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Edited Transcript of MINT.BK earnings conference call or presentation 18-Nov-19 10:59am GMT

Q3 2019 Minor International PCL Earnings Presentation

Bangkok Dec 3, 2019 (Thomson StreetEvents) -- Edited Transcript of Minor International PCL earnings conference call or presentation Monday, November 18, 2019 at 10:59:00am GMT

TEXT version of Transcript


Corporate Participants


* Emmanuel Jude Dillipraj Rajakarier

Minor Hotel Group Limited - Group COO, CEO & Director




Unidentified Company Representative, [1]


(foreign language) Good morning and welcome to Minor International's Third Quarter 2019 Analyst Meeting. It is our pleasure of introducing the presentation, in which you will hear from Mr. Dillip Rajakarier, the COO of Minor International and CEO of Minor Hotels. Joining Mr. Dillip during Q&A session are Mr. Brian Delaney, Corporate CFO; Mr. Chaiyapat Paitoon, Deputy Corporate CFO and Strategic Planning; Mrs. Jutatip Adulbhan, Vice President of Investor Relations; and Mr. Kosin Chantikul, Senior Vice President of Investment and Acquisitions. At the end of the presentation, we will open for Q&A session.

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


Emmanuel Jude Dillipraj Rajakarier, Minor Hotel Group Limited - Group COO, CEO & Director [2]


Good morning, all, and welcome to Q3 Analyst Meeting and also the presentation here. I think before we go to the company presentation itself, we've -- what I would like to cover is to talk about the highlights and the performance recap for Minor Hotels, Minor Food and also the lifestyle and also talk a little bit about the corporate information and 5-year strategy, which we have communicated to our investing community for the past few years as well.

So just on the highlights and performance recap, I think what I'm glad and it's great to be here today with some really good turnaround stories for Minor International as a company. And the first one is we just announced the acquisition of a franchise for Bonchon here in Thailand, the Thai company. So I'm sure like the audience here love the brand. And I think chicken is a brand which we have been looking for the past so many years, and we managed to find the brand which actually connects to our customers or our consumers; and also, more importantly, connects to the millennials as well because we found the performance of Bonchon, actually, compared to its peers, it's much, much, much stronger. And they're able to deliver a very high same-store sales growth over the past few years with about 40-odd stores in Thailand and also the potential to grow the brand both outside Bangkok as well. So I think for us, it's a great story in terms of this acquisition because this is something we've been looking and it's going to be very accretive to our share price as well. So that's the first one.

And the second one is, as we all know, like in Q3, we've also managed to deliver our deleverage program or the plan as well. So we successfully completed the sale and leaseback of the 3 hotels in Portugal, which we have leased back for the next 60 years. So that's, again, it contributes quite heavily in terms of reducing our debt-to-equity ratio as well. So that's the second one.

And the third one is we've already started to see some positive outlook in Q3 and Q4. And also, especially Q3, our earnings compared to our peers, both here in Thailand and also in Europe, where we have NH Hotels, which was a major acquisition which we did last year, and NH is performing well above its peers. And also in Thailand, I'm glad to report that we're also performing much better than our peers because they've just reported their numbers as well.

So I think all in all, it's a very positive outlook for us as well. Q3 has had a really good -- our Q4, the outlook looks much stronger because there are a few factors which will play our numbers in Q4 especially on the AVC, or the Anantara Vacation Club side and also the mixed-use on the residential side because the timing of the residential sales will -- mostly will all materialize in Q4 in terms of timing as well. So I think for us, Q4 also looks quite positive.

And then if I fly over to Madrid or NH, NH has performed really well, and they performed much better than the peers. They are on track in terms of their delivery this year. Last year, the EBITDA was about EUR 260-odd million. This year, I think they are looking at EUR 285 million-plus for the full year. So actually, you will see the full year impact of NH Hotels also in Q4 because this is the -- we started consolidating NH in October last year. And therefore, like I know it's very difficult to model or to understand how it works for the full year, but I think this year, NH has performed much better. And also, like it's above what we actually underwrote in our investment criteria for NH as well. So EUR 285 million is less than 10x or 9x multiple, and our multiple will start to reduce as well. So basically, the acquisition becomes very accretive for us.

So those are some of the key sort of positive news or stories I have. Q3, of course, the NPAT grew 39%. On a like-for-like basis, it's actually 67%. And I will explain the reason how it goes from 39% to 67%. In 9 months, our core NPAT actually grew 9%. On a like-for-like basis, it grew 17%. And don't forget, like the full year or 9 months, actually until Q2, year-to-date, we were negative 3%. Mainly, it was mainly driven by NH has -- Q1 is always a low quarter, so the losses of NH in Q1 actually drove our earnings down. And therefore, like in Q2, we were year-to-date minus negative 3%. And Q3, we are now positive 9%. But on a like-for-like basis, actually, we're now positive 17%. So that's a big turnaround, and it's under -- trying to understand the 2 different consolidations, which has also happened during the course of the year.

And then as I said before, our strategic asset rotations has been very successful in terms of our deleverage plan. We've already announced one, which is Portugal. So the interest-bearing debt, as I said, has declined by 10% to THB 112 billion at the end of Q3, and we hope that will decline further in Q4 as well. And as I said, our DE has declined to 1.35%, and we're hoping to bring our DE back to about 1.31% by the end of this year. So we will be back to where we should be in terms of our debt-to-equity ratios as well.

Outlook, as I said before, Q4 looks pretty strong for us. Some of the mixed-use real estate sales will also materialize and it was timing, which didn't happen in the first 2 quarters or the first 3 quarters, but I think it's all going to happen in Q4. Because for us, it's important that we don't just sell and realize the profit. For us, it's important that we sell it at the right price. So I think just to make sure that we get our right margins and also the right investment payback as well.

The NH momentum continues. NH has really put Minor today as a global hotel company. We're the top 23 hotel companies in the world today in terms of our size, in terms of room size. And then if you exclude some of the regional players, we will be the top 10, which has actually made us a truly global player. And this has a lot of advantages because where today, we're able to participate in RFP programs with some of the big corporates, in the past, we were not able to do that. We're able to achieve a lot of synergies between NH and us in terms of whether it's purchasing in terms of customers, loyalty programs, and also reduction in commissions and all those things as well.

The last one is, again, as I said before, the acquisition of Bonchon will provide the upside for Minor Food group. Based on the performance of Bonchon, Bonchon has had a very strong performance over the past few years, it continues to grow, but there is a lot of upside because, especially with Minor Food group, infrastructure, what we have today, we can better leverage the Bonchon platform and grow it much faster in Thailand as well.

The transaction is accretive from day 1. So it's -- we believe that it's cash flow positive, and it will be accretive for us from this -- from today. And also the -- we are also looking at the Minor Food transformation strategy as well, which is underway.

So as Bonchon is quite a big significant investment for us, which we just announced today, I'd just like to touch base on the Bonchon. It's an international restaurant brand which is highly reputable for its Korean style fried chicken or what they call the fresh chicken, which they use. They don't use frozen chicken, so that's a big positive pull in terms of our guests. And also we have actually, today, announced an investment in its existing outlets only in Thailand today. And hopefully, we will then grow that business outside Thailand as we have done before with the other brands as well.

The first Bonchon actually opened in 2011. And I think I don't really have to explain about Bonchon because I'm sure, like, you all know what Bonchon is and your kids would -- they -- most of them also love the brand as well. With over 300 sort of branches they have, they pretty much dominate in Thailand, Philippines, Kuwait, Singapore, Bahrain, Vietnam, Cambodia, U.S. and Myanmar. So there's a lot of potential for us to also grow the brand outside as well.

And then if you look at the investment. Today, we have made the investment in Chicken Time, which operates over 40 outlets here in Thailand. And they are all own -- equity-owned at the moment. The investment amount is about THB 2 billion to acquire 100% of Chicken Time. And then we are also in the process of negotiating with the holder of the master franchise to acquire the rights to further expand the Bonchon outlets in Thailand. So this is another transaction, which will happen in the next few months as well.

And that's the graph in terms of where we are today, the 40 outlets. So as you can see the -- in Bangkok, they're pretty much well concentrated, but outside Bangkok, there is not much. So this is where we feel that there is a huge upside for us to grow the brand further.

The -- when you look at the investment rationale as to why we actually bought Bonchon and when you see the sizable growth, the concept, you can see that the chicken today has a sizable growth concept. The market size is about THB 24 billion. And in 2008, it was THB 7 billion. So the growth is quite phenomenal. Now that, compared to burgers, pizzas and ice cream, like burgers is about THB 10 billion, pizzas is THB 6 billion and the ice cream is THB 9 billion. And if you put all 3 together, it's about THB 25 billion. Bonchon alone -- or sorry, the chicken alone, is about THB 24 billion. So there's a huge potential, as you can see, for the -- in terms of the market size for chicken here in Thailand. So we believe it's a high-growth area, and there's a lot of demand driving the chicken as well.

The -- we then also looked at the significant outlet opportunity as well. So today, Pizza Company, we have 416 outlets; Swensen's, we have 292; Sizzlers, 56; Dairy Queen, 518; and then Burger King and also Coffee Club as well. Bonchon today, we have 44 existing outlets today. We believe that this can go up to about 150 to 200 outlets in the next few years, and that's the upside we have. So I think it's basically leveraging the high brand strength it's got, its delivery platform and also making sure that we position Bonchon as one of the major brands here in Thailand as well.

It's got the best-in-class operational metrics. The payback of Bonchon, each of the outlets is less than 1 year. So it's very franchisee-friendly because the franchisees, if we have to franchise this brand in Thailand, the franchisees will be able to get their payback less than 1 year. And now there's not many brands which has a payback period of less than 1 year on the capital deployed. So again, Bonchon actually takes the investment rationale as to why us as equity owners or why our franchisees will invest in this brand moving forward.

And also, the biggest benefit or the advantage we have is that we can actually benefit from leveraging our existing platform within Minor Food group with the outlets we have between Pizza Companies to Swensen's to Sizzlers to Dairy Queens to everything else, to also add Bonchon into some of those stores as well, and that's going to be the biggest benefit as well.

And also looking at -- we're looking at dark kitchens as well, where we'll be able to meet the delivery demand for Bonchon in the future as well. So I think this is what makes sort of Bonchon a very attractive investment for us and the reason, actually, we invested as well. Because the market continues to grow, and there is high potential as well.

Okay. And then we look at some of the transaction comparables. So I'm sure like you're going to ask, okay, you bought Bonchon, what's the transaction comparables and what sort of a multiple we bought at? What we can say today is that, in the industry, that the comparables today is, on average, it's about 13x the transaction comparables which has happened in the past: KFC, MBA and The Coffee Bean as well. The trading comparables in Thailand, the average is about 12.7x and the trading comparables in Southeast Asia is about 10.6x. So here, I think what we can say today is that the Bonchon will be around this or slightly lower in terms of the market comparables. But that's based on today's numbers. But I think what we see is the growth potential for Bonchon now growing from 40 to 150 to 200 stores in the future. So both transactions -- so here, I think -- okay. So that's the comparable on Bonchon.

We then go to a performance recap for Q3. And here, you look at the chart here, the net PAT actually increased by 86% for the quarter -- sorry, revenue increased by 86%, and net PAT increased by 39% for the third quarter. So it was quite a strong quarter for us. And also, NH actually contributed some of the bigger, the pie as well.

Now here if you look at the chart, our Q3 revenues last year was about THB 15.9 billion. Minor Hotels, pre-NH, is a little bit confusing because this has -- last year, we had the 3 Portuguese -- sorry, the 12 Portuguese hotels under the Minor portfolio. As you know, in July this year, we did the sale and leaseback. So the 3 Portuguese hotels has moved to NH under the sale and leaseback structure, and the 9 Portuguese hotels has also moved to NH as they are managing the brand for us as well. So basically, because we have removed -- sorry, the Tivoli portfolio from our -- from Minor Hotels, and we've added it back to NH as well. So that's the reason the major drive in terms of the drop of the bigger revenue items.

Of course, residential, again, compared to last year, residential didn't materialize in Q3. And as I said before, Q4, we will start to recognize the residential income, and we will be on budget for the full year in terms of residential as well. The -- we've seen a positive trend in Anantara Vacation Club, which is also turning around. And the other major impact, the negative impact we've had, is the recent incidents we've had in Sri Lanka in April during the Easter bomb, which has actually reduced or drop our revenues as well. And then the food also has reduced. So the food group has also been softened, so that's about THB 150 million. NH is positive THB 14 billion. And then Minor Lifestyle was also up by THB 131 million. So that takes us to almost THB 30 billion compared to last year, so which is an 86% increase in terms of revenue compared to last year.

We then move to net profit. So net profit, we've gone from THB 1 billion to THB 1.4 billion, showing a 40% or 39% increase. And then that actually, on a pre-NH, Minor Hotels is showing a negative because the revenues were negative, and we moved the 12 Portuguese hotels to NH. So that has an impact. The NH is up by THB 836 million, Minor Food is down for the quarter and Minor Lifestyle is slightly down because of the heavy discounting we had to do, even though our revenues were up in Q3. So that takes us to THB 1.4 billion, about 39% increase in profits.

And when you look at the revenue profit contribution, Minor Hotels contributes now 85%, and Minor Food contributes about 15% and Minor retail is so small today. So that's the bigger numbers we have.

We then look at the 9 months. So of course, 9 months, when you look at it, our revenues were THB 47 billion. And we've gone to about 9 months core reported was -- the core was THB 89 billion, but reported was THB 94 billion. So in terms of core earnings, we were up about 91%. In terms of net profit, we are up 9% on core and then reported, we are about THB 6.9 billion for the 9 months on a reported basis, which has the non-core items of about THB 2.8 billion, which is the sale of the Tivoli hotels, the profit on that as well.

I think this slide, I'd just like you to draw your attention to this slide, because this slide actually shows, even though we showed a 39% increase in Q3, on a like-for-like basis, our net profit growth should be about 67% for Q3. Why? There's 2 things. One is the ForEx impact of about THB 213 million, and the other one is the leases. So as you know, like in July, we did the sale and leaseback of the 3 Tivoli hotels. So we are now starting to pay the leases on this -- on the 3 properties, which is already factored into our numbers. So the 3 months of the lease payment is factored in as well. When you compare it on a like-for-like basis, the leases were not there last year because we owned all our properties and this year, we are leasing. But even though we lease the properties, we actually enjoy about 75% of the EBITDA actually we keep, and the 25% of the EBITDA goes to the leases. So but again, to compare it from last year, I think it's -- we have taken out the leases because it wasn't there last year. But there -- but when you take out the leases actually and the ForEx, the actual growth is 67% for the third quarter. So that's quite a high growth.

Net profit, again, the same thing. So we reported a net profit growth of 9%. But on a like-for-like basis, if you take out the leases and the ForEx impact, the actual growth is 17% for the quarter. So that's our net profit growth for the quarter to about 4.4% on a constant ForEx and also the lease, excluding the lease obligations we have for Tivoli.

But what I have to say is that the NH -- the 3 hotels, the sale has actually reduced our debt in euro terms as well. And of course, we do have a ForEx impact of anything from 8% to 10%. But at the same time, yes, it does affect our earnings because when we convert our income statements, it does affect our earnings. But also on the balance sheet, it also reduces our debt because when you convert, it's much -- it's less when you convert to Thai baht.

So here, in terms of international presence, today, we are -- 2019 third quarter, we had 75% is Thailand and -- sorry, 25% is Thailand and 75% is international. So the company is truly diversified, with especially the hotel group, diversified much more than the food group. But also, that poses some challenges in terms of some of the ForEx headwinds we have and also in the food group, some of the consumer softness here in the market we face as well. But overall, like the diversification has worked really well for us. And I think in 2023, we're hoping to keep the trend at about 70-30 or 72%, 28%. 28%, Thailand and 72% coming from international markets as well. And then you also see the presence of Minor Hotels, Food and also the combination of the 2. So we have a footprint in 63 countries today, with both the hotels and the food as well and also the retail, predominantly all in Thailand.

So we then move to Minor Hotels, the performance. So here, Minor Hotels, the highlights, revenue and net profit improved significantly for the 9 months on a year-on-year basis, mainly because -- mainly driven by the consolidation of NH. And also like some of the environmental challenges, external challenges we've had like, for example, Sri Lanka, the incidents in Sri Lanka actually has pulled us down. And also some of the currency here, the Thai baht is getting very strong, and that has an impact on our rate as well. But overall, in terms of revenue, we are showing 162% year-on-year growth, and mainly because we include NH there.

On EBITDA, we were showing almost 100% growth. So we've doubled our EBITDA since last year. And then on net profit, we're showing a 27% year-on-year growth for the 9 months as well. So that's pretty much some of the financial highlights for Minor Hotels. And I think the hotels, the outlook, as I said before, for Q4 is looking good, especially with some of the mixed-use or real estate sales also materializing in Q4 as well. So our outlook this year and our profits this year is going to be record high compared to the previous years we have disclosed. The biggest drivers are NH, of course, which is doubling our EBITDA and our revenue also.

We then move to organic performance. So when you look at it on an organic performance, our revenues for owned hotels actually declined by 5%, mainly because of Thailand and also the strengthening of the baht. Management letting rights, Australia slightly declined by 11%. It was mainly, again, driven by the Australian dollar, down by 5%, weakening by 5%. And then the management contracts actually increased by 12%, and that was the main thing -- the main drivers were the improved performance of our hotels in the Middle East, and the Maldives and some of the new hotels, which we added to the portfolio. Mixed-use business, 8% decline. But again, it's the timing and we see that mixed-use actually turning around in Q4. So Q4 will be up in terms of mixed use, both on AVC, or Anantara Vacation Club, and also the residential business as well.

So and here, when you look at revenue and EBITDA, again, we have excluded our numbers here. For this year, actually, exclude the Tivoli portfolio because now the Tivoli portfolio is accounted under NH. So under Minor Hotels, it's not included. So that's another reason as to why our revenues and our EBITDA and our net profit is down as well.

Okay. We then here look at Minor Hotels and NH Group performance. So NH Group performance, the EBITDA -- recurring EBITDA for 9 months was EUR 209 million, which is an increase of 13%. So this is just pure NH on a euro basis, and then that was as a result of the sound growth of 6% and the continuous cost control which we are doing as well. And as I said before, NH, again, is confident in terms of its achieving its full year EBITDA and net profit of EUR 285 million EBITDA and net profit of about EUR 100 million as EBITDA for the full year. And this is excluding IFRS 16 and IAS 29, which will -- which actually -- it will impact the NH integration.

So again, some of the highlights. So the revenue grew by 6%. Organic RevPAR was up by 4.6%. Strong growth in Europe. Recurring EBITDA, the growth was 13%, and the margins actually improved by 1 basis point. And that's because of the cost controls we have done. And also the 35% EBITDA conversion rate as well, which is pretty good for Europe.

Net profit. The recurring EBITDA, an increase of 57%, mainly because of the business improvement. And also, last year, when you look at the net profit, it shows negative 21%, 9 months 2019. And that's mainly because of last year, we had a sale and leaseback of the Barbizon in Amsterdam. So that was accounted for last year. Of course, this year, we didn't have it. And that's the only reason like NH is showing a negative 21% reduction on its net profit.

The net debt is about EUR 190 million for NH. So basically the company is almost debt-free. If you look at EBITDA, this year, it's EUR 285 million. And our net debt for NH is only 200 -- only about EUR 190 million at the NH level.

Okay. We then look at Minor Hotels, the international presence. So here, you can see, 2019, we have 12% of our revenues coming from Thailand and 88% coming from International. So this is -- now we're truly diversified. And of course, with diversification, we also have some headwinds in terms of ForEx as well, which we've explained in our slides. But the good thing is, the upside is, the portfolios are expanding, the geography is expanding and we continue to grow both on the Minor Hotels side and also on the NH side as well. So here today, we are in about 55 countries, with a solid investment strategy as well and also the growth story and the revenues producing from the hotels as well.

So this one is another -- this is another interesting slide. When you look at system-wide room contribution by ownership, you can see that owned hotels and leased hotels account for more than almost about 70%. So that's quite a big -- it's quite a big chunk. And why? Because I think we feel that our asset-right strategy is the right thing because our equity returns are also quite strong. And we have shown to the market in terms of asset rotation strategy as well, like being the Tivoli hotels, which we -- the 3 hotels which we just sold in July and leaseback.

So 9 months contribution by business, if you look at it, our owned and leased hotels is 87%. So therefore, we have full control. This is a very strong slide which shows that we have full control of our revenues as well because it's not a management fee-led business. And it's more of asset-owned and it's revenue-driven, 87% coming from this owned and lease assets as well.

And then if you look at the contribution by geography, you can see Thailand accounts for 37%, Europe is 60% and mainly because of NH. We've got about 360 hotels of NH all over Europe and South America. So of course, the contribution coming from Europe is very strong. Thailand is 13%. Maldives, Middle East is 17% and the U.S. is 3% for net profit. So NH again is actually adding quite a bit to net profit.

We then look at the owned and leased hotels. So in terms of the number of rooms, we have grown to about 53,000 and in Q1 2018, we were 7,000. So the growth is like 657% year-on-year. ADR actually, on an organic, excluding ForEx, is up by 5%. But also, we've had some headwinds there in terms of hotels in Sri Lanka, which has had a big impact for us since April. We never dropped our rates, and the occupancies are fairly low. But the good news is that we're already seeing a turnaround in Q1 next year.

Occupancies, system-wide, is pretty much flat because our focus is mainly to drive ADR, which we have done. And RevPAR, on an organic, is about plus 2%, mainly driven by ADR.

We then move to Thailand, our owned hotels in Thailand. So here, as you can see, the organic -- the growth, it's negative 5%, mainly driven by occupancy actually because the international tourist arrivals actually grew by 7%. Bangkok, RevPAR of Bangkok hotels were flat compared to same quarter last year. Even though ADR was 1% up, occupancy was 1% down. So we were quite happy to increase our ADR by 1% there. And if you look at Thailand provinces, the performance of the hotels in Thailand provinces remain challenging with RevPAR declining of 10% in Q3. And -- but we've seen some positive growths, like, say, for example, Anantara Golden Triangle, AVANI Samui, Anantara Layan Phuket has actually helped to mitigate some of the RevPAR decline for us in the third quarter.

Then we move to owned hotels again overseas, but this is excluding NH. So overseas story was quite good because, excluding NH, the hotels increased -- the organic RevPAR actually increased by 7%. And mainly, if you look at Portugal, the Portugal portfolio RevPAR was down 8% in Thai baht, but it was up 3% in euros. So actually on the same currency, our RevPAR was up by 3% in Portugal. Brazil, our RevPAR decline in Thai baht by 4%, but it was up in Brazilian reais or their currency by 3%. Maldives RevPAR actually increased by 1% and it increased in U.S. dollar terms, 9% in U.S. dollar terms. So in the Maldives, we account in U.S. dollars, so it was a 9% increase in U.S. dollars.

Africa. Africa actually increased by 3%. But in local currency, Africa was very strong. It increased by 32%. So Africa was quite strong, and it was mainly driven by our hotels in Zambia and also the rate increases as well.

We then look at owned and leased hotels. Now we move to NH. So this is just NH only. NH had -- the RevPAR actually grew by 4%, as you can see. And the good thing is, in Spain, both Madrid and Barcelona actually achieved double-digit RevPAR growth. And we had a fair or a congress during the quarter, so that also did benefit. Milan actually continues to perform well, and it was positive as well. But the performance of Rome was a little bit weak. Benelux recovery in Brussels with a higher number of events. Amsterdam was slightly pressured by the lower business groups. Central Europe was slightly weak. So Germany is weak. And then Lat Am, or Latin America, Mexico show -- did see a positive RevPAR growth from higher demand and also increasing room rate. But in Argentina, we were impacted by the hyperinflation and Colombia by the currency depreciation as well. So but compared to the size of the portfolio and size of the earnings, the impact is not huge, but it does have an impact for us in LatAm.

Okay. We then move to the NH integration and the synergies. So here, I think the -- it's gone very positive in terms of the integration because this is something we were quite worried about when we acquired NH last year, and how do we integrate such a big company into Minor Hotels. But I have to say the integration has gone very well. And also, you've seen it in the numbers because we've managed to drive EBITDA performance up for NH. Revenue is up. And moreover, some of the synergies have started to materialize as well. And we've also got now 3, we've moved the whole Tivoli portfolio to NH. So 3 of the hotels under the sale and leaseback sits with NH. And the other 9 hotels in Portugal are managed by NH, which actually is much better, and they have a very strong platform with strong distribution as well. So that's one of the other reasons we've seen Portugal performance up. And the 2 hotels in Brazil that NH is supporting from an operations perspective as well. We are managing the hotel in Cape Town, the NH brand because in South Africa, Minor Hotels, the African portfolio has a bigger presence and NH only has 1 hotel in Africa. So we, as Minor Hotels is managing that hotel.

And also, the good thing is the cross-expansion between NH and the Anantara brand has strengthened, very strong. And why do I say that? Because we have 2 more hotels now in Europe. So before we acquired NH, we only had 1 Anantara in Europe, which was the one in Portugal. In July this year, we converted an ex-Ritz Carlton hotel in Marbella in Spain to Anantara as well, and that has gone very well for us. And then we also just added another hotel in Dublin, in Ireland, which is called The Marker, which again, NH completed last month under a sale and leaseback, and this will be rebranded to Anantara as well. So today, Anantara has -- we have 3 hotels in Europe under NH. Next year, we're hoping to rebrand 2 of the NH hotels in Europe, which are very -- in very urban city locations, like in Amsterdam, also in Italy. So that will make us -- give us 5 Anantaras in Europe, and we are (inaudible).

So then we move to the asset-light business, which is mainly our MLR and also the management contracts for Minor Hotels. So here, the number of rooms actually has grown to about 14,000. In Q1 last year, we had 4,000 rooms. So that's almost a 194% increase year-on-year. Our RevPAR organic, excluding ForEx, was down by 1%, and system-wide was down by negative 16%. The management letting rights revenue declined by 11%, and the management letting rights business, as you know, is predominantly in Australia today under the Oaks Hotels & Resorts. And that was mainly because of the ForEx and also the system-wide RevPAR decline from the change of the hotel mix and the addition of NH as well. So that has an impact also. But the revenue of the managed hotels increased by 11% from the new openings. So the new openings, we managed to increase our revenues by about 11%.

Okay. So this is our pipeline. So again, our pipeline is very strong. And the only things which we highlight in our pipeline is the hotels which will open and the hotels which are under construction. We do not include other hotels which are under discussion or under MOU or anything else because if we start to include that, the list is going to be too long. But -- so we -- what we do here is we only highlight the hotels which are signed and ready to open.

So if you look at 2019, most hotels which are under the hotel investment and lease are open, because we are almost at the end of the year, right. So we've opened -- all those hotels are open. For example, Marbella, Spain, was the Anantara, which opened. Mexico NH collection open and all the others were NH Hotels, which are open. And the Warangi, the investment is slightly delayed to next year. And then if you look at management contracts, again, most of them are open. We have entered into Mauritius. So we just opened our hotel in Mauritius, the Anantara. We have also opened the AVANI in Bangkok, near On Nut, which is doing really well. We've also taken AVANI to Australia as well. We've opened Avani Angkor, what's called FCC, that also opened. Busan, that's our first entry into South Korea, that's open as well. Australia, Victoria is also open. Wellington, New Zealand is open. Krabi is under renovation, and it will rebrand in January next year. So we are managing the hotel, but it's under a white label because the property's being renovated at the moment. And then you come to NH Collection. It's open, the 2 hotels. And NH Hotels is also open, both in Portugal and also Andorra as well. And then we also opened a small camp under the Elewana brand in Kenya.

So that gives us about 17 plus 11 hotels. So 17 hotels under management, under the asset-light strategy, and 11 hotels under what we call the investment or lease model. Next year, we're hoping to have 7 hotels open under our investment, which is under progress at the moment. And about 16 hotels under what we call the asset-light strategy. And then our pipeline for the next few years is 14 hotels and then 16 hotels for the next 2 years. We actually focus only on the first 2 years because, at the moment, we're also getting a lot of inquiries in terms of some of the rebrands as well. So we believe our pipeline will be much stronger in the coming years beyond 2020, '21.

We then move to our mixed-use business. So as I said before, on the residential development, so these are all the residences we have done and the status. The pipeline, we have Anantara Desaru, as I said before, we have some residences there, which we will start to sell next year. Anantara Ubud, again, we have some residences coming up, and the launch will be next year as well. So the -- so residential business becomes our core business because we continue to add to our residential portfolio as well. On the Anantara Vacation Club, the membership has grown to 13,800 members. And also, we hope to grow the inventory also on the Vacation Club as well. We just launched phase 3 of the Vacation Club. So we're adding more units in Phuket, which will also open in January next year.

Okay. The next is for the ones who are hungry here, I'm going to go on to the food. So on Minor Food, I think the food revenue actually grew 1%, and mainly because of the outlet expansion. But the EBITDA and net profit actually declined by 9% and 24% despite improvements in China. The hub in China is performing well, and we have seen some challenges in the food. I think we all have to agree that the consumer consumption actually has slowed down in Thailand. And as you saw, the food is the reverse of the hotels because hotels, we have 80% of our revenues coming from international and 20% from Thailand. So on the hotel side, we have different challenges. For example, the currency headwinds, ForEx and the fact that Thailand is slightly soft because of the currency. It doesn't really impact us a lot. But on the food, where 80% of our income comes from Thailand, it does have an impact. But I think the good news is, October, we just reviewed the October numbers, and October is showing a positive trend. So we can see that the food is trending upwards, which is good, in all the markets in Australia, China and also Thailand, which is quite positive for us as well. So that's on the food side. So again, total system sales was positive throughout the first 9 months. Outlet expansion was also -- we drove outlet expansion as well. And China actually reported same-store sales growth, was also reported for China as well.

On the food, again, as I said, when you look at 2019, here, you see the mix between own franchise and the hubs. So revenue contribution, 63% comes from the brands you can see there and 37% from the others, from international. So it's quite high in terms of contribution coming from a revenues perspective for the food.

So today, we have 3 hubs on the food side. So Thailand, predominantly Thailand because Thailand is the biggest hub for us. China is growing and growing quite strongly. And Australia is the other bigger hub for us. And then we have a smaller hub in the Middle East as well for Coffee Club. So that's pretty much our hub on the food side.

The -- we continue to look for opportunities and expand, especially in our existing markets. And this is one of the reasons also on the food side, we have entered into the chicken market, which has a much higher revenue growth and also strong performance and driven by strong consumer demand as well, and that's going to help us with the Bonchon chicken, which is going to help us to be accretive from day 1.

On the Minor Food, operational performance, as I said, the outlet expansion actually grew -- the business grew by 3.7%, mainly driven by outlet expansion and also predominantly in China. Thailand, same-store sales actually declined by 3.7% in Q3. And it's mainly because of the macro backdrop across all the major hubs we've had.

So again, you can see the food total system sales and also system sales growth for the food group at 3.8% in Q2. It's dropped, it's 3.7% now. And then same-store sales is almost 3.7%. But Q4, we are seeing some turnaround, and October is looking positive and is showing some positive trends as well.

Okay. And then we move to the Thailand hub. So again, I think you have the pack. So I'm going to leave, like some of the comments, which is we are saying that the domestic operations almost accounted for 60% of our revenues in the 9 months amongst the challenging economic backdrop as well.

Food group has started to see some improvements on the same stores and continues its effort to -- in terms of product innovation, promotional campaigns and delivery initiatives as well. So I think if I touch base on the strategies we have, we are now focusing or we have been focusing on the customer accessibility, both through physical and digital channels. So we launched the 1112 app where you can buy -- it's almost becoming a food aggregator. You can buy all our brands within 1 platform. We continue with our product innovation as well. So we've launched some new products within the brands, which I will show you a little bit later. And now we're starting to also leverage on the digital technology. In all areas of operations, whether it's customer service or whether it's loyalty program and focusing a bit more on data analytics as well.

So here -- so with the marketplace expanding today on the dine-in business, from dine-in to delivery actually, we have focused our efforts to -- both on the own delivery side and also on the third-party aggregates as well. So here, you see the 1112 app, the first 2, and then you see the Burger King also with LINE Pay. So we are with the other aggregators as well, with Lalamove, with Grab, and we're trying to promote the food brands with the other aggregators as well.

In terms of innovation, as I said before, so we've launched some new products based on the customer trends and what they want. So the Bacon & Cheesy Sausage Crust was a new one. We launched -- Burger King launched what's called a Cheesy Truffle Fries, which is also in high demand. Dairy Queen launched the Super Sundae. Swensen's, the Bingsu. Sizzler -- on Sizzler side, we've gone into a plant-based menu in terms of today's needs and how the trend is changing. And Sizzler, we've also looked at cold-pressed fresh juice as well.

So China hub. As I said before, the China hub is expected to remain one of the growth drivers for MINT on the food group side, and also because of the growing middle class of Chinese and also the product which we offer as well. We offer what's called farm-to-table fresh fish and that's drives -- that's in demand in China.

The same-store sales actually declined 2% in quarter 3, and mainly because of lower traffic and slightly slowing economy in China. Our same-store sales with outlet expansion of 17% was about -- grew by 9.3%. Q3, Riverside launched its loyalty program and the strategies we have for this year and next year is to expand the outlets, improve our customer service and also to continue to invest in what we call CRM, or customer relationship management, to increase or drive sales.

Okay. China hub, so we're building customer loyalty here. So here, as I said before, Riverside in China has launched a digital loyalty program. And we've already got about 200,000 new members in addition to what we had before. The food traceability is something very big for us. And also, in China, it's really important because you're having fresh fish from farm to table and also the traceability is quite important. So that's something which has happened as well.

Then we move to Australia. So here, I think what you see there, the jump in Q4 from total system sales to same store, it's mainly last year in -- sorry, in 2018, we had Groove Train there. And we sold Groove Train, and therefore, like now, the numbers are aligned so that's why you see such a big disparity in terms of the numbers there. The Coffee Club business, actually, system sales was minus 1.2%. But I think we are -- the Australian dollar declined by 7%, which also had an impact on our numbers. So the revenues actually increased in Australian dollars. But in terms of Thai baht, it actually declined 7% because of the weakening of the Aussie dollars.

We then go to the Australian hub domestic operations. So here, again, Australia has moved into innovation and the loyalty program and working with partners like Uber Eats to try and improve the traffic. So again, Australia has -- it's done few things. It's done a loyalty program and the app. It's also got some new product innovation, which is listed there. And also, we've also created some delivery partnership with the likes of Uber Eats as well. So again, it's all about trying to increase our traffic, increase same-store system sales as well.

So Minor Food, the priorities for Minor Food, I think it's 3 things. One is to drive system sales growth, the second one is we talk about diversified expansion and the third one is to focus on profitability. So driving growth, we look at -- on delivery because we are seeing that dine-in is moving more into takeout so we are focused on the delivery side. We focus on driving local menus. We are increasing the daytime traffic as well, and then grow the occasions in terms of what we offer.

Diversified expansion, we look at physical stores. So we're looking at selective expansion through new channels. And here -- and also the digital as well. And the main thing here is to make sure that we don't open -- keep opening stores and cannibalize our revenues. So that's the main strategy here. And then of course, focusing on profitability in terms of upgrading facilities and also coming up with new concepts for our brand and refreshing some of our brands as well.

We then move to Minor Lifestyle, which is now becoming quite small compared to Minor Food and also Minor Hotels. But again, Minor Lifestyle, the revenues for the 9 months was up by 11%. EBITDA and net profit actually declined by 9% and 56%, respectively, and mainly because it was driven by lower margin sales discounts and promotions campaign. So that has actually reduced a little bit. So here, for Q -- the 9 months, we're showing THB 35 million, net profit and the margin is 1%. But when you look at system sales and total system sales, it continues to grow. But again, as we all know, the retail or consumer business here in Thailand has been quite challenging and has been soft. So therefore, even though we grew system sales, our profitability actually suffered because of the discounting, which we have done.

Okay. So that ends the 3 groups. We then move to some of the corporate stuff. So here, I think we said that we would like to, as we always said in Q2, that we will continue to look at reducing our debt-to-equity and also trying to reduce our debt-to-EBITDA as well over the years. So our debt-to-equity ratio actually reduced to 1.35 at the end of the third quarter. Our internal target is 1.3, and we believe, by Q4, this will come down to about 1.3, 1.31. And that's including Chicken Time or Bonchon, which we just acquired.

Our debentures have an A+ rating by TRIS. Our leverage ratios, as you can see, has -- is going down as well. And then our CapEx plan. This is mainly the bigger boost in CapEx plan in 2018, was mainly driven by some of the CapEx or some of the acquisitions which we did, the biggest one being NH. So NH actually really balloon investments in 2018. From 2019 to 2023, this is what we have today in terms of projects, ongoing projects, which doesn't include any new ones. But I think over the next 4 years, our DE will reduce dramatically, like based on the plan we have, and also our debt-to-EBITDA also will come down based on the earnings and some of the asset recycles plans we have for the next few years.

Okay. Strengthening of balance sheet. So again, I think it's -- some of the investors like to know as to what's happening with the term out for the loan on the NH acquisition. That has been completed. All-in interest rate is below 3%, and all the fundings have been swapped to euros as well. So we do have a natural hedge. So all the debt for NH was swapped to euros. The loan repayment, the partial payment of the loan from the asset rotation strategy has been done. So the proceeds from the 3 Tivoli Hotels which we have has gone to reduce our debt from THB 125 billion in Q2 to THB 112 billion in Q3 and will continue to go down basically based on another transaction, which we have in Q4 as well. So that will reduce further. So as a result, our DE actually declined from 1.55 to 1.35 at the end of Q3, which we just announced.

The amendment of the covenant calculation. So again, this is another concern for some of our Thai investors and the analysts as well. So again, the definition of interest-bearing debt and the calculation has been amended to exclude the lease liabilities in anticipation of the IFRS 16. So that's done. So we've actually done the definition of interest-bearing debt in terms of our debt covenant as well.

So and the last one is, again, perpetual bond treatment. So here, the recent favorable account treatment on perpetual bonds, it's been validated by the federation of accounting professionals for at least until the end of 2022. So again, we really don't need to worry about the perpetual bond treatment of the perpetual bond. So the formal validation we will get will be before the end of this year. So we will get a formal validation, which means the Thai federation of accounting professionals will actually keep the -- our perpetual bond treatment based on the same basis as before.

Okay. The last one here is our 5-year strategy. So we've always said our 2023 goals to grow our revenue on a 10% CAGR growth, to become an employer of choice, to grow our net profit by 15% to -- from 15% to 20% year-on-year, to have a sustainable business with the CSR initiatives and also to have a ROIC, or return on invested capital, of 12%. We have our growth pillars. So we have some fantastic brands, which we have, which we can leverage and start to grow today. We have our value capture and productivity in terms of how we would monetize in terms of margins, capital optimization with asset-light strategy and also the mixed use. On the investment and partnership, we continue to grow that as well. Innovation and digital, as I said before, is our clear strategy and our key focus for the next 4 years. And we talk about people who are the pillars of our business, how do we grow them, how do we develop them and how do we improve our talent pool as well. And the last one is sustainability in terms of good corporate governance, people, customers, partners and also the environment.

We, last month, at the ASEAN conference, we were one of the only tourism-related companies within the ASEAN to get an award for the ASEAN Tourism Award, the whole of ASEAN. So and that was a big step for us because within the whole of ASEAN, we were recognized as the best in terms of tourism award. As you all know, we got the Best Board of the Year early this year. We've got some awards for corporate governance, sustainability as well. And within our brands, today, our brands, especially the Anantara brand, is being recognized as the top 6, the best brands in the world. And the recent Condé Nast Awards, which is a U.S.-based awards for our customers or the voice of our guest, Anantara Siam, where we are sitting here today, was voted as the best in Bangkok. And our hotels in the Maldives were voted as the best in Asia. And out of the 40 Anantara hotels, 24 of them were within the top 20 awards, whether it's Asia, whether it's Middle East, whether it's Africa and other places. So I think the company's got great potential. And the company's story, I believe, the next few years is going to be very interesting, especially with some of the acquisitions we've done and also starting to see the value proposition coming through as well, whether it's earnings, whether it's asset rotation and others. So we are putting together our 5-year plan, which will be presented to our board next week. And based on that, I feel some of the growth drivers will continue to remain, and we will have strategies also to deliver on this plan in the coming years.

So based on that, I'd like to thank everyone for being here today, and happy to take any Q&As you may have. Thank you.

If there is no Q&As, I think maybe it looks like the presentation was enough and was detailed enough to answer all your questions, I hope. But I'm happy if there is anyone who wants to speak up, take any Q&As as well.


Questions and Answers


Unidentified Participant, [1]


Khun Dillip, thanks very much for your presentation. Can I ask for your insight about the Thai hotel outlook, right? So basically, we have seen the tourist number recovering after the boat accident in Phuket, right? But how come this has not been translated into improvement in RevPAR, especially in our country? So is there any other underlying changes in the Thai hotel industry, whether it's oversupply or any changes in the tourism behavior? And the second follow-up question is that, have you seen any improving trend in the fourth quarter high season in Thailand?


Emmanuel Jude Dillipraj Rajakarier, Minor Hotel Group Limited - Group COO, CEO & Director [2]


Okay. So the first question, the -- as you know, we had the Phuket incident last year, which actually had an impact on the Chinese tourists coming to Thailand, and China was one of our biggest markets. And that, of course, did suffer. But we are seeing the Chinese tourists coming back. The bigger headwind we have in Thailand is 2 things. One is the continuous oversupply. And the second one is the currency actually, that's making a big impact, like say, for example, our key markets continue -- like even though we have China as number 1 market, we still have U.S., we still have U.K., we have Germany, all the European countries coming. And even if you take U.K., for example, the Thai baht, the U.K. pound, with the Brexit issues actually has declined from 46 to 39 or 40 now. So of course -- and we price -- we don't price in pound sterling, we actually price in Thai baht. So of course, it becomes more expensive for the guest to come here.

And what we are seeing is that there is a bit of a shift in terms of tourism from Thailand to other markets like Vietnam, Cambodia, Laos and places because they're still much cheaper and much more value-add as well. So but I feel it's a short-term trend because, of course, when you look at the tourism numbers, it continues to increase, but it's not increasing in the right segment. It's more increasing in the lower segment. So that's why you're saying that the numbers are increasing, and we don't see, but it's increasing in the lower segment. But hopefully, what we would hope is that with everything we're doing, we will also see that increase coming through, which we actually, to your question, to the second question you had, Q4 is showing a positive trend. So and for us, as you know, in Thailand, Q1 and Q4 is the main quarters because we make 70% of our EBITDA in those 2 quarters. So and we are seeing Q4, so far, being good. But of course, Russia is, again, a key market for us in Q4 because December and Jan, it's mainly driven by the Russians. And it's important that we get those bookings as well, which is showing a positive trend at the moment. But apart from that, I think we are seeing some green shoots coming through in Q4. So hopefully, I think we -- our Q4, I believe, will be a very strong Q4 for us based on what we have today.



Unidentified Participant, [3]


So I have questions on food segments. So I have 3 questions. The first one, in terms of the Bonchon expansion that you mentioned that it will increase from 44 to 150 to 200 within next few years. Does that mean -- and looking at your strategy that you mentioned about the relocation and the rationalization of brands. So does that mean some closure of existing brands and then instead growing your total sales through the expansion of Bonchon instead? That's one.

The second question is whether I would -- well, in third quarter, we already see some impairment, some provision because of the store closure. Because of the strategy that you mentioned about the food, will we expect to see more because of the rationalization that should be an ongoing process?

And the third one, so going forward, for the food segment, growth will -- can I assume that there can be more M&As in order to increase the number of brands and so to strengthen your online platform?


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


Okay. So the first question in terms of -- I'll try to remember your questions, the 3 questions in my head.

The first one, on Bonchon, I think what we see is not closing existing stores. What we see is resizing and re-rationalizing some of our existing stores. Because today, we see the shift going from dine-in to eat out or take out. So we do see the shift. So a lot of our real estate, we have a lot of space, which we own and lease. So therefore, what I would say is that we would actually see a shift in terms of re-rationalizing the space.

So say, for example, a Pizza Company or a Coffee Club or whatever, can also now add-on a Bonchon as well. And therefore, it would also help us to grow the brand much quicker because that's the reason we said that we would be able to take the brand from 40 existing stores to about 150 in the coming years. And I don't see any store closures actually, as a result of that, actually, it's more rationalization, creating some dark kitchens to also cope with the demand for the brands we have and better utilize our brands within the food aggregators as well. So that's pretty much our strategy on that side.

On the second question, with regards to impairments, we -- actually, because for us, we always say, I think one of the success factors we've had within Minor International is what we call fail fast. So if something doesn't work, we take the pain tablet and we move fast. Because sometimes you spend more time trying to put a Band-Aid and trying to put it on life support. So therefore, like what we said was, like some of the brands or some of the places where we have expanded, we've shut down the stores to rationalize and also to make sure that they don't cannibalize our business as well. So that's the second question. So I don't see any more impairments coming in the food business.

And the third one is, are we looking at more M&A deals for the food side. I think we are, as you know, as a company, we are very opportunistic. We always believe in growth, and we believe in accretion for the shareholders. And that's one of the reasons, like we've been looking for many years, actually, for a very successful food brand. And when we found Bonchon, which is also a chicken, which is also, in terms of market, it's one of the highest. We said, okay, this will be a winning hit, and that's what we did. So we worked on it for some time, and we believe that the brand has a very strong growth potential as well. Are we looking at new acquisitions? At the moment, no, because I think our focus is to look at how do we deleverage and how do we reduce our debt and how do we reduce our debt-to-EBITDA as well. By 2 things. One is we will continue with the asset rotation, like what we did with Tivoli. That was a deal which no one believed we could do, but we sold the 3 Tivoli hotels at 20x multiple. We bought the whole portfolio for EUR 290 million, and we sold 3 hotels for EUR 317 million. And we've kept the hotel. So we're not losing revenue because we're keeping 75% of the EBITDA. This is something we will continue to do to reduce our debt on the balance sheet side.

On the P&L side or the income statement, we will continue to refocus on driving our profits. So basically, looking at the NH integration, looking at the food group with Bonchon, looking at some of the food brands, realigning and also redefining the brands based on today's customer, what the guest wants and what the customer wants, whether it's digital, whether it's innovation, whether it's new products and all that. So I think it's a two-pronged approach. One is to strengthen our income statements going forward or P&L. And the second one is to strengthen our balance sheet, also in the future as well. So that's our key focus for the next few years. So I hope I've answered all 3 questions.

Okay. Okay. If there is no more questions, I'd like to thank everyone. And our team is here, so if you have any more questions, the numbers, I'm sure we'll be able to provide for it. So thank you for coming. (foreign language)