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Edited Transcript of Y92.SI earnings conference call or presentation 15-Aug-19 10:30am GMT

Q3 2019 Thai Beverage PCL Earnings Call

Bangkok Aug 26, 2019 (Thomson StreetEvents) -- Edited Transcript of Thai Beverage PCL earnings conference call or presentation Thursday, August 15, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Kosit Suksingha

Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief Beer Business - Thailand & Executive VP

* Namfon Aungsutornrungsi

Thai Beverage Public Company Limited - Head of IR Department

* Prapakon Thongtheppairot

Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market

* Sithichai Chaikriangkrai

Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director

* Thapana Sirivadhanabhakdi

Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director

* Ueychai Tantha-Obhas

Thai Beverage Public Company Limited - Senior EVP, COO & Director

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Conference Call Participants

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* Andy Sim

DBS Bank Ltd., Research Division - VP of Equity Research

* Cezzane See

CIMB Research - Analyst

* Divya Gangahar Kothiyal

Morgan Stanley, Research Division - Equity Analyst

* Josias Goh;Saga Tree Capital Advisors;Analyst

* Nico Yosman

Morgan Stanley, Research Division - Research Associate

* Nigel Kiernan

HSBC, Research Division - Senior Consumer Analyst

* Permada Darmono

UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst

* Van Linh Vo;Albizia Capital Pte Ltd;Analyst

* Xuan Tan

CLSA Limited, Research Division - Research Analyst

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Presentation

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Operator [1]

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Good evening, everyone, and thank you for joining the Thai Beverage Third Quarter 2019 Results Call. (Operator Instructions) I will now hand over the call to the presenter, Ms. Namfon Aungsutornrungsi, ThaiBev's Head of Investor Relations, and the members of ThaiBev's senior management team. Thank you.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [2]

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Good evening, ladies and gentlemen, welcome to Thai Beverage's Third Quarter 2019 ended the 30th of June 2019 Financial Results Conference Call. I'm Namfon Aungsutornrungsi, Head of Investor Relations.

For the call tonight, I will start the call with a summary of this quarter result and then we will open the Q&A session with our management team.

Before we start our summary, I would like to announce that for this quarter, since Khun Bennett, the CEO of Sabeco will need to leave the call earlier. So we -- he has roughly 20 minutes, after I finish my session, and then we will start the call about Sabeco operation first. So if you have anything regarding about Sabeco performance, please ask at the beginning because Khun Bennett will leave in 20 minutes, okay?

Okay. For the summary of the third quarter results, total sales revenue of the company for the quarter ended 30th of June 2019 was THB 62,658 million, an increase of 3.3% when compared to the same year last year.

This was due to an increase in sales of spirits business, nonalcoholic beverages and the food business. The net profit was THB 7,656 million, increased 27.1% year-on-year. This was due to an improvement in net profit margin of our segments and also an increase in contribution for F&N and FPL.

Please note that in this quarter, the company has submitted its retirement plan in accordance with the changes in the Labor Protection Act, and recognized past service costs as an expense in full in statement of income in 2019 to comply with the accounting standard. As a result of this change, the provision for retirement benefit in the consolidated statement of income due to the change of past service cost was THB 798 million.

For the highlights of the quarter, this third quarter operations. In the third quarter, the company's spirits business registered sales revenue THB 26,265 million, up 6.9%. The sales volume recorded by spirits business increased 4.6% year-on-year when excluding the Grand Royal Group sales, and increased 2.1% year-on-year, when including Grand Royal Group sales.

The spirits business recorded net profit amounting to THB 4,455 million, up 11% year-on-year. The company's beer business generated sales revenue amounting to THB 28,185 million this quarter, or 0.3% less than previous year.

Total sales volume recorded by the company's beer business decreased 1% year-on-year when including Sabeco sales and increased 3.2% year-on-year when excluding the Sabeco sales. The net profit reported by the company's beer business increased 32% year-on-year to THB 1,193 million because of lower cost of sales and advertising and promotion expenses.

The nonalcoholic beverage business generated sales revenue THB 4,253 million in the third quarter, up 0.5% compared to the same period last year. Total sales volume increased 10.6% year-on-year, following an increase in carbonated soft drink, ready to drink tea and also drinking water sales volume. The nonalcoholic beverage business net loss narrowed 53.3% year-on-year to THB 134 million because of the decrease in cost of sales.

The company's food business recorded sales revenue amounting to THB 4,052 million in this quarter, up 11.8% year-on-year. This was mainly due to an increase in sales revenue from both Oishi food and also KFC. As a result, the net profit increased 270.5% year-on-year to THB 163 million.

The sales revenue recorded by the international business slowed down 7% compared to the previous year. International beer sales revenue decreased 5% year-on-year as a result of the decrease in sales volume. The sales grew -- the revenue generated by international spirits sales also decreased 24% year-on-year, following lower sales of Grand Royal Group.

We will now open the call to any questions on our result. Please, I would like to ask for the questions on Sabeco to come first. Operator, please open the line for Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, Nigel from HSBC.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [2]

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Can you hear me okay? Hello?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [3]

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Hello. Hi, Nigel.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [4]

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(inaudible)[I will refer the] question [for all]. (inaudible) has been going quickly. So would this -- if you could be so kind to (inaudible) in the competitive environment, how is Sabeco set to be (inaudible)? How (inaudible) the market (inaudible) [as gaining share]? And what percent have you grown revenue? Just as a kind (inaudible) guidance but the business which yields (inaudible) 3 to 4 years in terms of revenue growth?

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Unidentified Company Representative, [5]

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I think the question is a bit long but never mind. Let me try it. The first question was on improved results, second is on competition, right? You're asking whether we have gained share, and I think in the analyst briefing that we just on Monday, we said we gained share over the quarter, over the first half of the year, right? And you're asking me about competitors whether they're gaining share. Did you ask me that or?

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [6]

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Yes. I mean are you -- so my sense is that as you said on Monday, so you're gaining share, and it's highly competitive shares too, right? So is that correct? Are the other players in the market gaining shares? And what percent is this?

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Unidentified Company Representative, [7]

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I mean I normally won't comment anything on competitors. But I mean we look at [other impending deals], but not the results. And (inaudible) -- the growth they are taking about, excludes the market growth so I'm assuming they're doing -- gaining share throughout. I believe the focus is (inaudible) share. So that's the first question, right?

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [8]

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Sure. And then just in terms of to your business and the next one is essentially terms of the medium-term growth rate. How do you think the business is growing? In terms of volume and price, it's not growing. So just trying to get a feel for how do you think that your business can grow and what margin should grow at over the medium term?

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Unidentified Company Representative, [9]

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I do not -- I have a (inaudible) I believe (inaudible) if you think that we plan to grow faster than the market in terms of volume. And I will say that the revenue growth should be faster than the volume growth. And we also aim for profit growth to be faster than the revenue growth, right? So we need (inaudible) of volume growth, so the revenue will be higher, growth rate (inaudible) of volume and (inaudible) will be higher growth than the revenue, except (inaudible). So there are many things we can do across. We do that and we can increase the profit mix (inaudible) prices to get the higher revenue growth and volume growth and the [VAT] in terms of the volume growth. And the volume growth, mix growth, (inaudible) across. So at this time, this is what we're trying to do for the next few years, and we are moving according to plan.

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Operator [10]

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(Operator Instructions) There are currently no questions in queue. (Operator Instructions) Our next question in queue is Permada from UBS.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [11]

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Khun Bennett, thank you so much for your time. I won't take up a lot of your time since you've already shared a lot earlier this week, at the analyst briefing. But can I just confirm based on the disclosures that's given to the [SGF], is it correct to say that the (inaudible) volume in this quarter declined by 2.6% year-on-year? And then maybe my calculation -- first half of this calendar year is up about 5-ish percent?

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Unidentified Company Representative, [12]

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I will answer that. (inaudible).

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [13]

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So volume [in coming weeks] (inaudible) volume going down by 2%, right?

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [14]

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Volume in the quarter down by 2 points -- yes, volume in the quarter down by 2% year-on-year. In the first half, up just by about 5-ish percent.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [15]

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Just correcting. [So what was leading to this,] that basically we're [doing some form]. I mean because of the (inaudible) and that's the reason why we see a lower volume sales in quarter 2.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [16]

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And the (inaudible)?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [17]

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What[we're talking is actually just] (inaudible) but the domestic volume would not attract as much.

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Operator [18]

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(Operator Instructions) Next question in queue, Harry from (inaudible).

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Unidentified Analyst, [19]

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I think that you mentioned that you see canned products growing faster than expected. Is there going to be any investment in the new coming facility in canned food? Or does the company got enough capacity to do that?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [20]

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We already have plans to do that, to add to the capacity and (inaudible) as well. For the near future and for the midterm as well. So I said during the briefing that we have a master plan for the next 2 years and we are executing the plan. And we can see the trend of canning demand going up, and we have planned accordingly for the expansion. Does that answer your question?

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Unidentified Analyst, [21]

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Yes, yes. That sort of answered it.

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Operator [22]

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(Operator Instructions)

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [23]

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Okay. If there's no question regarding the Sabeco we will move on to the ThaiBev side. So I just want to confirm that there no more questions on Sabeco. So far we don't have any question on Sabeco in the line. And so we are -- thank you (inaudible) joining the call.

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Unidentified Company Representative, [24]

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Thank you.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [25]

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Okay. If there's no more question regarding Sabeco, we will move on to the ThaiBev side. So I just want to confirm that there's no more question on Sabeco. So far we don't have any question on Sabeco in the line. So we thank you Khun Bennett and Khun (inaudible) for joining call (inaudible). So we now open the line for any question regarding other segment and ThaiBev.

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Operator [26]

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Our next question in queue, [Manoj] from [Barring].

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Unidentified Analyst, [27]

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Sorry, I think my question -- I have a question for Sabeco, but I think I missed my chance. But in case you would like to answer my question on Sabeco, in the cost of goods sold Sabeco, how much is excise? Of orders such as consumption tax, what proportion of cost of goods sold has the (inaudible)?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [28]

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Hello, (inaudible). Khun Bennett and Khun (inaudible) already left the call. Yes. In terms of the breakdown for the excise tax for Sabeco, we do not disclose. So on the ThaiBev you see the breakdown of our cost on excise. That include the excise tax for both Thailand and also from Sabeco's side. So that part won't be disclosed. Sorry about that.

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Operator [29]

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Our next question, Divya from Morgan Stanley.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [30]

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I have 3 questions. The first one is on the beer business. I'd like to know what was the domestic beer volume growth? It looks a bit low watching the report, but I assume there's an export added in it. So if you exclude the export from the domestic beer volume, what was the underlying growth in the market and what's the current market share? My second question is on the nonalcoholic beverage business. Given we've had 2 consecutive quarters of EBITDA positive, how are we thinking about that over the 2020 duration of breakeven? I mean is that achievable again? And if you could give some color on what drove the gross profit margin up for this segment report. It was the highest we've ever seen in the last few years. And my last question is on the spirits business. If you could talk about whether brown spirits have really come back because the realization seems to have gone up. And also explain why the Myanmar volumes are down over 20% year-on-year, especially since it was a low base last year due to destocking there.

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief Beer Business - Thailand & Executive VP [31]

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This is Kosit, I'm going to answer the questions on the beer -- domestic beer business. The first question you asked is all about the growth of the market and the growth of the domestic beer in relation to the market. I understand that you see the big picture that the market is growing -- the overall market is growing quite well, yes? I think our market is improving a lot during the past periods. And our growth is actually -- I think if you look at some -- it's in line with the market. And the market share I think it still stayed in the line, right? So that's on the beer side.

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Unidentified Company Representative, [32]

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(inaudible) here, talking about NAB. So for your question about profitability improving for NAB, three things that we've done this year. First one is to shift volumes between channels, meaning, we move volumes away from the modern trade channel, which is low profitability, to the traditional trade which is a high profitable, higher-margin channel. So we're trying to move the ratio up to -- for the tea channel to improve. Second one is some saving on our A&P. So there were very big savings that we did in the SG&A through A&P savings. And then the third area was some cost-savings exercises that we had in the NAB group. So all 3 ended up to a more positive performance for the year. If things continue as they do this year, we hope to be profitable next year, but again, it's hard to predict the future. But of course we'll try and we are positive about it.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [33]

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This is Prapakon. On two questions, one is on Thailand. One (inaudible) Thailand once again now. For Thailand, actually their overall -- it is true that the rate of sale for the quarter, for the past rate was much higher than a quarter -- the same quarter last year. We probably have grown from the sell-in data. We have grown in the double-digits growth. But the reason why you're seeing the margin expansions, part of it -- only part of it was from a better mix of the brown spirit. But the other part of it was a better cost of goods coming from the lower molasses price. As mentioned in a few call before that, these crops are -- the molasses are cheaper, much cheaper than the year before. And because we're using average cost, so the effect of the new molasses cost actually in this quarter is actually much more prominent than the quarter before. So this is a full effect of the molasses cost that are coming in as well. So for Thailand, in summary, the brown spirits is doing better than the white spirit this time in this quarter, and we have good cost of goods in this quarter. As for the Myanmar, yes, that's -- you're right, the [write down] was in the 20% range compared to the same quarter as last year. And we would like to clarify. What happened was there is a supply chain pickup in the production side that we have and we have fixed it. It is a onetime issue that we had. It did not affect the consumer or the -- it did not affect the product in the market. We have fixed the problem and as of August, we are back to normal in terms of productions. Fortunately, in the quarter before in March, we have loaded the stock quite a lot because traditionally in March for Myanmar that is the biggest selling month because of the water festival and the long holiday. So fortunately, March of this year, the stock loading was higher than last year. So with the stock in the market, we did not have experience -- we did not experience any out of stock in the consumer side.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [34]

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Divya, this is Ueychai. Divya, hold on. I would like to add on beer because the government has announced that the taxed beer, the excise tax increased by 11.9%. Just want to clarify. Chang's growth, in terms of excise payment, growth at 12.72%. So -- for -- if you look at that as a market share for the taxpayer, we are gaining about 0.3%, okay? Just wanted to clear that. You have to understand that the figures of [new sent] is consumption figures, but the government announced the tax payment figures. So we know exactly how much we pay to the government, which has increased from last year 12.7%. And then I just found out that the announcement of the total beer is 11.9%. With that figures, we gain market share at 0.3%, calculated out like that. Just to clarify, okay?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [35]

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One clarification of -- so the underlying domestic volume growth, the removed exports would be definitely higher than the 3% reported number, that would be fair to say?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [36]

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Yes. Yes, you can say that.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [37]

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Okay. And the second clarification is just on brown spirits. Like, the fact that you're seeing double-digit growth, that's being very disconnected from what we've seen in the last 2, 3 quarters. And also somewhat different from watching a lot of (inaudible). So what's the reason for that?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [38]

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Yes. I think the -- exactly. I did clarify using the word sell-in in the quarter before -- the same quarter last year there was a brown spirit price increase that took effect at the beginning of the quarter, I believe. And therefore, that quarter last year, the balance of the sales growth was a bit lower in base. And when we have the double-digit sales growth, this year is a selling data. So underlying -- based on third-party research for this quarter, the balance for the growth is around 3%. It's the same as underlying growth that what would be seen in white as well.

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Operator [39]

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Our next question, Permada from UBS.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [40]

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I just have a question on the spirit side for Ueychai. Can you give us some color in terms of the ASP increase that's been implemented in the domestics spirits business in the quarter and the nine months to date? That's my first question. And also on beer ASP, and based on my rough calculation, it seems the quarter for beer ASP increased by about 5.4% on a 7% range in the prior 2 quarters, would that be correct? And last question on the Grand Royal. Now we're beginning to see the emerging patterns of the seasonality of the demand. So in the past quarter, volume obviously dropped, but in the same quarter in last fiscal year, also volume dropped quarter-on-quarter. What's going to stop that seasonality that the quarter ending June seems to be kind of the weak quarter for Myanmar?

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Unidentified Company Representative, [41]

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So on average selling price for the time in IFRS 7 slide shown is a product mix change. Because in this quarter, the sell-in number for box, which is much higher. And that is for the parts released. Also far much higher and widespread. That's why you see the products mix change showing their ASP upward. As for the pricing itself, we don't have any price increase in this quarter. So it shouldn't show anything if we extract volume, and volume goods will remain as normal. As for the seasonality effect, in seasonality effect for Myanmar, this quarter generally is the low order for the year. And the first and the second quarters generally would be the better quarter. And in Myanmar the -- as I mentioned earlier, that March, as a monthly sale, would be the highest in the 12 months period. And generally, with that April and May tend to be a very low month. That's slightly different from Thailand where we see our fourth quarter as a lowest sale quarter because I think for April is still a good selling month for Thailand. That's the difference between us and Myanmar.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [42]

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I think if I can get some clarification on the beer side as well in terms of ASP increases for the domestic beer.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [43]

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Permada, I don't think for domestic, we don't have any price increase for the beer.

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Operator [44]

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Our next question, Andy Sim from DBS Vickers.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [45]

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Couple of questions from my side. First, in terms of spirit. In fact, just wanted to -- for this quarter. But apparently you have, in terms of the higher costs from the bottles. And so in terms of the SG&A costs, is this a function of higher volumes, or is that actually in total spend from a quarter before. Second question is on associates. Local associates hasn't been restricted down in the last -- the second quarter of -- try second quarter '18. I just wanted to understand what is the reason and that 3Q of '19, the tumbler seems to be higher than the -- we pick a rough completion from M&A and you're very big to operate. And the last question is on Grand volume. Prapakon mentioned about the supply chain hiccup. Will this volume be shifted into fourth quarter or is it -- would it be lost because of the hiccup. That's my 3 questions.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [46]

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Okay. Andy, this is Prapakon. On spirit side, I'll answer the questions 1 and 3. The first question is on the bottle. I think we've been talking about the cost of bottle, whether we have increased the level of used bottle. The project of changing bottle will start towards the end of August. And the new bottle, we will start in September. We will start feeding branding bottle in the widespread business. And therefore, starting from September onward, for at least 6 to 9 months, we're expecting to have 100% new bottle use in that widespread business. And therefore, cost of goods for bottle will shift up to new bottle. I think over the long term, we believe it's a value chain because after the 8 -- 6 to 9 months period, we believe we will start collecting used bottle. And over the next -- over the 3 years period, we should be able to move that average used old bottle to go up higher than where we are today. So the project we implemented is a better long-term project for us. That's what we did. So that's our Grand model. We believe that the replenishment of stock in market will take place once we have the production's hiccup resolved. And as I mentioned that by -- within August -- by the end of August, we would have resolved all this issue, and therefore, go full steam and put the product back into the market. I think we were running quite low getting close to the point where we may be out of the stock. But with this, I think we solved -- we would have quite a time to begin to fill back up to do a recent rollback in stock. So I think at this point, we still determine how much reasonable market stock we need in the low season.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [47]

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Sithichai, CFO, speaking. For the associate income on this quarter, 3Q. You can see that the 2 major pass come from F&L whether they [need]. And the other part coming from Fraser Property Limited, FPL. F&L on this third quarter, there are resold higher than the -- call it the quarter of last year. But for FPL, they are like, the performance was lower than 3Q last year. But this Q, FPL hasn't realized yet because we divest pricing powers to the third-party. So for our part, we haven't realized yet SGD 115 million which 38% come from in our part of THB 101 million. So we will combine the 2, make our 3Q resources higher than the 3Q last year, (inaudible) come from (inaudible).

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [48]

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So on this point, in terms of the restatement, can we get a sense of -- because I think last year, the original number was, I think, over TBH 2 billion, and I think it was restated down to about 1 point something, TBH 1.5 billion, TBH 1.6 billion. So I just want to attend the refresh or rather the explanation behind the restatement that we have.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [49]

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For our lease stake, we can't change accounting because of the Singapore, they have the IFRS so many so they listed quite an accounting method. Here you can see that under everything under (inaudible) part, more (inaudible) had a lease come from the extra -- and therefore, the accounting -- the new accounting issue that (inaudible) adopted on this one. They are now on a (inaudible) part of what company.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [50]

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Okay. Just on taxes (inaudible) in terms of the bottles, you mentioned that -- so in terms of bottles, there is a shipping introduced in the use of new model. Would that -- (inaudible) something going in terms of the costs going forward. Would it be offset by the low cost of bottles. And would it -- then would we see margins come off slightly in terms of (inaudible) on gross margins?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [51]

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It will be slightly achieved, Andy. At this point, we are using new bottles that are closing to 60% or 70% already. That's why with these bottles, it's not so -- is not a new, more unique that we can bring it back into used forms. So I think with the bottle project that we're implementing, we would have our product in a unique bottle where we actually can bring it back.

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Operator [52]

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Our next question, Cezzane from CIMB.

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Cezzane See, CIMB Research - Analyst [53]

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First thing is -- I have 2 question. Can I just understand in terms of this added expenses, is this -- it looks lower this quarter. Is this something like a cost function that was given that -- to take up cost? Or how should we look at that trending forward? That's one. And secondly, on the expenses on the labor law, this is a -- sorry, I didn't understand as well. But this is for this year or how long should we see this sort of expense going forward? And lastly the cycle -- sorry, [sort of expense] was this metric on whether the profitability of Myanmar spirit this quarter, was there any effect with the lower volumes?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [54]

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I will answer -- Sithichai, CFO. Because this is come from the Thai government. Thai government, the Cabinet that approved to change the severance pay. So if you work hard in Thailand, if you retire in the normal before this law enforced, if you work seriously over 20 year, you just get 300 days severance pay. But the new law, if you work over 20 years, you have to get compensated a little bit, 400 days. So 400 days additional.

So on the [unemployment] topic in Thailand, they announced that you have to work back up to third Q of this year. All impact have to make accounting in the P&L -- in this P&L, which comes to what type. We have [THB 798 million] impact. Going forward, we still have, but it's not much because it will come to current, not the past. But only this Q, they come to the past. But by the accounting, you have to make certain in this quarter P&L the statement in baht, that for the [labor code] in Thailand that now every company in Thailand have to make in P&L in one time, make the big impact. Going forward, it's a little, not much like this.

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [55]

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The first question is on products mix in Thailand, brown spirit and white spirit. This is not -- we don't expect this to be a permanent trend. This quarter, we have more brown spirit than usual so it should be going back to normal trend.

And the second and the third questions that you asked about the profitability, yes, of course, when we don't sell that much, the cost per unit for us is going to be higher, and therefore, affected the profit for the quarter. And for the attributable profits that profit is actually not a significant number to us.

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Cezzane See, CIMB Research - Analyst [56]

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And just last one on the -- sorry, A&P spend, is this something that you think will revert back to normal next year, given that it's more stabilized volume kind of growth? Or is this something that we should stick together moving ahead?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [57]

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Cezzane, you mean A&P for which product group?

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Cezzane See, CIMB Research - Analyst [58]

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I think across the board, like it's a little bit low, right, and also -- yes, I think more than [recent], yes. Or any sense to that, how should we look at it going forward? The same even in the group business?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [59]

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Cezzane, I think in -- for the spirit, actually the A&P in this quarter is slightly up, I think if you're looking at our MD&A. But if you're asking in terms of the overall product for Tiger, for A&P spending, or which area that you want to mention?

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Cezzane See, CIMB Research - Analyst [60]

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Okay. And then also what was the price if you -- how should I look at it for the year as well? Is that this level, or yes, any changes to that?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [61]

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For the next crop, molasses next crop, which will start only in November. This year has been quite dry, so we expect the molasses price next year will be higher than this year because this year is considered very low price.

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Operator [62]

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Our next question, Josias from Saga Tree.

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Josias Goh;Saga Tree Capital Advisors;Analyst, [63]

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Two questions. The first one is for group performance. This is on the new bottles. So you were talking about Tiger Board trying to reduce new bottles and this has been going on for a few quarters. So just wanted to understand, are you trying to move towards 100% new bottle use from like the 70% number? Two, does it mean that gross margin impact -- the gross margin should continue to be impacted by the new bottles until you reach 100%, and we should see improvement going forward?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [64]

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This -- the question should be thinking this way. At the moment, the bottle shape is not unique enough that the collectability is to get to a higher use in a way we'd be able to achieve. We will be implementing a unique bottle shape with embossment on the bottle that will allow us to collect back these bottle.

So the reason why need to go -- because at the moment, we're using about 60% to 70% new bottles, but it's not a unique shape. If we go to a unique shape, which may mean creating our own bottle, we have to go 100% new bottle for about 6 to 9 months before we can get the used bottles that's coming back in from the market. Once we come down to that, meaning we will be injecting our supply of new bottles into the market, we will start to have higher used bottle rate that's coming back to us. So that's how the bottle business work. And we believe that 6 to 9 months' time, we would be able to slowly increase our used bottle rate. Within 2 to 3 years' time, it should exceed the level that we have today. So over a 3-year period, it would be much better for us to implement it.

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Josias Goh;Saga Tree Capital Advisors;Analyst, [65]

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Okay. So just to clarify, so for the last few quarters you have been injecting new bottles, but this not the new shape ones? And now you should get the new shaped ones I think on September?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [66]

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Yes, in the past year we started using more new and new -- more new bottle because we -- because of the shape of the bottle is not unique and it's being used by the smaller producer, and we always like supplying the bottle to the market. And because of that, we will be implementing this at the end of this month, new bottles that will not be able to be used by the other producer.

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Josias Goh;Saga Tree Capital Advisors;Analyst, [67]

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Got it. So moving forward, the gross margin percentage should be -- should start the trend down before it moves back up?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [68]

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For the widespread only.

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Josias Goh;Saga Tree Capital Advisors;Analyst, [69]

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Okay. Got it. And my second question is on the consumer segment. I think there's another drought in the north region. Can you extrapolate on -- I mean what's the consumer sentiment like in terms of consumption?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [70]

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This is Ueychai. We don't see much of an impact. I think they're still drinking. The drought probably will make them more thirsty, yes.

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Operator [71]

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Our next follow-up question, Permada from UBS.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [72]

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I have a question for Khun Kosit on the domestic beer business. So this is based on my estimates, but I think your domestic operating profit -- domestic profitability of the business is rising really fast. Would that be correct? And should we expect to stay in the trend of increasing profitability for the Chang business domestically?

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief Beer Business - Thailand & Executive VP [73]

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I cannot say for the future, but we are trying so hard to keep it at the competitive level.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [74]

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Can you give us some color what were the drivers in the rising profitability and what you're trying to do to increase the profitability of the business?

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief Beer Business - Thailand & Executive VP [75]

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Yes. I think it starts with the fundamental that's spending carefully. I think we have the right -- the balance between what we should be spending and what should we be collecting back in the market. So that's all I can say.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [76]

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And is that more like on the A&P side or more on the sort of -- kind of distribution?

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief Beer Business - Thailand & Executive VP [77]

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If you look to our A&P, I don't want to give you -- have the idea that it's improving. But if you look back to 2017, you can see that actually it's pretty much -- the A&P spending is still pretty much aligned. So I think last year that we have been spending much in the A&P. So if you look back -- I'm trying to suggest to you to look at it, we -- I think A&P, in my view, it's still in line with the previous years with the exception of just 2018. That's all.

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Operator [78]

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Our next question, Nico Yosman from Morgan Stanley.

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Nico Yosman, Morgan Stanley, Research Division - Research Associate [79]

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I just want to clarify on the spirits bottling things again. So the project that you took last year was injecting new bottled -- bottles and yet again this a new project again.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [80]

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Nico, in which area that you want to -- we're not quite clear in terms of the bottle?

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Nico Yosman, Morgan Stanley, Research Division - Research Associate [81]

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In spirits bottling project again, because as we know that you have already been injecting new bottles in the last year. And are you -- I can understand you mentioned that 1 was a unique bottle. And so this is a new project that you will start in September this year for the unique bottle, which is completely different from the last year.

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [82]

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Okay. In the wine spirit business, if we go back to about 3 years ago, maybe take back about 3 years ago, the large bottle wine spirit we use 100% used bottle because we use a beer bottle available in the market. That's not Chang beer but it's other beer bottle within the market that we're using the bottle to wine spirit. And that bottle -- so which means about 2 years ago, we are about 100% used bottle. And starting about 3 years -- 2 years ago, the bottle -- that bottle is no longer available for us to use as a wine spirit bottle. So we started using newer bottle that we get from the bottle supplier. That's why the ratio of new bottle have increased in the past 2 years to the point that we believe that by doing so it will not be workable. Therefore, we're implementing new shape bottle that are more unique to us so that it will allow us to collect back this bottle back in a used form because no other producer will be able to use this bottle. And hopefully, that's clarified, but otherwise, you have to be an operator like us to understand this quite complicated matter.

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Nico Yosman, Morgan Stanley, Research Division - Research Associate [83]

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Right, right. I think that's quite clear. I just realized that you're saying that new bottle is already being put in the system ever since 2 years ago. I thought it only started last year, but noted. That's (inaudible).

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [84]

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Yes. From last year, it was a new bottle, but it was still the generic shape. Now we are using new bottle that's more unique to us. That's why there will be embossment of brand name or a trademark on the bottles. Therefore, no -- other producer would not be able to take this bottle and use it.

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Nico Yosman, Morgan Stanley, Research Division - Research Associate [85]

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Okay. I understand. My second question is how much molasses inventory you have currently before you have to take in the new higher price?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [86]

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Generally, molasses on the crop that we take in each year is only good for an annual production because molasses in Thailand or anywhere in the world is linked to sugar harvesting -- sugarcane harvesting. And in Thailand, sugarcane harvesting lasts about 4 to 5 months only. It starts in around November, December all the way to about March or April. And that's about it. So if you ask how much would we have, it's only what we buy for the season. It would last us till we get to the new crop, generally, toward the end of the year. That's just an annual practice for us.

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Nico Yosman, Morgan Stanley, Research Division - Research Associate [87]

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Okay. And can you remind me again, you mentioned earlier when this new crop will start to come in?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [88]

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New crop harvesting is November. November, December time frame, when molasses would be available for transport.

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Operator [89]

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Our next question, Xuan Tan from CLSA.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [90]

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I have 2 questions. Firstly is on the strategic level, how are you thinking about acquisition? Is it still more opportunistic like, for example, Starbucks? And secondly, I recall during the annual investor meeting, Thapana mentioned that we should be getting an update on the global brewer collaboration around middle of the year, is this still an ongoing discussion?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [91]

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I think for these 2 questions, I think it's quite sensitive for the share price, so we will refrain from answering these 2 questions. Sorry about that.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [92]

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Okay. Maybe is it that the discussion group brewer is no longer ongoing, right? Will we have an update or no?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [93]

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So for us, we're quite careful about what we disclose because it affects our share price. So that's why I said, we cannot answer anything regarding your first 2 questions. Sorry about that.

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Operator [94]

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Our next question [Sharid] from [Somerset Capital].

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Unidentified Analyst, [95]

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Just 2 questions from my side, just (inaudible) on this corporate structure. I understand that vehicle structure is already has (inaudible) is average after the loan conversion. Subsequently, there was an agreement (inaudible) agreement (inaudible). And then the second point is on the NAB segment, I understand that the recovery and the volumes is (inaudible) segment are like complementary (inaudible) yet pretty weak, and what's the reason behind it?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [96]

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Can you repeat again about the question regarding the (inaudible) vehicle and (inaudible) for Sabeco because your voice is not loud enough. Sorry.

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Unidentified Analyst, [97]

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All right. Yes. Sorry about that. Yes. So the question is about vehicle (inaudible) it really has about 99% of (inaudible) conversion. But subsequently there was a deal to acquire 50% of capacity. Just trying to understand more about that agreement.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [98]

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Sithichai, CFO. (inaudible) are now in the (inaudible) Since we are (inaudible) capital currently we are (inaudible) Vietnam bet 99% something and Vietnam F&B is about less than 1%. And Vietnam (inaudible) company will grow 53%. (inaudible) Sabeco (inaudible) are now (inaudible)

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Unidentified Analyst, [99]

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Just trying to understand the cost (inaudible) all the 99% in Vietnam beverage, why would they (inaudible) to acquire 33% Vietnam (inaudible)

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [100]

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Vietnam F&B is -- Vietnam is 1% because Vietnam for (inaudible) structure because (inaudible) we have (inaudible) because Vietnam F&B before 99% (inaudible) and then you still have the Vietnam it will be about 1%. And we (inaudible) for Vietnam is about less than 1%. Because you want us to detail, the Vietnamese people as our (inaudible)stock.

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Unidentified Company Representative, [101]

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(inaudible) here. Sorry I missed your question. I heard the statement about the NAB market growing but I missed your question. Can you repeat the question, please?

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Unidentified Analyst, [102]

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Yes, sorry about that. Yes. Just so I understand the format, ASPs -- what the EFT cost there was quite strong volume recovery or growth across the different segments ASP for the quarter or for the week. What was the reason behind that?

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Unidentified Company Representative, [103]

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Yes, (inaudible) again. Basically, we were -- like I said earlier, we were just shifting volumes from the modern trade channel, the traditional trade channel. So while the revenues look the same or they look similar, the profitability and the margins are much better in the traditional trade. So in the last 9 months, we have been shifting volumes from the MT to the TT that has caused the improvement in the performance.

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Unidentified Analyst, [104]

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Okay. So -- but the traditional (inaudible) normal ASP that's the reason behind the cash price?

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Unidentified Company Representative, [105]

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No, the selling price is generally the same, but the margins are much better.

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Operator [106]

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(Operator Instructions) Our next question, Divya from Morgan Stanley.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [107]

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I just had a couple of follow-up questions. The first one was on what kind of picture this time could represent, because the drought might not be impacting the margins. Just want to get a sense from you on how you're looking at the second half of this year from a consumer-sentiment perspective. [Pharmacists] are only slightly higher. Do you feel the need for (inaudible) measure to your (inaudible) would be on September? Or how are you viewing the sentiments from a second half perspective. If you have any numbers to share from Nielsen on how things have been in July and August for beer that would also be very helpful. And my second question is just on this new bottle for the wine spirits. I mean given that you're going to go through the whole process of treating the shape and making it more unique. Is there also a case for relaunch or new some brand or new look that you plan to push into the market and like reposition some product portfolio or is it just going to be on the back end of -- from just the supply chain perspective?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [108]

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Divya, wow, your question is very fast. But anyway, let me paint a picture of the market. The government now is working on a lot of policies, which is positive, if they can do it. For example, they are now working on kind of a guarantee income for the farmer at TBH 10,000 per ton, which is good because right now it's running about TBH 8,500 to TBH 9,000. And then like the palm oil and everything, they are now working on the guaranteed income because that's what they announced when they -- during that campaign. And then this is going in -- discussed in the cabinet, I think in the next week or 2. They can implement all that. The income of people would be improved. Hopefully that will help our business because disposable income should be higher. But the figures, hopefully they can push all these policies past the cabinet and then implement it as soon as possible. The key one will be rice, palm oil and then rubber. Rubber is [talking] about 55 kilogram, which is excellent because right now it's running about 40 to 41. So we hope that we have a positive income -- the market should be positive because the income of people should be improved with all that policies implemented. And on your second question, we don't have any new NVP for the white spirit plan for the next 3 to 6 months.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [109]

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Okay. Perfect. Anything unusual (inaudible) July 1?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [110]

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I cannot tell you anything on July because it's -- I cannot. It's against the law. It's kind of the rule. But I feel good about it.

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Operator [111]

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Our next question, Linh Vo from Albizia Capital.

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Van Linh Vo;Albizia Capital Pte Ltd;Analyst, [112]

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A couple of questions both for Namfon and Sithichai and [Prapakon] I'll just go through them one by one. The first one is you mentioned that you're moving volume away from what is (inaudible) to traditional trade to increase profit margins. But over the long term, I think eventually probably we have to go back to modern trade to get more (inaudible) growth is faster (inaudible) So what would be the strategy for that going forward?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [113]

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Let's go back to Thailand. So let me take these questions for you. Actually, you have to understand that the traditional trade, we enjoy higher margin, and the more trade because of the demand of high margin, our margin would be a lot less. So we are working to balance that. The cost is effective. It doesn't mean that we are going to walk away from the modern trade, but we probably would not put much of the promotions money to the modern trade channels, rather we put more money to push the traditional trade side, and besides, because we -- our group have a company called Cash Van Management, which is talking about 270,000 outlets out of 400,000 [universe]. That's our strength. So we will leverage our strength, and then at the same time, earn more profit. We -- for the NAV, we discussed and we said we're going to go for the bottom line, okay? Sometimes we may even lose sort of the top line, but as long as the bottom line grow, we are happy about that because we have already commit to go to breakeven or go to the green area next year. Just to give you an example, last year, Tesco wants us to get the water (inaudible) very high margin. We have walked away from that. And then we take -- we used our cash grant, we used our traditional trade, to get that volume back. Only in the first month, we get about 80% of the volume lost at Tesco, but profitability increased like 15%. I think as an investor, I think they would love that strategy. I think that we are doing. So is it okay, let's just come back if you have another question.

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Van Linh Vo;Albizia Capital Pte Ltd;Analyst, [114]

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Okay. So just to clarify you're not be (inaudible) products from modern trade rather you're just spending less promotions on that side leaving the product on the shelf and maintaining whatever that is necessary to keep them on the shelf. Would that be correct to say?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [115]

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Correct. We will not go there. (inaudible) LKU we don't make money. We are not just play evil games just say we were going to put it up. The way we're doing it, when they ask for more margin or ask for more frequency promotion, we just say, we can't do it. And then they say, if you can't do it, we will release you. And then with that kind of conversation thing, I allow the release to happen because the more I sell that SKU, the more I will lose our profit. I mean that's how you look at it. And I think probably I'm not very popular among modern trade, but I think it is our job to really make profit for the company. But of course it's not all the SKUs out of that out there of (inaudible) modern trade. So we show what SKU that's being set. We really need to sort of create (inaudible) thing then we maintain that, but we are working that. I call it a channel management, which we will focus in that for the next 12 months of the NAV.

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Van Linh Vo;Albizia Capital Pte Ltd;Analyst, [116]

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Okay, got it. And then my next question is just on food. Was the start-up opportunity as well as (inaudible) can you involve I think F&N (inaudible) can you help me to understand why those parties are involved in the high-end restaurant business? And how do we know (inaudible) or to get involved with how much shareholding (inaudible) F&N (inaudible)

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [117]

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Okay. Let me respond to that question. Actually, the thing is F&N has a very good relationship with Maxim. Maxim owns (inaudible), and then they're actually working together in Vietnam and (inaudible). So that is one of the big reason. And the second reason is of the -- because ThaiBev, we are really managing our leverage.

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Van Linh Vo;Albizia Capital Pte Ltd;Analyst, [118]

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Okay. So that would mean to say as well that in future Thai restaurant business, we can expect F&N to be involved and take some of that leverage, would that be correct to say?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [119]

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Only for Starbucks. Actually, the restaurant in Thailand is still under our own sort of operation. The only startup actually (inaudible).

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Van Linh Vo;Albizia Capital Pte Ltd;Analyst, [120]

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Was it Genki Sushi as well that had a partnership with F&N or (inaudible)?

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [121]

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Genki Sushi is only one outlet, okay? It's just so small.

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Van Linh Vo;Albizia Capital Pte Ltd;Analyst, [122]

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Okay. The last question is on spirits bottling project. Will you change it at both white and brown or just white, as you mentioned earlier?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [123]

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White spirit only.

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Operator [124]

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(Operator Instructions) Our next question, (inaudible) from (inaudible)

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Unidentified Analyst, [125]

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I have 2 questions. One is the strength of (inaudible) how does it affect your business? And the second is on the impact of the drought? You mentioned you don't see much impact on consumer sentiment, but how does it impact your production and raw material cost? Just these 2 questions.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [126]

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Sithichai, CFO. On the -- our cost, I'll explain, we can say that we are -- our maturity is domestic business in Thailand, but (inaudible) more likely close to for the (inaudible) for the (inaudible) for the (inaudible), but since we consolidate on the -- in the house (inaudible) of currency and HongThong currency the (inaudible) even Sabeco down this (inaudible) accounting is (inaudible), but in the currency (inaudible) I think impact (inaudible) I would like to say that in (inaudible).

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Thapana Sirivadhanabhakdi, Thai Beverage Public Company Limited - President, CEO, Chief of Beer Product Group, Chief of Center of Excellence & Director [127]

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Okay. On the second question that is the drought weather it's impacting raw materials. I think when Prapakon already mentioned that the molasses price is probably higher but we should be able to manage it because we use average costs. And then this year because the molasses price is quite low so we bought quite a bit. So next year, if it is higher, we do not have to buy the full swing, so we cannot manage that. In the past, we have been managing this successfully because we have prepared ourselves. We have a big container to keep the molasses when it is cheap, okay? So we -- the bottom line is, the last price next year is expected to be higher than this year. But we'll be able to manage it because we use the average price so we don't have to buy so much next year if it is too high.

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Operator [128]

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There are currently no question in the queue. (Operator Instructions) As there are no further questions, I will now hand the session back to Ms. Namfon Aungsutornrungsi. Please go ahead.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [129]

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Thank you for attending ThaiBev's conference call tonight. If you have any further questions, please feel free to contact IR department at ir@thaibev.com. Thank you, and have a good night.

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Operator [130]

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Thank you. Ladies and gentlemen, this conference -- tonight's conference call. Thank you for your participation. You may now disconnect.