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Edited Transcript of Y92.SI earnings conference call or presentation 22-Nov-19 11:30am GMT

Q4 2019 Thai Beverage PCL Earnings Call

Bangkok Dec 10, 2019 (Thomson StreetEvents) -- Edited Transcript of Thai Beverage PCL earnings conference call or presentation Friday, November 22, 2019 at 11:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Gim Siong Neo

Saigon Beer - Alcohol - Beverage Corporation - General Director

* Kosit Suksingha

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

* Namfon Aungsutornrungsi

Thai Beverage Public Company Limited - Head of IR Department

* Nongnuch Buranasetkul

Thai Beverage Public Company Limited - Senior VP & Chief of Food Business - Thailand

* Prapakon Thongtheppairot

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

* Sithichai Chaikriangkrai

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

* Juliana Cai

RHB Research Institute Sdn Bhd - Research Analyst

* Nicholas Teh

Crédit Suisse AG, Research Division - Research Analyst

* Permada Darmono

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

* Thitithep Nophaket

Phatra Securities Public Co. Ltd., Research Division - Director & 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 Financial Year 2019 Results Call. (Operator Instructions)

I will now hand over the call to the presenters, Ms. Namfon Aungsutornrungsi, ThaiBev's Head of Investor Relations; and the members of ThaiBev 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 full year ended the 30th of September 2019 financial results conference call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the call tonight, I will start with a summary of the full year 2019 results then we will open the line with -- for a Q&A session with our management team here.

For the summary of the full year 2019, the total sales revenue of the company for the year was THB 267,357 million, an increase of 16.4% when compared to last year. This was due to an increase in sales revenue of all business segments. Net profit was THB 26,083 million, increased 33% compared to last year. This was due to an increase in net profit of food business, beer business, F&N/FPL and a decrease in net loss of nonalcoholic beverage business, although, there was a decrease in net profit of food business. Last year, there was nonrecurring expenses related to recent acquisitions, a finance cost before taking Sabeco's results and deferred tax utilization from food business restructuring of total THB 2,510 million. So the net profit from normal operation excluding nonrecurring expenses increased 17.9% when compared to last year.

The Board of Directors has proposed to issue a dividend of THB 12,054 million or THB 0.48 per share. This is higher than THB 0.39 per share of full year 2018 dividend. The payout ratio for full year 2019 dividend is 52%. Please note that the interim dividend was paid in June 2019 at THB 0.15 per share, and the remaining dividend will be THB 0.33 per share.

In 2019, the company's spirit business generated sales revenue amounting to THB 115,036 million, an improvement of 8.6% compared to previous year due to an increase in domestic demand. The sales volume recorded by the business increased 8.9% year-on-year when including Grand Royal Group sale and increased 7.9% year-on-year when excluding the Grand Royal Group sale. Overall, the Spirits business reported net profit amounting to THB 19,568 million, up 10.4% year-on-year.

The company's beer business recorded sales revenue growth of 26.6% year-on-year to THB 119,598 million. Total sales volume recorded increased 31% year-on-year when including Sabeco sales and increased 7.4% year-on-year when excluding the Sabeco sales. This is in line with the recovery of customer purchasing power. The company net profit for the beer business increased 50% year-on-year to THB 3,154 million.

The company's nonalcoholic beverage business generated sales revenue amounting to THB 17,390 million, up 7.5% year-on-year. Total sales volume rose 5.4% year-on-year mainly due to an increase in drinking water, carbonated soft drink and ready-to-drink tea sales volume. The business net loss narrowed down 17.5% year-on-year to THB 1,026 -- sorry, to THB 1,027 million due to an increase in gross profit and a decrease in advertising and promotion expenses, although, there was an increase of corporate income tax due to utilized of deferred tax.

The company's food business recorded sales revenue totaling THB 15,561 million in 2019, up 17.3% year-on-year. This was mainly due to an increase in the number of Oishi and testing outlets. However, net profit decreased 14.5% year-on-year to THB 472 million due to an increase in advertising and promotion expenses and increase in past service costs for employee benefit as a result of amendment to the Labor Protection Act, also an increase in depreciation and finance costs for the food.

Sales revenue recorded by the company's international business rose 36% year-on-year to THB 76,454 million. The international Spirits business improved because of Grand Royal Group's revenue growth as well as revenue contribution from the new subsidiaries, Asiaeuro International Beverage (Hong Kong) Limited and Asiaeuro International Beverage (Guangdong) Co., Ltd. The international beer business recorded sales revenue growth of 44% that was driven by Sabeco, which has been consolidated into the company's earnings since the second quarter ended March 2018.

This is the end of the summary of the results. We will now open the call to any questions on our results. Operator, please help open the line for our Q&A.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question, Juliana from RHB Research.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [2]

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Particular results (inaudible) the contributed to the strong volume growth in fourth quarter for our spirits and beer. And in terms of the end-consumer demand, how's the volume growth?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [3]

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Okay. This is Prapakon. On the Sprints side, the factor contributing to the fourth quarter's -- higher revenue in fourth quarter is just the natural [growth] of higher consumptions in economy. We believe that this is -- has been ongoing since the April contract that we have is continuing to give us the growth. This is coming from the market itself. And I think for -- also for Myanmar, we also see a decent growth as well for the quarter. Yes.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [4]

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I'm sorry, if I'm not wrong, if I [can], with respect to the volume growth in Myanmar, it's really declined in fourth quarter. Is that right?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [5]

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No, it's increased.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [6]

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How much did it increase by?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [7]

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We don't disclose that number.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [8]

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How's the market share of Spirits compared to last year?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [9]

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Sorry. The number for Myanmar is broken down on a quarter basis. The IR team can send that back to you after the call. In terms of market share, it's continuing to improve in Myanmar.

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief of Beer Business - Thailand & Executive VP [10]

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Okay. Kosit from Beer Thailand. I think Prapakon has already mentioned about the situation in Thailand. So I think there must be a [small] in the Spirits. So that's -- I think I'll let Khun Bennett to explain more of Vietnam.

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Gim Siong Neo, Saigon Beer - Alcohol - Beverage Corporation - General Director [11]

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Okay. The last quarter did include (inaudible) market, an increasing market share.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [12]

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Sorry. May I know how much did the market share increase by?

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Gim Siong Neo, Saigon Beer - Alcohol - Beverage Corporation - General Director [13]

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We don't disclose that. Every month is up and down, so we don't release -- we don't disclose exact numbers, but I think we do track, more importantly, the trend.

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Operator [14]

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Our next question, Thitithep from Phatra Securities.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [15]

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I have a few questions, and let me go one by one. To follow up, if my calculation is correct, the domestic market grew by 17% year-on-year in volume terms. Spirits grew by 12% year-on-year in volume terms. Is that all coming from strong consumption because it's double-digit growth? Is there any inventory factor in the fourth quarter?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [16]

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Can you repeat the question on here again please?

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [17]

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Yes. What we have experienced, if domestic market grew by double-digits in the fourth quarter, according to my calculation, is that all coming from consumption? Or is there any inventory buildup in the system?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [18]

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It's in line with the market growth. So it's 5%, I'm sure.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [19]

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So did the market also grew by double-digit year-on-year?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [20]

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No. But because we are comparing to last year, right? So if you look at it, last year was not really a good year on the beer business.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [21]

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Oh, so it's a low base effect as well?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [22]

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Yes. Khun Thitithep, so for the spirit in the fourth quarter, domestic sales grew by about 10%, that's correct. That's the natural flow. We monitor the scope in the market. And in the fourth quarter, on a monthly basis, it continued to decline because we did really low per trade. So this a natural flow of consumption.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [23]

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Okay, okay. I see. And then the second question is, if you look at the beer division. For both ThaiBev and then Sabeco combined, if I calculate correctly, the attributed profit to shareholders becomes a negative number in the fourth quarter, although, we have seen improvement in EBIT margin. Can you explain the negative number in the fourth quarter?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [24]

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Hello? Yes. The reason, because of the interest costs.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [25]

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The interest costs. Can you elaborate? You refinanced the debt? Or is there any change in the debt structure?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [26]

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Well, what happened was we took a bridging loan initially when we bought Sabeco. And then, during the course of the year, we changed it to fixed reports where we give a high interest rate.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [27]

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All right, okay.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [28]

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That's the reason why interest costs have gone up.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [29]

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So this is ongoing costs, right? It's not nonrecurring?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [30]

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No, no. This is just ongoing costs.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [31]

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Okay. Sure. And then the same question goes for the NAB and then the food. According to my calculation, the profit attributed to shareholder declined or decelerated in the fourth quarter although EBIT seemed to improve. Can you explain why maybe the nonalcoholic -- and the loss expanded, but then actually the EBIT improved year-on-year?

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Unidentified Company Representative, [32]

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Khun Thitithep, (inaudible) CFO of NAB and (inaudible). Actually, the segment of NAB and of Thai Beverage looks to be better. But when we have the profit in fourth quarter, we have to utilize some of the deferred tax in Q4 that happened based on the sum of the (inaudible).

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [33]

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Okay. I see. So they are supposed to be one-off, right?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [34]

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Yes, yes, yes. That's one-off (inaudible) for the utilization, yes.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [35]

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Okay. And then for the food, according to my calculation, [funds into loss] in the fourth quarter at the attributed profit level. You said in your presentation that that's because of funding costs. Is that related to [staff] acquisition?

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Unidentified Company Representative, [36]

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Khun Thitithep, for the [calculation], you -- so you're seeing the market in Thailand. Whether it's a [key commenter] like that, [MK] (inaudible) and some other (inaudible) just announced this for the quarter for some of the (inaudible). Most of the sales that we report in Thailand is down -- have some key figures are down. For -- in terms of the (inaudible) perspective, (inaudible) key measure, Oishi and QSA. So same (inaudible) down. When we try there to expand [what's wrong] after the impact in terms of the -- some of the re-expansion. So we have some fleet costs, and we [reversed] some kind of preparation costs. But the revenue seemed to be -- doesn't come as we expect. So it -- that hit in terms of the Q4 according to the overall market. And also we faced some of the cutting in the -- or cut in September. So some of the shops can be -- have some [lower] cuts, cannot excel to the -- some area like in the Northeast and have that cash impact in terms of overall food for Q4 that we did.

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Operator [37]

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Our next question, Divya from Morgan Stanley.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [38]

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I have a few questions. The first one is, on the domestic beer business, despite the high volume growth, the implied EBIT number for the domestic beer market seems to be actually negative. Can you just explain -- I know you don't give it explicitly, but can you explain why the profitability for the beer business in the domestic market is so low in the fourth quarter?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [39]

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Divya, can you wait for a moment? We are checking.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [40]

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Sure.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [41]

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Any more further questions, Divya?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [42]

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Yes, I can go on to the next question. My next question is just on the food margin, just to follow up on the previous discussion. So the food margin in this quarter, the operating profit level is only 1% compared to the 6%, 7% levels. You mentioned that same-store sales growth was weak. Can you quantify how weak this was? And is that the only reason for the margins coming off so much? And what would be your outlook for this going forward?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [43]

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Khun Ueychai?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [44]

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Okay. Sorry, the way this is done again is, Q4, in terms of the profitability in Q4, I think we have some of the one -- I mean some other onetime that we need to renovate some of the shops, that's according to the agreement, especially on the KFC shop that we have. So even some of the sentiment in the market is down, but according to agreements, so we need to spend some maintenance and some of the renovation that impacts some of the Q4. That is specifically for this year. So that's why it impacts some of the profit that you see is lower than last year. We acquired -- last year, we just -- starting the first year of Yum, most of the shops is still under evaluation, haven't been like fully renovation according to the agreement. Now that is the key thing that we have for this year different from last year impact.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [45]

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So the normalized margin for the food segment is still, you feel, in the operating margin of 6%, 7% that we've seen in the last 4, 5 quarters. Like would you think that, that would be the underlying margin if you're just having renovation costs?

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

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Yes. If we -- excluding some (inaudible) one, we can maintain some of the profitability level that we've done last year in the (inaudible).

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [47]

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Okay. And while I'm waiting for the domestic beer business profitability, the other question I had was on the nonalcoholic beverage business losses. So when you look at the top line growth for the quarter, it's very strong at over 20% year-on-year. So even on a strong revenue base, I'm just a little surprised to see that the EBIT losses sequentially actually widened. So the last 2 quarters, you had about [THB 140 million] of losses every quarter, but in this quarter, it's over [THB 300 million]. Can you explain? Like is there some sort of seasonality in this that causes the losses to be higher in the fourth quarter versus the previous quarter despite the top line being so strong?

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Unidentified Company Representative, [48]

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(inaudible) here. No, again, the nonrecurring expenses were the deferred tax assets. So a lot of them, we had to pay tax on that. So that's why it looked bad on the fourth quarter. But the underlying business continues to be -- to maintain a good strength. So you see that the revenue, I mean, in the last few quarters, has been increasing. So in Q4, it's mainly a nonrecurring expense.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [49]

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And (inaudible) is that also -- I mean, I'm talking more on the EBIT level. So the EBIT level, the tax element would not come in, right? So like at the EBIT level, it's still -- the losses have widened sequentially even though the top line is so strong.

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Unidentified Company Representative, [50]

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Divya, (inaudible) again. Actually, in terms of NAB, we have some of the -- 2 things happening, the same with the food as well. One is really in the forecast in September, we have the -- baked overall in the plans of Oishi in terms of the share because it is like a task schedule, but we have said with impact to our -- in terms of the cost of goods sold. A bit in this one, but we need to do this one in order to increase and maintain efficiency of factory. So in the future, we can buy more property in terms of (inaudible) domestic and export.

Second thing is about some of the [cutting] impacts some of the channel, northeast and the north as well. So some of the channels, we cannot like deliver some stock (inaudible). In fact, that one is -- 2 things that impact in terms of the -- how we mix the cost of goods sold in the Q4.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [51]

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Okay. And then on, first, margins, can I ask, when we look at the cost, the breakdown that you provided in the presentation, the labor cost has gone up sharply this year to like 1.7%, so the implied number for fourth quarter is really high. Can you help us understand what specifically drove the labor cost much higher in Spirits in this quarter?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [52]

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I think if you recall, when we talk about the labor cost in third quarter, that total for the whole group is close to THB 800 million in terms of when they changed -- for the labor law that we applied on the third quarter. So when you see at the full year, that's why I already include the impact from the third quarter.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [53]

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Great. And now remember, I'm just talking about the fourth quarter. If you look at it on a year-on-year basis, it's extremely high. And we've already booked that in the previous quarters. So...

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Unidentified Company Representative, [54]

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Divya, Divya, this is [Khun Chai], remember me. Divya, the fourth quarter was high because the performance was so great, so we accrued more bonus to the staff and the management. Is it okay? It should be okay.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [55]

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I get that, okay. And maybe then I can move to the other questions I had on October and November volume growth. Because you mentioned that the market growth has been really strong in this quarter, the September quarter. And it's obviously on a low base, but still the underlying growth seems to be strong, which is not echoed by any other segment in the market, I mean, even your, as you mentioned, the food segment or the other segments we look at. So could you give us some sense on how October and November have been given this is a peak quarter? Are you seeing the similar momentum continue for various groups?

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Unidentified Company Representative, [56]

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We cannot speculate it. Sorry, Divya, but I'm happy about it.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [57]

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Okay. All right. And then if I can go back to the first question, the pending question on the domestic beer business. Like the implied operating profit for the domestic market seems to be negative in the quarter. Can you help us understand why that is despite such high volume?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [58]

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Divya, actually, for our -- for the beer business, we didn't separate ThaiBev and Sabeco in terms of domestic or outside Thailand. So we report only for the whole group of the beer. If you try to separate it, you may not get the same number as what we have. From the internal number that we have, the beer -- domestic beer, the profit improved, and we didn't make a net loss in the fourth quarter this year. So we saw improvement in net profit for the beer.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [59]

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Even -- oh, okay. Even in the fourth quarter (inaudible)?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [60]

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Even in the fourth quarter, yes.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [61]

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Got you, okay. And how about the market share for domestic beer, has that improved given the strong growth?

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Unidentified Company Representative, [62]

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The market share between fourth quarter, [we do not] disclose it. So the market share in fourth quarter, of course, has improved from last year.

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Operator [63]

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Our next question, Cezzane from CIMB.

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Cezzane See, CIMB Research - Analyst [64]

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I just wanted to come back to the statement on the deferred tax. Sorry, I thought I missed that. Is that something to do with your -- it just happened in the fourth quarter? Is that -- can I just clarify that?

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Unidentified Company Representative, [65]

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Yes, yes. That is (inaudible) internal revenue management to get the deferred tax return (inaudible) 1/2 at the Q4 that we used before the close of the fiscal year.

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Cezzane See, CIMB Research - Analyst [66]

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Okay. Right. And that sort of spikes up the tax for this quarter, right?

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Unidentified Company Representative, [67]

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Yes, yes.

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Cezzane See, CIMB Research - Analyst [68]

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Okay. All right. And can I just get a sense of -- I understand that this was asked already. But in terms of the volume growth, can we say that -- was the fourth quarter, in any case, because of any sort of stimulus that was given by the government, and that sort of led to domestic consumption being up? Moving ahead, I think this has maybe slowed down. Or can I get a sense of how that would track for next year?

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Unidentified Company Representative, [69]

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And the big -- part of it, it depends on the government. All the measures the government did and this have a positive impact with low-income people, okay? And we -- our white spirit is -- our target growth is low income. So effective. So we hope that, if this government still continue, we hope to see a positive outlook.

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Cezzane See, CIMB Research - Analyst [70]

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Okay. And maybe a last question for me. We are reaching the year 2020 or so. So [have you deferred] how the growth will change, in your view, because, in your view, have you achieved all your wants? Or is there any thoughts on that yet moving ahead?

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Unidentified Company Representative, [71]

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I think we still aim at the same target that we mentioned about Vision 2020.

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Cezzane See, CIMB Research - Analyst [72]

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Sorry, sorry. Sorry, missed that.

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Unidentified Company Representative, [73]

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Yes. I'm saying we are aiming since the same target that we set on the Vision 2020.

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Cezzane See, CIMB Research - Analyst [74]

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Okay. And is there any other updates on any of the M&A or any changes in F&N and FPL? Can I get an update on that?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [75]

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We don't have that and we cannot disclose it. We don't have in the very near future.

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Cezzane See, CIMB Research - Analyst [76]

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Okay. Is there any sort of update of how you're looking at your gearing? Or is this -- are we looking at it's going to be at this level? This is what you're thinking of completed in terms of what you want to do for gearing.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [77]

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I think you understand our situation very well. Our gearing is still high. I think we need to really lower it before we're thinking of doing anything, okay?

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Operator [78]

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Our next question, Nicholas Teh from Crédit Suisse.

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Nicholas Teh, Crédit Suisse AG, Research Division - Research Analyst [79]

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Just had one question on the Spirits distribution expenses, seems to have increased both quarter-on-quarter and year-on-year in the fourth quarter. So just want to get more color on that, whether there were any new launches or anything like that or, if not, the reason for the increase?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [80]

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I think that the sales growth is exceeding those cost growth. So I think that, that's not something we worry about because some of these are variable costs linked to sales.

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Operator [81]

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Our next follow-up question, Thitithep from Phatra Securities.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [82]

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Looking to your [joint] financial statement, it looks like the contribution from FPL dividend was negative in the fourth quarter of this year. Is there any accounting adjustment when you recognize the contribution from these 2 firms because I believe that they did not report a net loss?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - Group CFO, Senior EVP of Finance & Director [83]

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This is Sithichai speaking. On the -- for the F&N, you can see their financial statement in their P&L, they are higher than last year. This is why they paid more higher dividend. But the 4Q low income from FPL reflects the impairment of the (inaudible) asset because it's an asset and not goodwill. This is mainly because they're making payments on the last quarter. That is their financial [year]. (inaudible) fourth quarter, [you think it's lower] but you see the full year is higher.

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Operator [84]

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Our next question, Tan Xuan from CLSA.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [85]

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My first question is on Spirits. Can I check if the Spirits ASP -- I'm sorry, ASP dropped in fourth quarter due to higher Myanmar volume? How is Thailand Spirits ASP doing? Or is there any change in mix between white and brown spirits?

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

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Yes. I think it's the product -- the mix of international and -- meaning Myanmar and Thailand. We do not have price -- a policy to reduce our price of these spirits. Alcoholic beverage policy is to continue to improve pricing. So that ASP is coming from a higher percentage of the Myanmar product mix into the total ASP. And as for the white and brown spirits, we -- the mix are about the same, so, and the price is the same.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [87]

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Okay. And secondly, on the debt, can you give us a sense how is the debt expiry profile in the next 2 years? And is there any room to save interest cost?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - Group CFO, Senior EVP of Finance & Director [88]

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You can see that the debt -- Sithichai speaking. The debt on the next financial year, 2020, even 2021, the debt bill is not much. The big one will come on the year 2022, but you can see that our rating is higher, AA, outlook stable. We are [out] investment grade. [Even though], we have to [low over], but you can see that. Every year, we reduce the debt. This year, we reduced debt about THB 12 billion. On the projection, we can reduce the debt. Even on the year 2022, we can reduce the term debt, but we have to go over again by using our investment grade.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [89]

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Okay. And can you remind us what is your target gearing ratio again? And at what point do you look at raising dividend payout again?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - Group CFO, Senior EVP of Finance & Director [90]

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Yes. So on the gearing, (inaudible) the exact amount we cannot disclose to you because of the sensitive picture for the rating company. But the paydown of the dividend, we commit not less than 50%.

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Operator [91]

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Our next question, Andy Sim from DBS.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [92]

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I have 2 questions. First is, actually, just wanted to check in terms of the expectation for excise tax. Are you hearing already any noise on this front over the next 1 year in the domestic market? Second question is on Grand Royal. Last quarter, Prapakon mentioned about there's some disruption. I presume that has a reverse effect and the volume has actually reverted in fourth quarter. Is it significant amount if we -- I feel confident that volume growth, but is there a [significant] amount on the growth itself?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [93]

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Andy, this is Ueychai. I would like to respond on the tax questions you have. We can -- we do not know when the excise tax will happen. So far, we haven't heard anything yet. But we can't say it's not going to happen next year or the other, it depends on the government financial things. But so far, we haven't heard anything yet.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [94]

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In terms of expectations, I mean, what are your thoughts in terms of the challenges of excise tax because the last one was a couple of years back already?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [95]

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We don't expect anything. We didn't put this in our budget.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [96]

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Okay. Okay.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [97]

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Andy, this is Prapakon. So to answer the Grand Royal issue. About June, July, we were having some supply chain disruption that's affected our ability to generate enough volume to supply the market. In the fourth quarter, we managed to recover from it and that issue has now been resolved. Okay. In addition to that, just to add, just for Myanmar, let me repeat, just for Myanmar, in the last month, for the quarter, there's some loading, a few weeks of loading into the system. But on a percentage basis, Myanmar still contributed to a small -- not a big percentage to improve volumes in Thailand. And in Thailand, for the fourth quarter, I mentioned earlier, that is an actual flow over there. There are no loading in the system.

Just to add to your last bit on the excise tax, which I have mentioned, because, in Thailand, the policy on this is the company does not discuss this policy publicly or part of their government budget plan, unlike a country like Singapore or even in Myanmar where the annual budgeting plan, where the government will discuss this publicly. So it's allowed the producer or the manufacturer to plan ahead. But in Thailand, that is not the practice of the government. So that said, we actually don't know.

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Operator [98]

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Our next follow question, Divya, from Morgan Stanley.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [99]

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Just a couple of follow-up questions. The first is on the domestic beer. You mentioned that you gained market share. Just trying to assess, has the competition responded in any way in terms of new product or anything that they are doing differently? And how is the response for your all-malt beer that you -- the cold-brewed beer that you launched? Any response on that that's been encouraging that makes it a more popular product?

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief of Beer Business - Thailand & Executive VP [100]

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Kosit. I think, in terms of the market share, I would say quarter 4, I think, we are in line with the market. So I think, the competitors also, I think, react the same way. And I think, in terms of the new products and everything, actually, we have closely watched what market is performing, and we just react accordingly. That's it.

The new beer, right? I think the new beer is performing quite well.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [101]

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The cold brew, yes?

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Kosit Suksingha, Thai Beverage Public Company Limited - Chief of Supply Chain Management, Chief of Beer Business - Thailand & Executive VP [102]

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Yes. Have you tried?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [103]

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I have not yet. Okay. And the other question I had was on the Spirits business. You mentioned that, at the end of September, you will start injecting new bottles into the system which will be completely different from what you have been doing earlier. I just wanted to get a sense on, firstly, has that already started happening in the third quarter and it's reflected in the numbers? Or does that happen from the next quarter onwards? And if you can give us some sense on how much of an increase this could mean to your overall packaging costs as a percentage of sales?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [104]

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That second question is an indication on the percentage impact, right. I wouldn't be able to disclose that to you. However, I'll just answer your first question, this has only happened to the white spirit under Ruang Khao brand. That's the main brand. And that brand, we have changed the bottle in late September -- late August. So starting in about mid-September and now in October these products have now reached the market. So in October, the new bottle have reached the market. And we have started to get the return bottle back into the system already. So to factor the full cost of the new bottle, it would come into the first quarter of the fiscal year.

In terms of the marginal cost of the bottle, they're all brand new, it's about THB 3 bottle. But before we change to new bottle, we already use very high percentage of new bottle. So getting all the way to 100% new would not impact the cost that much, but it is still -- will improve the packaging costs for the white spirit business.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [105]

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Okay. That's very helpful. So currently, like in terms of the return rate between, let's say, for new bottle versus returned bottles, like how long do you think it goes back to the more normal levels of 60%, 70%? Takes about a year or earlier?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [106]

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Ideally, I think, if you were to target getting to half and half, I mean, 50% used, 50% new, I would say it would take more than 1 year, so 1 to 1.5 years to get to that level. But I think the percentage returns start to come in. We would know better after the Water Festival around May and June because higher consumption toward the Water Festival, the summer period, we'll get more bottle coming toward May and June. And that's when we would know whether we will reach our 50% target much faster.

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Operator [107]

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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 [108]

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Can I just ask some questions in terms of average selling price increase for the year in both spirits and beer? If you can sort of talk about that or disclose that, that would be -- and in the fourth quarter, if you can disclose that.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [109]

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You mean the price -- ASP for fourth quarter or for the full year?

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [110]

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Both.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [111]

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For both spirits and beer, right?

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [112]

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That's right.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [113]

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For the Spirits in the FY '19, I'll take Myanmar to start off with. On Grand Royal, we have a policy of price increase every year. And you would not surprise that because of the clear government policy on excise tax increase and a higher inflation in Myanmar. So that's why price increase around 3% to 4% a year on the products is very common in the market.

As for the Thai market, we do not have a consistent price increase policy and it's because also it's linked to a low inflation in the country, and it's also linked to the nondisclosure of the excise tax policy by the government. That's why we don't actually have a regular exercised price increase. As for the FY '19, the price in FY '19 is about the same as in FY '18. There's no change to it.

And about the Q1, currently, for Thailand, we have implemented some price improvement or price increase in our brown spirits segment, and it would not complete until after -- into January.

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Unidentified Company Representative, [114]

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For domestic beer, I think -- the Thailand, yes -- I think we haven't adjust any price. So I think I will let Bennett explain on the Vietnam side.

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Gim Siong Neo, Saigon Beer - Alcohol - Beverage Corporation - General Director [115]

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(inaudible) You know that every quarter, we report this. We increase price every year and within the low single digits. So we increase prices, but this is actually the impact for the year, and it could be leading to that in coming years. I think if the brand gets stronger, I think there's opportunity to increase more.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [116]

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That's helpful. The second question I have is, given your strong performance this year -- and fourth quarter, you benefited a bit from the destocking last year -- in the same quarter of last year, can you give us a general sense in terms of whether this performance or momentum would be sustainable, i.e. going into next year, i.e., is the general condition of demand pretty robust?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [117]

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You talk about which market and which product, sorry?

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [118]

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I think about Spirits and Beer domestically in Thailand. I think Vietnam is pretty robust.

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Unidentified Company Representative, [119]

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For the spirit in the market -- Spirits Thailand, I think, like I mentioned earlier, we didn't engage into any loading in the past and lapping the fourth quarter, and we're still producing natural -- good natural growth. You know our market share is very high in both white spirits and so the market do not have a place where we don't have a product selling. And our stock in the markets are not high, which maintained and actually declined somewhat in the -- on the (inaudible) stock. So therefore, with our growth in mind, the only answer is that consumptions are improving -- underlying consumptions are improving in both wine and brown spirits in Thailand.

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Unidentified Company Representative, [120]

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All right. On the domestic beer in Thailand. I think the stocking for the beer -- because since we are selling freshness as the competitive advantage, so I think the stocking side is not really that (inaudible) anyway in terms of [weeks].

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [121]

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The third question I have is, a lot of Thai consumer companies, in general, are complaining about the strong baht and also the slowdown in tourist arrivals. How do these 2 factors affect your domestic business, i.e., the strong baht and tourism, if any? Secondly, your margin should benefit from the strong baht as well. I'd love your comments about that.

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Unidentified Company Representative, [122]

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This is a bit of a macro effect. Actually, it doesn't affect us very much because, one, majority of our [fast] consumers are domestic, are local people. So we do not depend on tourists very much. And then the strong baht will hurt the economy in general, but the impact is not that much on our products, more beer and spirits.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [123]

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Fair enough. On Vietnam, on Sabeco, if I calculate in the 3 quarters of this calendar year, the year-to-date, 9 months, roughly, volume grew by about 5.7% year-on-year. You've alluded a market share gain. Can you comment roughly in terms of how fast the market in Vietnam could be a market that's growing in terms of volume? And Heineken reported double-digit growth in terms of volume. Does that mean that Heineken is gaining share in the market?

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Unidentified Company Representative, [124]

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First of all, I won't comment on Heineken. But I think you've got your numbers wrong. So I don't know how you calculate the volume. But I told you (inaudible) volume, so you've got the numbers wrong. Correct me, we're growing at 5.5%. So we're going to have to get 5.5%. And according to Vietnam beer publication, I think we're growing -- market grew about 5% in the great customer market.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [125]

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All right. I got the volume from provided up in the reported volume, minus the volume excluding Sabeco. So in terms of the first 9 months, I've got a volume of about 1.38 billion liters versus 1.312 billion liters of last year.

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Unidentified Company Representative, [126]

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Our numbers include headquarters. Our numbers include subsidiary or some actually other brand spirits as well. So I think that's not factored in terms of domestic market share. The market share is only domestic volume. All right so, anyway, I mean, your numbers are incorrect in terms of the (inaudible).

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [127]

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For the domestic market. Okay, fair enough. And it's probably skewed by the...

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Unidentified Company Representative, [128]

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And also -- yes, I mean also your number of (inaudible) price isn't correct. Is more than (inaudible).

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [129]

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Okay. Comforting here. And then lastly, if I may, can I get the latest number of Oishi restaurants and KFC restaurants at the -- for the quarter end?

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Nongnuch Buranasetkul, Thai Beverage Public Company Limited - Senior VP & Chief of Food Business - Thailand [130]

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Yes. Yes. This is Nognuch. KFC, we have total of 305, okay? And for Oishi, we have, currently, it's 266, okay? And for the ratio, we have [46] -- yes, [48], yes.

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [131]

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The first one, was that 305?

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Unidentified Company Representative, [132]

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305 for KFC.

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Operator [133]

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Our next question, Tan Xuan from CLSA.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [134]

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Can you update a bit on Myanmar beer? Understand the F&N has been [approved] -- what is the arrangement with ThaiBev and how is the progress?

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Unidentified Company Representative, [135]

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Okay. In Thailand Beer, since obviously launched (inaudible). So far, the reception from the market is very positive. It is a beer that they are not unfamiliar with because Thailand is a close neighbor. And we talk about (inaudible) in terms our (inaudible) [competitors] are the same. The brand is very familiar (inaudible). So, so far it's been very well received in the market (inaudible) our progress.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [136]

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Would you be able to share what is the arrangement between ThaiBev and F&N on the Myanmar beer?

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Unidentified Company Representative, [137]

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I think in terms of -- not this [language], in terms of the technical expertise, that's where our (inaudible) the subsidy of (inaudible) we don't expect in the business in terms of production, yes? (inaudible) in terms of the production.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [138]

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Okay. And does ThaiBev charge F&N anything like -- I don't know, like royalties? Or how does it flow into your P&L then? (inaudible)

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Unidentified Company Representative, [139]

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As you know, the top brand is owned by (inaudible) and so there's a [generally] arrangement that we have between ourselves -- between F&N and ThaiBev. It comes up like -- yes.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [140]

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Okay, got it. And my second question would be on raw material. Has a forward contract for the raw material for next year already been concluded? Would you expect any significant price increase [this year] of raw materials?

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [141]

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Sorry, you talk about raw materials for this [full year] in molasses or you talk about the raw material for the beer?

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Unidentified Analyst, [142]

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Both actually (inaudible) next year.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [143]

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So for the -- generally speaking, for the raw material for beer, we have already covered it for next year, and the guide is quite [steady].

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [144]

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Sorry, I didn't really hear you properly?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief of Spirit Product Group & Chief of Route-to-Market [145]

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She was just saying that, we have covered the malt buying for the year with a price that's similar or average to the previous year.

Now I will answer for the Spirits. For Thailand, majority of the raw materials are molasses. And the core price for the new crop have not been started. The previous crop, we have a very good price on previous crop. We expect the crop price this year will increase a lot. However, they have not been -- price have been negotiated (inaudible) because the harvesting hasn't started yet. But for balance of molasses that we have for the year-end is -- can cover very good part of our production for this year as well. As for Myanmar, the raw material price remains about the same as last year.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [146]

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And lastly, would you be able to share, in terms of raw material, what are the major current (inaudible) price is and would we be expecting savings given the stronger baht?

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Unidentified Company Representative, [147]

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(inaudible) speaking. From the baht strong, we can get a little bit advantage on the euro currency.

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Operator [148]

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There are currently no questions in queue. (Operator Instructions)

As there are no further questions, we will now begin closing comments. Please go ahead, Ms. Namfon Aungsutornrungsi.

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Namfon Aungsutornrungsi, Thai Beverage Public Company Limited - Head of IR Department [149]

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Thank you for attending Thai Beverage conference call tonight. If you have any more questions, please feel free to contact IR department at ir@thaibev.com.