 70% level over the next 5 years as the driver of our food business will continue to be in Thailand.

Just to recap quickly some of our key achievements in 2019. For Minor Hotels, we opened the first Anantara hotel in Spain, the Anantara Padierna in Marbella. We successfully implemented our first asset rotation transaction, the sale and leaseback of 3 Tivoli hotels in Lisbon. We streamlined the international operations between Minor Hotels and NH and transferred the Tivoli portfolio in Portugal to NH. And later in the year, NH announced that The Marker Dublin will be rebranded and will be the first city Anantara hotel in Europe. We have sold the 3 joint venture hotels that we had in the Maldives. It's important to reiterate that although we have sold the stake in these companies, we continue to manage them in -- within our portfolio.

For Minor Food, we've been focusing on digital initiatives for all of our hubs, whether it is the digital loyalty programs in Australia and China, the development of our own delivery platform in Thailand with our 1112Delivery app and our partnership with third-party aggregators. China has also implemented food traceability, which will help the brand reputation as food safety has become very important, especially so with the virus. And the most notable milestone for Minor Food is the acquisition of Bonchon, which is quite sizable and will be an important growth driver for Minor Food going forward.

On the corporate side, we've strengthened our balance sheet significantly. We've completed the turnout of our NH financing into bonds and loans. We've amended the calculation of our debt covenant to exclude lease liabilities with the TFRS 16 coming into effect this year. And the Federation of Accounting Professionals has ruled that perpetual bonds will be treated as equity for the next 3 years. All these initiatives have contributed to our strong 2019 and will lay the foundation for growth going forward.

In the beginning of 2020, we have already embarked on major achievements, including: the addition of the Boscolo portfolio in Europe; the second phase of the Bonchon acquisition, which was announced today; and our intention to increase our stake in BreadTalk to 25%. All these achievements will be further elaborated on later on in the presentation.

Maybe I can take you first to Minor Hotels. Turning to Minor Hotels, revenue increased by 86%. EBITDA increased by 57% and profit increased by 42%. As you can see from the graphs on the right-hand side, the growth was driven by full year consolidation of the NH Hotel Group in 2019. For Minor Hotels organic operations, revenue increased by 3% and EBITDA increased by 2% from the mixed-use business and improved performance of the Anantara brand. Organic net profit of the Minor Hotels increased at a higher rate of 17% from the lower depreciation because of the sale and leaseback of the 3 Tivoli hotels and the lower cost of funds.

Note that the lower right chart shows the amount that NH contributed at the revenue and net profit line as opposed to reported profits of -- reported performance from the NH financial statement. So the first 9 months of 2018 was only dividend recognition for us net of interest cost on the acquisition. And we only started to consolidate NH since October of 2018 while 2019 was our first full year consolidation of the NH performance.

With the diversification strategy that we implemented, Minor Hotels today is in 57 countries, and our revenue contribution has rapidly been shifted to overseas with 86% of our revenue coming from overseas in 2019. The overseas contribution will continue to grow and is expected to be almost 90% of Minor Hotels total revenue by 2024.

To give you a better picture of our business today and in terms of business model, our owned and leased portfolio is the most meaningful, contributing almost 90% of our revenue. Our asset-light business model, which is mainly MLR in Australia, and management contracts contribute about 7% of the revenue. The remaining revenue is the mixed-use business. In terms of net profit by geography, the top 3 contributors are Europe, 58%; Thailand, 18%; Maldives and the Middle East, 14%. So going forward, we'll show the strategic -- show the overall statistic of owned and leased hotels and the breakdown of these 3 major markets for us.

Focusing on owned and leased hotels and starting off with the overall statistics, we've added about 2% of rooms to our portfolio compared to the end of the year. Organic RevPAR at constant foreign exchange increased by 3% from the overseas portfolio and driven primarily by rates. Including foreign exchange impact in new hotels as well as the consolidation of NH Hotel Group, RevPAR declined by 14%. This is because of the lower room segment in the NH Hotel Group. Revenue of owned and leased hotels more than doubled in 2019, mainly because of the full year consolidation of NH Hotel Group compared to 3 months consolidation in 2018. So '19 was really the first full year for NH.

Our owned hotels in Thailand and the Maldives. Going into our key geographies, Thailand has been a challenging market in 2019, especially because of the strong Thai baht. We saw RevPAR in Thailand down by about 4% for the full year, mainly from hotels outside of Bangkok. Given that our rate is down by 3% in the year with the U.S. dollar down by 4% against the Thai baht, our rates increased in U.S. dollar terms but not in Thai baht terms. For the Maldives, in 2019, we successfully focused on rates. Although we had to sacrifice a bit of occupancy, this was a very good outcome given the oversupply situation of the Maldives. As a result, our RevPAR was flat in 2019. Since higher rates give us higher flow-through than occupancy, this translates into higher profitability.

Turning to the NH Hotel Group. NH reported a 5% increase in RevPAR. All of it came from rate increase. In 2019, ADR for the first time passed the $100 euro (sic) [EUR 100] mark. So that's 68,000 rooms within the NH Hotel Group, all had a average rate higher than EUR 100. All markets in Europe performed well with Spain as the exceptional performer throughout the year. I'll also highlight that our revenue is well balanced among the 4 main regions in Europe. The only market that was weak for NH was Latin America, which suffered from weak currencies.

NH reported a full year of recurring EBITDA of EUR 294 million and recurring net profit of EUR 113 million, both above their guidance. As you know, they continue to be a public company at this time. The revenue growth of 6% was primarily from the strong existing operations, which was driven mainly through prices and also from new hotel openings and the transfer of the Tivoli properties -- property portfolio in 2019. With cost control, NH's EBITDA increased at a faster rate of 12% and margin improved by 0.8 percentage points. Net profit grew at an even faster rate of 63% due to lower financing costs from reduced debt and lower income tax. So in summary, since the acquisition of NH Hotel Group continued to show excellent performance, we achieved our financial targets and set another record year.

Let's turn to the integration and some of the synergies that we've achieved. We continue to work with NH Hotel Group on integrations with opportunities of cross-selling, cross-expansion, cost improvements through economies of scale and talent and mobility. Another proof of the successful integration is the achievement -- the agreement to operate the former Boscolo portfolio. NH will operate 8 luxury and high-end hotels, 6 5-star and 2 4-star hotels, where NH will be recognized as the hotel operator in the high-end market. The hotels are located in prime locations in key European cities, including Rome, Venice, Prague and Budapest. Some of these hotels will be rebranded to Anantara while some will be rebranded to NH Collection, the upper upscale brand of NH.

The reason I said it was a successful integration is because NH would not have been able to access this portfolio, this Boscolo portfolio, if they didn't have the Anantara luxury brand with them that has a better economic fit to run these luxury hotels. At the same time, we needed NH's connections with property owners to gain access to these properties and design sustainable and quality leases with a protection mechanism. So it represents an excellent example of our successful integration, and I'm very proud to have at least another 3 Anantara hotels in Europe as a result of this deal. The other way around, we've also signed the first management contract under the NH Collection in Qatar. This will be the first NH Hotel in the Middle East and in Doha.

Now turning to our asset-light business model. For Oaks in Australia, number of rooms increased by 1% in 2019. RevPAR for the first time since we acquired Oaks in 2011 declined by 4% in Australian dollar terms because of the weak macro backdrop. And because of the strong Thai baht, MLR's RevPAR declined by 13% in Thai baht terms, and consequently, revenue declined by 9%. For management contracts, organic REVPAR at constant exchange rates increased by 4%, but system-wide RevPAR declined by 16% with new openings, consolidation of NH management contracts, which have a lower RevPAR, as well as the currency impact. Management fees, however, declined by 4% because 2018 recorded higher technical and other fees. This wasn't duplicated in 2019, but we expect to return to growth in 2020.

A little bit on our expansion. We continue to build our hotel pipeline across our business model: owned, leased, managed and MLR. We're expanding across all our various brands in both existing and new geographies. The current pipeline in Europe is mainly leased contracts while in this part of the world, most of the growth -- current pipeline is from management contracts. In total, 70% of the pipeline is asset-light and the rest is owned and leased hotels, including the Boscolo portfolio. This current pipeline translates into an addition of almost 5,000 rooms per year over the next 3 years. The list is the minimum pipeline that we have already committed, and we continue to look for further expansion. So we hope to meet these numbers in the coming years.

A little bit on our mixed-use business. We continue to drive our residential development and the Anantara Vacation Club. In 2019, mixed-use business was a major performance driver for overall Minor Hotels in addition to the full year consolidation of NH. The Anantara Vacation Club saw good momentum, especially in the second half of the year, and we had a good year of real estate activities, especially in the first and fourth quarters of 2019. Going forward, we'll continue to build pipeline of real estate projects for sale and drive the growth of the Anantara Vacation Club. This year, we will complete the new residences in Bali and Ubud, and they will go on sale.

Turning to Minor Food. For Minor Food, 2019 continued to be a challenging year, although I would stress that we started to see an improving trend, especially going into the fourth quarter, and the momentum continued into January, when we saw positive same-store sales growth of almost 4%. In 2019, our revenue was up by 3% from outlet expansion, which more than offset the negative same-store sales growth from the weak domestic consumption in our key markets. EBITDA declined by 3% from the lower operating leverage from the negative same-store sales growth and the higher expenses to strengthen our digital capabilities. Net profit declined by 20% in 2019 as we reinforce our operational foundation with store expansion and digital -- and the digital platform. As you can see on the graph on the lower right-hand corner, our same-store sales trend has been improving, especially in the fourth quarter to less than negative 1% and turning to positive in January of this year. Correspondingly, net profit decline in the full group also improved in the fourth quarter with only a 5% decline compared to the full year decline of 20%.

Minor Food's international presence is today in 26 countries. We operate 3 hubs, Thailand, China, Australia. In 2019, Thailand contributed 65% of Minor Food's revenue and the contribution is expected to remain pretty much the same over the next 5-year plan. The Minor Food portfolio, in terms of number of outlets, were about half owned and half franchised. Today, most of the major competitors globally are usually only franchise. As you probably will remember, when Burger King was acquired, they liquidated all of their franchise operations and only retained an asset-light model. We're still very fortunate that half our restaurants remain wholly owned and the other half are franchise. But because we only receive franchise fees in terms of total revenue, franchise revenue is only 7%, and revenue from owned restaurants is 93%. By geography, Thailand continues to be the most important hub for us, followed by China, Australia and then Singapore.

A little bit of operational statistics by hub. Thailand has seen an improving trend in the 4 quarters. This is from our continued efforts throughout the year. We continue to launch new products across all of our brands. We've also strengthened our digital and delivery capabilities with the launch of the 1112Delivery app for the delivery of all of our brands on one single platform, and we did that at the beginning of the year. And followed by the strengthening of our partnership with third-party aggregators, this has helped to expand our delivery market.

For China, the main driver continues to be outlet expansion. In Australia, we're seeing notable improvements throughout the 4 quarters and with fourth quarter same-store sales growth turning positive. In Australia, we've revitalized our customer proposition on many fronts. We've launched a mobile loyalty program app. We've also come up with new exciting products for our customers. And like everywhere else -- like anywhere in the world, we focus on delivery in partnership with Uber Eats. So all in all, we believe we're headed in the right direction, and most of the signs that we saw in 2019, we think, will continue once the virus lessens.

So in addition to the organic growth we're working on, Bonchon will be another important growth driver for Minor Food in 2020. And going forward, we just announced this morning the second phase of our acquisition to acquire the rights to expand Bonchon in Thailand. Let me summarize the overall transaction. In November, we invested THB 2 million of the existing -- in the existing Bonchon operation. As of today, we've invested about THB 2.5 billion for the 20 -- for the 70% of rights to expand and any future outlet expansion of Bonchon. So total investment by MINT in Bonchon is THB 4.5 billion. I'd like to reiterate that the price we paid with the 2 transactions combined is still well within the multiples that we told you earlier between 10% to 13% EV/EBITDA of 2019. So if you work out the numbers, it's a sizable contribution to Minor Food and will be a major driver for the business going forward.

In terms of investment rationale, it's the same as what we've told you in the past. The chicken market is a huge market in terms of size and has been growing very fast in Thailand. Bonchon has a very good potential in the delivery market, where, in 2019, less than 20% of their sales came from delivery. This is definitely a potential to grow this proportion especially with the delivery market growing very fast and our delivery expertise as a company. Today, there are only 46 Bonchon outlets in Thailand. So if you compare that to the Pizza Company,where we have over 400 outlets, you will see there's still a great deal of room for growth. We expect to have at least 150 Bonchon outlets in 5 years, and Bonchon can leverage on our platform for growth, including the network team for outlet expansion, delivery infrastructure, supply chain management and overall operational excellence.

Just to reiterate its strong and resilient performance in 2020 so far, we've seen strong operations where year-to-date same-store sales growth has not dropped. The significant growth in the delivery business has been able to offset the drop in dine-in business. Bonchon operates at a much -- at much better margins, both at gross and EBITDA levels than market averages. This is particularly important to absorb shocks from any negative operating leverage.

Briefly, Minor Lifestyle. Today, Minor Lifestyle is relatively small, contributing only 1% of MINT's net profit. Minor Lifestyle revenue increased by 12% driven by -- primarily by the retail trading business, where both same-store sales and total system sales growth turned positive in 2019. The brands that continue to be key drivers are Charles & Keith, Anello and our household brands. However, a EBITDA and net profit declined because of the aggressive discount campaigns during the weak domestic economy and intensified competition, resulting in pressure on margins. Contract manufacturing also had more operating leverage because of the decline in sales from soft demand during the domestic consumption slowdown. In addition, Minor Lifestyle recorded higher depreciation and taxes compared to last year. With the trend of consumer tastes changing quickly in the fashion space, we periodically reevaluate our portfolio of brands. This year, we added Scomadi, the scooter brand, to our collection.

A little bit on corporate information, and let me take CapEx and balance sheet. In 2019, we spent about THB 14 billion, including the first phase of Bonchon acquisition. For CapEx over the next 5 years, we revised it according to our new 5-year plan and included NH's CapEx. So our committed CapEx continues to be about THB 10 million to THB 15 billion per year over the next 15 years -- next 5 years. The only exception is in 2020 where we're expanding our ice cream manufacturing plant capacity and our Minor Food digital capabilities. For leverage ratio, we closed the year with a debt-to-equity ratio back down to our target and to where we've committed to our shareholders, and that's at 1.3x. Our asset rotation strategy, where we sold 3 Tivoli hotels and the joint venture 3 Maldivian hotels, was a timely action that, together with the 219 net profit contributions, helped bring our leverage ratios down.

If we look a little bit at our 5-year strategy, I can share with you, first, on the 2020 and beyond, I'd like to give you a big picture of our updated 5-year plan, which has been approved by our Board. Our vision is to be a leader in delivering exceptional experiences that anticipate and satisfy customers' aspirations and positively impact our stakeholders. Our core values are customer focus, results orientation, people development, innovation and partnership. In terms of financials, we aspire to grow our revenue by over 8%, net profit between 15% to 20% over the next 5 years and improve our core return on invested capital to 11% by 2024. And for share price performance, we'd like to maintain a premium over the first quartile of the SET50. Our nonfinancial aspirations are to be an industry leader, an employee of choice and run a sustainable business. We believe that we have differentiation as we are an international player with a diversified portfolio balance. We are disciplined financially. We have intellectual properties, which are our brands, and we implement innovative initiatives and acquisitions.

In order to achieve our aspirations, we have 6 key pillars, which I will elaborate on. The first strategic pillar is our winning brand portfolio. With this, we have the power for cross-brand expansion. We also look for opportunities to revitalize our brands as needed and look for new concepts. In terms of value capture and productivity, we focus on the integration with NH, our asset rotation strategy and our back office transformation. Operational excellence will improve the performance and will allow us to remain efficient while we gain further scale. Our third pillar is investments, partnerships and acquisitions where they're opportunistic and it helps with our portfolio expansion and develop with some scale advantage and, hopefully, accretion to our share earnings. For innovation and digital, we're working on digital transformation, loyalty, delivery, data analytics and product innovation. Digital excellence will also improve our performance. In order to empower people and teams, we're streamlining our leadership look and look at new ways of working as we move our corporate office and ensure that we have new capabilities. Our last pillar is sustainability, where we remain committed to both sustainability and corporate governance. This is the big picture with our 5-year plan framework. Later on, we'll discuss about how these initiatives pan out as our priorities over the medium term.

Our commitment to maximize return and minimize risk, I'd like to emphasize that we maintain a balance between maximizing stakeholder return and minimizing risk. In maximizing the returns, we continue to drive growth both organically and inorganically while strengthening the group through operational and digital excellence. We'll maintain our valuation premium to peers and to the top quartile of the SET50. We continue to build a purpose-led, agile, healthy and future-ready workplace and workforce, and we focus on the sustainability of our stakeholders around us, whether it is people, communities, our value chain and our planet.

In order to minimize risk, we continue to diversify our portfolio to reduce the volatility of our revenue and earnings, especially in difficult years, and I expect 2020 first quarter will be one of those. We maintain solid balance sheet and cash flows through financial discipline. We strengthen our organization by building management depth and bench strength. We ensure that risk management is in place and evaluate the risk periodically for risk mitigation.

Just to put all these in the context of our priorities, we elaborate on the following slides. Today's priority #1 is transformation into an agile company. As you know, we've grown dramatically over the last 10 years, and we felt it was time to embark on this transformation. We've identified 5 priorities. The first one is to transform our organization into one that can move quickly with today's rapidly changing world. Operational excellence will improve performance and our efficiency. We set up a management committee chaired by me and led by Dillip. We also have the C-suite responsibilities for the 3 key pillars: business and results, growth and transformation. For business results, the CEOs of each business unit, including NH Hotel Group, are the main responsible people. For opportunities to grow beyond that, our finance team and commercial and investment team will lead that pillar. And of course, in this disruptive world, we need people to look after our transformation and our execution. So we've identified our Head of IT, Head of Strategy and Sustainability as people responsible for this pillar. Our Chief People Officer will be the bridge between growth and transformation. With this new structure, we will be able to move faster and ensure the effectiveness of delivering our promise over the 5-year plan.

Priority #2. We continue to work on synergies, both with our acquisitions and also across our shared platform. For Minor Hotels, the biggest opportunities continues to be the synergy with NH Hotel. Efficiency and productivity, pricing and revenue management, digital evolution, technology and innovation, we've talked about this many times before, so I'll not spend too much time. For Minor Food, the focus will be on the integration with Bonchon. We see a lot of opportunities on the delivery service front. Bonchon will be on our app for delivery. They can use our kitchen space in some of our locations for cloud kitchens for delivery, and also leverage on our delivery platform. They can also leverage on our supply chain management. This is not only for price efficiency but also for quality and consistency as well as to ensure the sufficiency of raw materials. And of course, we have the network team that can help Bonchon with outlet expansion not only in identifying the locations, but also on our relationship with landlords. As you can imagine, with more than 1,000 food outlets in Thailand, we have a tremendously strong amount of leverage with the large landlords like Central, The Mall and others. On our shared platforms, there are opportunities on global business solutions to support our global business, technologies such as blockchain or any other innovations and digital disruption and group-wide data management.

Today's priority #3, Minor Food's transformation. Minor Food's transformation is a priority for us and is across the organization. On the organization front, we are in the process of appointing new key management positions, including CEO and CPO. We're also working on realizing more synergy across our brands, hubs, working levels and functions by investing in infrastructure that will allow people to connect and communicate more efficiently. On the digital front, we've set up a digital team, formulated a road map and we'll continue to strengthen our delivery position, both our own as well as with third-party aggregators. For operational improvement, we continue with brand revitalization. An example, that is Sizzler's position as a healthy brand with the launch of plant-based dishes and cold-pressed juices. We also focus on store optimization. Another example of this is the new store format of Sizzler To Go, and you can see that in the Sala Daeng BTS station.

Today's priority #4, we continuously evaluate our portfolio in order to maximize returns. We will continue to expand across the 3 business units. We also continuously look at and reevaluate our acquisitions, like when we acquired NH Hotel Group, Bonchon or Scomadi. We streamlined our portfolio. As an example, in our investment in BreadTalk Singapore, we intend to increase our shareholding from 14.2% to 25.1%. MINT, together with George Quek, who is the founder of BreadTalk, plan to take the company private after the tender offer so that BreadTalk can refocus on long-term growth of the company with the right structure. We don't only invest but we also consider divestments of nonperforming investments. And in 2019, we divested Ribs and Rumps, the steakhouse chain in Australia; and Grab Food, a Thai street food concept in the U.K. Minor Lifestyle divested the Save My Bag brand. Asset recycling is also an important element to our portfolio evaluation. Potential asset transactions lead to smart asset transactions or noncore disposals will further deleverage our financing of future growth opportunities, like we did with the sale and leaseback of the Tivoli hotels in Lisbon and the Anantara Maldives in 2019.

Today's priority #5, our balance sheet management. Balance sheet management continues to be something that we focus on, especially during this time of uncertainty. For the balance sheet position, we continue to comply with all of our financial covenants, which are 1.75, and our internal policy, which is a more conservative 1.3. And this is where our debt/equity ratio is, as you know, at the end of 2019. In anticipation of the upcoming TFRS 16, we've already obtained approval from all creditors, bankers and bondholders to exclude the lease liabilities from the calculation of our debt equity covenant. Also in December, we have already got approval from the Federation of Accounting Professionals to continue to treat perpetual bonds as equity for the next 3 years until the end of 2022. In addition to maintaining the ratios, we're also looking at improving the quality of our debt and optimizing our capital structure. Our debt mix today is primarily long term with long-term loans, corporate bonds and perpetual bonds and very little short-term debt. We're also consistently managing our cost of funds, and today, about half of our funds are fixed and the other half are floating. Our effective interest rates have been coming down over the last 3 years, and today, our cost of funds is about 2.6%. And being a global company, we also manage our currency exposure actively. We implemented a natural hedging and match our funding to the cash flow generation currencies as much as we possibly can.

I think if you take a look at what we've been doing, in 2009, when some of you were present in this room, we had 30 hotels. We had 1,117 restaurants. We had 292 retail shops and points of sale. In 2019, we've grown to 535 hotels. We've grown to 132 luxury residences built to date. We have 249 vacation club units. We have 2,377 restaurants. We have 485 retail shops and point of sales. In 2024, we expect to be 750 hotels, 250 residences, 350 vacation club units, 3,700 restaurants and 560 retail shops and points of sale. So as you can see, we're anticipating very strong growth. We've achieved good growth in the past, and we expect to achieve it in the future.

Let's turn to COVID-19, which is on everybody's mind and hopefully not on their lips. Before I conclude, I'd like to turn our attention to this immediate issue at hand, which will impact our 2020 performance. The first one is the impact on -- of COVID-19, which is expected to both impact our food and hotel operations.

For Minor Hotels, we're trying our best to protect our revenue. We minimize the cancellations by accepting postponement and promote domestic tourism in destinations that have been impacted by COVID-19, such as Thailand, and we continue to drive revenues in less impacted regions. At the same time, we also implemented cost savings initiatives, including labor cost control and negotiations with suppliers for discounts or better payment terms. These cost control measures are being implemented only in the impacted geographic areas, but also they're being done across our entire portfolio and across all brands. In the case of NH, most importantly, you should consider is the fact that the first quarter for NH is always the weakest quarter. It contributes only 7% of the full year EBITDA. So if we had to have an incident like COVID-19 and the impact on Italy, it's best that we have it in the first quarter, where the impact will be minimal.

For Minor Food, Thailand has seen less traffic, primarily in tourist areas. But we see rising opportunities with the delivery segment, so we've adjusted our delivery service hours accordingly. We also proactively manage our costs, including efficiency and supply chain and reevaluate new store openings in tourist areas. The part that has been impacted more is our food operations in China. We closed almost all of our outlets for February, but most have been reopened now in March. So in February, our revenue maximization initiative in China was through delivery efforts. China also undergoes strict control measures, whether on food costs, labor, marketing or rental. But remember, this COVID-19 virus is temporary. So what's more important is what happens after the outbreak dies down. We have to be ready when people start traveling again, when they start going out to eat after they've been deprived for so long. We expect a fairly significant improvement in the second and third quarters.

But turning maybe to the final issue, which is the TFRS 16 impact. People have been waiting for the accounting impact on our financials with the TFRS 16. But before I go into the numbers, I want to emphasize that this is only an accounting impact and there is no changes to our fundamentals or our cash flows. So there should not be any changes to how you value the company or how the company is assessed. I'd like to urge all analysts and investors in this room to help convey the message and to educate the investment community, just as we're trying to educate the consumers about our beliefs on COVID-19.

The impact on cash generation of Minor by this TFRS 16 is not affected. So far, the TFRS 16 and the operating leases, we have adopted the modified retrospective method. We take MINT's lease contracts, discount the lease assets to the starting date of the contract while the liabilities are discounted to the 1st of January 2020, the date that we applied TFRS 16. We do the same for NH's portfolio. But instead of discounting the assets to the start of the contract, we discount back to the acquisition date, which is October 2018. With the calculation, our leased assets increased by THB 80 billion while our liabilities increased by THB 83 billion. The difference of THB 3 billion is the decline in equity.

On the P&L impact, we're foregoing our fixed rental expenses, which means our EBITDA will be significantly higher going forward, but the foregoing rental expense is replaced with higher depreciation and interest expenses from the increased assets and liabilities. The difference is the impact on our P&L, which is about THB 1.7 billion of incremental expenses before tax. The impact on net profit after tax will be reduced from the deferred tax arising from the TFRS 16. The negative impact on P&L on this current lease portfolio will be reduced progressively in the coming periods as the interest expenses decline over time. One other thing to notice that the numbers are preliminary and are subject to change as our lease portfolio changes with additions or reductions of lease contracts. Please note this is only an accounting impact and our valuation should be unchanged from this impact.

Finally, in summary, COVID-19 is temporary, and impact is going to be limited and mostly in the first quarter. The TFRS 16 impact is just accounting and nothing -- and has nothing to do with the valuation of our company. We continue to build our platform for growth, and we're sure that we will emerge from this situation stronger, like we have in the past with all of the other crisis, from tsunamis to SARS, airport closures, red shirts, yellow shirts, government changes.

So with that, I'd like to end my presentation and open for questions from the audience. Then we go straight off.

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Questions and Answers

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William Ellwood Heinecke, Minor Corporation Public Company Limited - Founder, Chairman and CEO [1]

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Yes?

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Unidentified Analyst, [2]

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Could you talk about the -- any supply chain disruption effects from the China shutdown on all of your operations? And also, you had mentioned that you were making a big investment in digital this year. Could you just give us more details about that?

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William Ellwood Heinecke, Minor Corporation Public Company Limited - Founder, Chairman and CEO [3]

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Sure. I think supply chain, we've seen minimal impact because we get -- we source very little from China. It probably would've been more serious if we had our restaurants open, but most of them were closed in the month of February and have only just reopened. And since mainly we're sourcing fresh food, it hasn't had an impact. Luckily, we're not in the automobile sector. We had a bit of delay on Scomadi. Some of our electric motors, which come from China, will push back our electric scooter launch till probably May or June. But other than that, nothing much on the supply chain. Most of our supply chain in Thailand is locally sourced, and there hasn't been any disruption on that.

Your second question dealt with IT technology, and I'm wondering who wants to volunteer to take that. Dillip?

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Emmanuel Jude Dillipraj Rajakarier, Minor International Public Company Limited - Group CEO, COO & Director [4]

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Yes. I can do that. I think on the digital side, today, especially for the food group, we're looking at investing about close to $5 million this year to set up the digital capabilities, systems and the processes for us and also the platform, which you will see -- which we launched very soon on the food side. So it's about $5 million.

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Unidentified Analyst, [5]

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What side?

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Emmanuel Jude Dillipraj Rajakarier, Minor International Public Company Limited - Group CEO, COO & Director [6]

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On the food, on the food, on Minor Food.

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Unidentified Analyst, [7]

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Is this in the app?

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Emmanuel Jude Dillipraj Rajakarier, Minor International Public Company Limited - Group CEO, COO & Director [8]

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It's -- we're upgrading the app.

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William Ellwood Heinecke, Minor Corporation Public Company Limited - Founder, Chairman and CEO [9]

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Any other questions? Please.

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Namida Artispong, Minor International Public Company Limited - IR Director [10]

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If there is no other question, this concludes our presentation. And if there are more follow-up questions, our IR team are more than happy to take them anytime after this.

Thank you very much, and have a good day.