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

Q1 2019 Thai Beverage PCL Earnings Call

Bangkok Feb 20, 2019 (Thomson StreetEvents) -- Edited Transcript of Thai Beverage PCL earnings conference call or presentation Friday, February 15, 2019 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Hwai Keong Lau

Thai Beverage Public Company Limited - Independent Director

* Kim Soon Neo

Thai Beverage Public Company Limited - Chief Brand Investment & Executive VP

* Namfon Aungsutornrungsi

* 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

* Manik Mahajan

Goldman Sachs Group Inc., Research Division - Research Analyst

* Nicholas Teh

Crédit Suisse AG, Research Division - Research Analyst

* Nico Yosman

Morgan Stanley, Research Division - Former Research Associate

* Nigel Kiernan

HSBC, Research Division - Senior 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 First Quarter 2019 Results Call. (Operator Instructions) I will now hand over the call to the presenters, Ms. Namfon Aungsutornrungsi, ThaiBev Head of Investor Relations and the member of ThaiBev's senior management team.

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Namfon Aungsutornrungsi, [2]

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Good evening, ladies and gentlemen, welcome to Thai Beverage First Quarter 2019 ended 31st of December 2018 Financial Results Conference Call. I am Namfon Aungsutornrungsi, Head of Investor Relations. For the conference call tonight, I will start the call with a summary of the first quarter 2019 results. Then we will open the line for Q&A session with our management team here.

Total sales revenue of the first quarter 2019 was THB 72,627 million, an increase of 59.7% year-on-year, attributable to an increase in sales revenue of our business segment. Net profit was THB 7,481 million, increased 144.2% when compared to the same period last year. This was due to an increase in net profit expressed and for businesses and an increase in net profit contribution for F&N and FCL.

In the first quarter of 2018, there was nonrecurring expenses related to the business acquisition of THB 2,458 million. So net profit for a number of operation excluded nonrecurring expenses increased 35.5% when compared to last year.

For the highlights of the first quarter, the company spirit business generated sales revenue amounting to THB 31,682 million, up 28.6% compared to the corresponding period last year. Sales from recorded growth 25.7% year-on-year when including the brand value of booked sales rose 24.3% when excluding the brand value of booked sales. This was largely due to increasing consumers' purchasing power, consequently net profits were 41.5% year-on-year to THB 5,693 million.

The company's beer business registered sales revenue amounting to THB 33,000 million in this quarter or 128.6% higher than the sales revenue posted in the corresponding period last year. The rise was driven by 253.9% increase in sales volume including that of Sabeco, which was not included for comparison in the fourth period of last year. When excluding Sabeco sales, the sales volume recorded by company's beer business improved 7.8%. This was in line with the increase in consumer purchasing power. However, net profit decreased 53.7% year-on-year to THB 410 million, partly because of the comparison with last year, which has extraordinary income of THB 156 million from selling hops. The company's nonalcoholic beverage business generated sales revenue amounting to THB 4,157 million in the first quarter 2019, up 1.1% due to an increase in drinking water and carbonated stocks during sales volumes. However, net loss during this quarter increased to THB 289 million from an excise tax hike and increase in fructose sugar and preforms resin cost.

Sales revenue generated by the group business in the first quarter 2019 rose 53.9% year-on-year to THK 3,800 -- THK 3,860 million due to an increase in the number of stores from Spice of Asia and the QSR of Asia restaurants. As a result, net profit of the food group dropped 11.5% year-on-year.

The sales revenue recorded by the international business rose 497% compared to the previous year. International spirit sales revenue rose 7% year-on-year driven mainly by the Grand Royal Group.

White international beer sales revenue grew 3,850% year-on-year driven by Sabeco, which has been consolidated into the company's second quarter 2018.

Now we will open the call to any questions on our result. 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, Gangahar Divya from Morgan Stanley.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [2]

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So I had 3 questions on the results. The first is on the spirits margin. Given the rebound in volume, hence the operating leverage, the margin improved but gross margin profit was still lower and selling expenses also rose about 15% for the segment. Just -- can you help us understand why the overall segment for [trends] to remain around the 22% levels despite a dramatic increase in volumes? And are there any other factors that were causing the margins to be a bit lower in the quarter? The second question is on the domestic beer business. The domestic beer margin was again low despite the volume recovery, and while in the past quarters we feel selling expenses being higher, this time the admin expenses also saw a jump, can you help us understand why the margin is low? And maybe if Kim Edmond is there, I'd love to hear what he thinks needs to happen for domestic beer margins to become a bit more normal? And the last question from Sabeco. The revenues dropped. We did hear that there were some deliberate destocking, but if you can give some more color on what's going there in terms of market share as well as retail volume growth, it will be helpful? And also the minority interest related to that was only THB 154 million in the quarter at the ThaiBev consolidated level and there was an implied negative minority just for the beer segment, can you just help us explain that point from an accounting angle?

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Kim Soon Neo, Thai Beverage Public Company Limited - Chief Brand Investment & Executive VP [3]

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(technical difficulty)

from spirit group. I think the question is relating to cost growth in SG&A. I think -- we look at and we actually don't see anything abnormal in terms of our positives and our gross profits. The volumes increased, yes, but in the cost of goods there's a lot variables involved in this cost of goods. So basically, our gross profit remained the same. Actually, in fact, just slightly increased. So overall things are okay, I mean, we don't actually see big changes in those number. And also the SG&A, I think, as percentage of sales, I think the total reported as a percentage of sales also dropped from 12.8% to 10%. So I think we'll -- and we have an EBITDA margin expansion from 22.4% to 23.8% and net profit also expanded. So I think that's something that we look at it as positive.

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Unidentified Company Representative, [4]

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My name is (inaudible). I'm responsible for the beer [allied] business instead of Edmond. So I think your question regarding the decline of margin in domestic beer in Thailand is right. I look to the numbers, as you know that -- if we have a volume increase by 8.7% and the whole market actually increased by 4.5%, a little bit drop in terms of the EBITDA -- EBIT margin is because of last year we have in October we have launched a new product. So that's actually some expense regarding the launch of good craft beers. So that actually is attributable to the decline of margins. That's all.

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Namfon Aungsutornrungsi, [5]

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Divya, sorry, in terms of the beer business, I need to mention again what I already said before that if when you compare this year and previous year, there is extra income from last year that we sold hops. So that one at the net profit level is roughly -- net after tax roughly THB 156 million extra last year. So when you compare to a normalized, you need to take that out as well.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [6]

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Sorry, Namfon, this is the explanation for the minority interest or what is this explanation for?

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Namfon Aungsutornrungsi, [7]

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This one is explanation for the whole beer group, but this one happened under the domestic beer that -- because last year we don't have Sabeco in our consolidation, right? So last year the number of net profit we had extra from selling hops that is one time. So that one at the net profit level is roughly THB 156 million. So when you compare this year and last year there is some...

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [8]

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Mentioning your margin, yes, I know precise comparison the last time just thinking the domestic beer margin is still pretty low, right? The implied number suggested it's still low-single-digits. So I mean, if we just take that [it seems hard to compare].

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Namfon Aungsutornrungsi, [9]

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But it just --- my question is, how can you separate this time for domestic and international because we only disclose the whole ThaiBev beer.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [10]

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It's just an implied number with moving the biggest part of the international business, which is Sabeco.

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Namfon Aungsutornrungsi, [11]

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Yes, but what we have reported -- what Sabeco reported is under Vietnamese accounting standard when most of ThaiBev has to adjust to the TFIS as well. So somehow that number -- I need to warn that it may not be the same number.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [12]

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So could you give us some color how the domestic beer profitability is now in this quarter?

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Kim Soon Neo, Thai Beverage Public Company Limited - Chief Brand Investment & Executive VP [13]

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Yes, sure. In terms of the profitability of beer it's quite stable in this quarter. So that's why we a bit -- and I just -- just a marginal drop in terms of the margin because of the large value product. That's all.

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Namfon Aungsutornrungsi, [14]

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In terms of the minority interest, can you verify more than that. We have foreign cities clarify on this. Do you have any other question?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [15]

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Yes, on Sabeco I had also asked that the revenues at the Sabeco at the Vietnam level dropped in the quarter. We did hear something on destocking, but if you could give more color on how the market share has trended? What the retail volume side is there? And what's the progress being on all your brand relaunches and purchasing, that would be helpful, because the fourth quarter numbers for Vietnam were pretty weak on revenue.

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Unidentified Company Representative, [16]

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Hello, good evening. Perhaps I can help to give some color to the explanation regarding the Sabeco number on the minority interest. Last year, of course, last quarter, we didn't have Sabeco in it, so it's not consolidated. For this quarter we have consolidated Sabeco. Now in the -- I think I should just put things in context, the first quarter for ThaiBev is actually the last quarter for Sabeco. So in the last quarter for Sabeco, which is the same period, October to December, they took the opportunity to clean house. So we made a number of provisions -- this is linked a little bit to the revenue number and you see as well because in December 2017, the year before, management at that time had made excessive front loading of stocks, and this has flowed through the year. So when the new management took over around August, one of the tasks that they undertook was to destock. You mentioned destocking, so I think you may remember that this is one of the major exercises. Now it was important to do that because it is important to keep the beer fresh in the market. But unfortunately, they were not able to destock all the beer. So the management -- the board decided and approved the heavy provisions for old stocks, especially in last quarter. Now because of that you see that the period, October to December of 2018, the provisions brought the profit down quite a bit. And that's the main reason why you see the lower NCI. Does that make sense?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [17]

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Yes, you did -- I mean, that's very helpful. But just to understand that in this quarter, like, if we translate what Sabeco did and just take that out of minority interest, the minority interest is still much lower, like, it almost suggests that Sabeco made a loss. Is there one level more that you can explain that? Or am I getting into too much detail?

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Unidentified Company Representative, [18]

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Well, I can say this, Sabeco did not make a loss, that's for sure. And I can tell you that the main reason you see for the drop in profit is because of the hefty provision that had to be made.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [19]

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Often lower than the less.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [20]

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And these provisions were made at the Sabeco level or at the ThaiBev level?

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Unidentified Company Representative, [21]

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No, I'm talking about the Sabeco level.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [22]

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At the Sabeco level. Okay, that is fine.

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Unidentified Company Representative, [23]

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Okay?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [24]

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Could I also talk a little bit about the market share for Sabeco, that was the only thing pending.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [25]

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Michael, talk about market share.

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Hwai Keong Lau, Thai Beverage Public Company Limited - Independent Director [26]

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Market share. Yes, since management took over in August, market share has gone up. You can check from the Nielsen data.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [27]

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Any number there that we have? Like, what is the existing market share in December for Sabeco now?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [28]

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(foreign language)

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Hwai Keong Lau, Thai Beverage Public Company Limited - Independent Director [29]

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It's around 40%.

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Operator [30]

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Our next question, Charles from BlackRock Asset Management.

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Unidentified Analyst, [31]

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Namfon, just a question regarding spirit volumes, which obviously came through literally strong in the quarter. I'm just hoping that you could help this aggregate a little bit to give up a better understanding of the extent to which the growth was from excise related sort of impact versus organic growth and also the contribution of the Myanmar spirit acquisition in 1Q's growth number.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [32]

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This is Prapakon. I'll need to explain it in 3 way. The first is, you have to understand that in September -- it's -- in September 2016 that's when the law was changed, so the first quarter, which is ended -- sorry, September 2017.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [33]

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Yes '17.

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

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Sorry, missed a year. In September 16, 2017, the new excise tax law came about. There were quite a fair bit of front loading by the distributors and the agent. So therefore the fourth quarter ended September '17 the volume -- sale volume were quite high. Subsequently then the first quarter, which is started in October '17 ending December '17, that is called first quarter of our fiscal year '18, which is ended and that number looked relatively much lower than any other quarter we have because there's a lot of destocking into the system.

So that give you the low base coming from that excise tax that happened back then. Throughout the year in the -- in calendar year 2018, there were no excise tax increase other than the 2% elderly tax that happened in March -- early in the year of 2018, which is March. There's no other tax happened and there have no been -- in Thailand we didn't have any price increase throughout the periods.

Fast forward to this quarter, which is October 2018 to December 2018, so given the low base, our domestic volume picked up substantially, because when you compare to a low base. In addition to it, the market, the consumption in the industry has took turn. And based on third-party research data, based on clearly third-party research data showing in the 3 months of October to December the brown spirit consumption in Thailand have gone up by 4% and that's a -- that basically -- the consumption for the quarter compared to the quarter before, same last year. In December, the number was about 9% positive, okay? And subsequent to that, I think we just saw the number in January, the brown spirit in January also went up by another 7%. So bring about a 4-month period, if we're counting of October 2018 to January, we're looking at roughly 5% growth in the industry. The beer -- the other categories in alcoholic consumption, which is beer, grew at about the same rate thereabout. So that's the consumption in Thailand. So you have a lower base plus the consumption picked up so contributed to the volume of sales going up domestically.

Some other questions we received earlier I think through our IR have brief us that some concerned that we may have then view inventory in the system in December to March in 2018. So the answer is, we feel comfortable with the inventory system toward the end of December. And of course December was a selling season. And it was a new year consumption season. Obviously, we will load the system with expectations of festive season. And based on the Nielsen data, in the browns we have gone 9% up in December with another follow by 6% in January, we have expected that the inventory that built over in December would have gone down.

And based on our data, on the white spirit, we also found that the December inventory built up in our agent system are relatively okay, so which mean there's a lot of consumption to -- coming into December. So that should keep us -- that pretty much gives us confidence of where we are in domestic sales.

In Myanmar. In Myanmar we have a very good quarter. As you -- I think you can rank the number in the disclosure you will find that the volume have gone up by about 35% from about 17.5 million liter to about 23.8 million liter. So that's about 35% up. Now what happened in that quarter is that in this quarter we had a relaunch of our products that we -- the 2 main product that had a relaunch and had a consumer programs kick in. So -- and some of the products we were quite short in the quarter before, so one of the 2 main products had a lot of growth and one of them, Grand Royal Smooth, in that quarter almost doubled the sale of the same quarter a year before. So that contributed to almost half of the sale in that -- in these quarters. So actually that's the third answer I give. So first is that the excise tax created low base in the quarter before -- a quarter year before. Secondly, the consumption in these quarter we report are doing very well. And we think the inventory build ups are not there. I mean, it's just relatively okay. Thirdly, I think Myanmar have delivered a 35% volume growth, and we're comfortable with where we are in Myanmar in these past quarter. So that's the 3 answers.

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Unidentified Analyst, [35]

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Thank you very much, that's extremely helpful. One follow-up question regarding Sabeco, if you don't mind. I wanted to ask what your expectations were regarding overall margin that -- that are attainable over the longer term. And what sort of time line do you place on being able to start showing improvements in procurement efficiencies and overall cost efficiencies in that up.

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Unidentified Company Representative, [36]

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Well, Charles is it? Yes, Charles, I don't think I can give you a specific figure. I don't want to tie down a time line. I can only tell you that efforts are continuing. I think we finished the year, considering the fact that new management only went in place in August and we had an approved budget that was publicized at AGM last year, we have done better than -- the company has done much better than planned. And I'm confident it will continue to do so. And I think we all a little bit patient in the next -- during course of this year I think you will continue to see improvements and perhaps from that you can make an assessment as to how fast it's going to reach high levels of margins that you might expect.

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Operator [37]

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Our next question, Nigel from HSBC.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [38]

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So can I just start, just linking on from the last question, if I understand you right, in the domestic white spirit volumes they've been running around 5% in January and February. Was that what the key point was there?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [39]

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That's -- I think December for us with growth reported by third-parties research is that there was a 9% growth in the market. And there's another follow on from 6% -- sorry, I think 7% growth in January. But if you take 4-month period, it's about 5% growth because the last -- in January -- December and January have accelerated growth from the same period last year.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [40]

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Okay, thank you. So could you just -- there was obviously very strong volume growth in Q1 last -- Q1 this quarter 24% in volumes. So the degree to which that was the base effect, what was the base effect versus the market growth approximately if you had to disaggregate them, please?

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

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No, beside the -- I mean, if I do simple math, you take 24, divide it by 2, that's 12-12. So you had the base, it was lower and you got pick up from that at 12%. So I think whether -- Nielsen generally report data but that's in -- that's brown spirit report. There is no white spirit reporting data. And a lot of our growth are coming from white spirit, and white spirit it's very much an economy-driven numbers. So I think, overall, I think in the last quarter farm price was good. I think, overall, the farmer had good incomes and I think -- we think this quarter will be contributed continue doing well in economy and election coming up in March. So I think things are looking okay from the consumer perspective, the way they feel, the way they spend.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [42]

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Okay, no, that's very helpful. And the 24, when you said 24 divided by 2 give us 12-12 that would be approximately 12% base effect and 12% from the volume growth. Is that what you're saying?

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

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Yes, I think, if you're saying that -- perhaps, I'm just saying, the base -- the quarter before may be 12% lower than the base and you come back to normal base, you add on another 12%, that how you get to 24%. But that is different from Myanmar. Myanmar has no lower base. Myanmar is just pure growth. That's just pure growth in Myanmar.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [44]

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Yes, got it. And so your working expectation in terms of volumes, what do you think on average do you expect that it will probably grow? If we're looking at each month for the rest of the year and compare that versus -- from the same period last year, do you think that's likely to run 7% to 8%? Is that's what you're, kind of, implying there?

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Namfon Aungsutornrungsi, [45]

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This question is forward looking, so we cannot say more than what we have already mentioned here.

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Nigel Kiernan, HSBC, Research Division - Senior Consumer Analyst [46]

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Fair enough, fair enough. Can I just ask another question, if I could? In terms of Sabeco, in terms of what type of return on capital do you think you can achieve at Sabeco. And what revenue assumptions would you think that would involve in terms of revenue growth rate?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [47]

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I think in terms of the revenue growth, I think management has announced that the Vietnamese beer market -- VBA, Vietnamese Beer Association, projected a 5% growth rate into the future and the management is targeting to much more than that, okay? But in terms of return on investment, again, we will be targeting to get as high as possible. I don't have the figure that I want to share with everybody at this stage because we will be held to it. But like I said before, I think we've had this call a few times now and explained all the endless -- management are making progress. I think results for the full year 2018 do demonstrate that. And in terms of visibility on marketing efforts and so, I think it is quite evident we go down together, you will a lot more than that's happening today than before and the costs have not gone up significantly for the market that I can share at this stage. I hope that answers your question.

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Operator [48]

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Next question, Xuan Tan from CLSA.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [49]

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I have a few questions. But firstly is on minority interest following on the other question as well. I think if we take from Sabeco's (inaudible) and translate it to Thai baht, are there any key accounting adjustments, because this quarter's minority interest is really low.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [50]

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In terms of accounting adjustments, one major item I think is probably conversion from VAS to IFRS. And oh, maybe the other thing could be...

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [51]

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PPA. PPA.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [52]

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Yes. Well, two things that I want to talk about. Okay, first of all, difference between transfer from VAS to IFRS or PFRS, there is some -- the biggest item I think would be bonus and social welfare fund. That's not taking into P&L in under Vietnamese accounting standards. So we adjust into the -- tieback consolidated, we have to recognize and it's a quite significant amount, so it will bring profit down. The other thing is, of course, purchase price allocation exercise that we've done. But net of it all, the net impact is not very significant. So that's the reason why I don't think worth talk too much about it. I think the key difference will be in the adjustments in VAS and the IFRS.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [53]

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Can you give us a figure, how much was adjusted under bonus and social welfare fund?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [54]

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No, it's not disclosed in the financial statements. I don't think I can give you the figure.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [55]

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Okay. But this will be more relevant to Sabeco's fourth quarter 2018, right, and not prior quarters?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [56]

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Yes.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [57]

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Okay, got it. And secondly, to ask more questions on Sabeco, can you talk about its market position in North, South and Central Vietnam? And what's management strategy with regard to the previous year in Vietnam?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [58]

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I think generally what I can say is that I think we have quite a dominant position in places perhaps outside Ho Chi Minh City. I think Ho Chi Minh City, if you go to Ho Chi Minh, you'll see other brands like Heineken, for example, and Tiger being much more dominant. This is something management will address because, obviously, in the past not enough effort has been spent on building this area of exposure. So I can't give you details of whether it's North, South or specific areas, but generally I think that would be the case. We are still quite strong in areas outside of Ho Chi Minh City.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [59]

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And for the targeted product, sort of, push harder in the Ho Chi Minh City, which specific brand would that be?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [60]

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Okay, one of the issues I guess is that -- is a task management is focus on the low-margin products which is cider and lager. They are higher margin products such as Saigon Special, for example, and even Ba Ba Ba, and management will try to focus on repositioning the portfolio. I think you'll see some results maybe in the next quarter or so. And this what we plan to do.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [61]

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Okay. And can you also share what are the cost initiatives for Sabeco?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [62]

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Well, there are various areas I think we are looking in across the whole business. What comes to mind is joint procurement, that's one area that we're working closely with ThaiBev. We're also looking at improving efficiencies in transportation management systems, in warehousing management systems. These are areas that we feel could bring cost efficiencies. I think in previous call we also mentioned that we're looking at cost-saving initiatives on production side, for example, in packaging area. One exercise has been done, bleaching of cans and looking at other packaging areas as well. And these are already starting to generate some cost savings.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [63]

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Okay. And if I can just add one last question, if you consider timing on the interested parties' transaction, just around wondering what the thought behind is this announcement after acquiring Sabeco for a year? And do you think the current climate is more conducive for the F&N, FCL shares fall?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [64]

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Well, I will leave the comment on FPL, F&N share swap to my colleagues, please?

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Namfon Aungsutornrungsi, [65]

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Xuan Tan, so far for this question here, we understand we've got this question quite often. But so far, we don't have anything to update in terms of the share swap yet.

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Operator [66]

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Our next question, Josias Goh from Saga Tree.

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Josias Goh, [67]

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I have a few questions. My first question is on the ASP of the domestic sprits. Maybe can you share the ASP for domestic sprits, please?

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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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ASP?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [69]

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Average selling price. That, if you compare to the quarter before, there were some price adjustment, but it's not a lot because, subsequently, I think in -- when the elderly tax came about in March. So 1 change at the quarter between December -- October to December 2017. That price already adjusted. So the base price to compare is already adjusted up. And for this October to December 2018, there has been an adjustment in between this one -- this quarter, which is the adjustment for the elderly tax, which is a very minimal adjustment, yes.

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Josias Goh, [70]

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So it's comparable to '18 Q2 number?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [71]

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It's almost. Almost. I think it is maybe 1% up, if or thereabouts. It's not a lot at all.

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Josias Goh, [72]

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Can I also ask about Myanmar? Are you gaining market share in your category? If so, how much?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [73]

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Yes. We are gaining shares based on those volumes. The -- we maintain that, I think, at the beginning, when we made acquisitions, we were saying that in the whiskey market, in the whiskey segment, we have shares around 70%, around, I think, over 65%. Right now, we are thereabout in the 69%, 70% range. We have been gaining shares per country site a 1% range over the past -- 1% to 2% range over the past 6 months.

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Josias Goh, [74]

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Okay. I have a few question on Sabeco. My first question is with the strong proposition in Vietnam with Heineken, I just wanted to see if you're seeing any improving demand for your product in Vietnam. And my second question would be on, can you provide an update on the brewery rationalization or any capacity expansion? And my third question is can you share how big is Saigon Special as a percentage of total volumes in Sabeco? And -- yes, that's it.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [75]

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First question. I think in terms of how well the brands are doing, as I mentioned, the market share for our brands have increased since management took over. So I think, it's still early days yet. Bear in mind, the management just came in, in August of last year. So it's still a relatively short period of time, a lot of work still needs to be done. So I would say that we are pleased that market share has increased. So I'll leave it at that for this stage, and take note that maybe in the future we can have better information for you. In terms of the brewery rationalization program, it's an area that we have been looking at actively. There are 26 breweries in the country, that's quite a lot. And we only own 100% of 3 of them, with another 7 where -- which have majority subsidiaries and where a lot of them are associated companies. So this would take a bit of time. I don't think I can share any details at this stage because it involves various other kinds of parties. Now in terms of Saigon Special, where it sits within the portfolio, clearly, the largest selling category would be Saigon Lager, right? Unfortunately, that's the lower margin beer.

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Unidentified Company Representative, [76]

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It's 10%.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [77]

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Okay. And Saigon Special, just a rough figure in terms of portfolio, it's about 10%, okay?

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Operator [78]

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(technical difficulty) Asset Management.

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Unidentified Analyst, [79]

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I have 3 questions. The first one is on volumes and I'm just having an issue trying to reconcile your market share estimates and the volume growth numbers. You mentioned that market share has increased since the new management took over. Higher-value volumes have hardly grown in the last quarter, yet Heineken reported double-digit growth. So how is it that your market share was able to increase as you claim? Also, we noticed the allies of FMCG players in Vietnam have been growing. My questions are with regards to Sabeco. Other FMCG players have been growing well into the double-digits with Nestlé and the likes of Heineken reporting strong growth, why is it that Sabeco has lagged other FMCG peers in the market? And does this have to do with any sort of kind of something that took place in the past? Secondly, you mentioned that in the fourth quarter, the management decided to clean the house. With regards to time line, how long is this kitchen-thinking period expected to last? And when should we start seeing a normalized level of moment? Should that come in the third quarter or second quarter? And thirdly, on the cost savings, could you kindly give us the time line on when we start to see this positively affect on your margins, given that they have been on a downward trend for the past 2 years or so?

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

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Okay. I'm not sure I caught all your questions. So let me try and address them, okay? The first question, I think, was about the market share. How is market share increasing when your revenue is not going up very much. Is that the question?

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Unidentified Analyst, [81]

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Yes, exactly. When your peers are reporting strong growth, how it affects your market share.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [82]

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Okay. You remember we talked about the previous management having a front-loaded excessive fee in December 2017. There was a lot of stock in the market. So what our management has done is to, first of all, try to get the inventory levels down to a healthy level. And that has also helped to improve working capital, okay? And the fact that we've been able to increase market share and still maintain revenue fairly close to previous levels is a testimony in the amount of stock that we see in the market. And not all, we couldn't sell all of them either because you don't want to sell bad beers so we had to make a tough decision to actually write off what couldn't be sold. So very happy these days that we've done our market visits, and we find that the beer that's being sold now is relatively fresh, not sitting there for 6 months or 9 months or whatever. So that's the first thing you need to do. Now the other question, the second question that you had, I'm sorry, I'm not directly -- Namfon, can you help me?

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Namfon Aungsutornrungsi, [83]

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How long before the provisioning would happen again?

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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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Okay. Now I think, I'm very confident we have taken the bulk of what needs to be taken. So I would like to say that, I think, we can reasonably assure that we are moving towards a more normalized situation. So the question, of course, is that when you take these provisions. You might as well take it all at once, right? And that's what management decided to do, right? And the third question, Namfon?

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Namfon Aungsutornrungsi, [85]

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The third question is time line for cost improvement.

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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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Time line for cost improvement, I mean, it is ongoing all the time. Even from day 1, we've been trying to deliver this. We started to see some results when we started to do downgauging of cans, for example, that's already there. I think in terms of the initiatives, there are lots of them that we have. It's a matter of execution and timing of the execution, having the right people on board. I wouldn't want to give a time line specifically, but I mean, it's not going to be some ridiculously long time line either. It is a matter of urgency and priority to management. So we're going to get it done as quickly as possible. And I'm very hopeful and optimistic, in fact, that we will see these results flowing through this year.

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Unidentified Analyst, [87]

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Okay. And just finally, just to get a sense of the health, the level of demand of Sabeco's products in the market. Do you have a sense of the growth rates in your products in the secondary markets, i.e., from the distributors to the end consumers? How are volumes in that segment growing?

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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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Well, I mean, to answer this question, perhaps I could put it this way. When we went in, we see hardly any marketing being done but quite a bit of marketing dollars being spent, okay? And yet, the company has been able to maintain a leading market position for a long time. I think that speaks a lot about the latent strength of the brands that they have. I think the route to market as well is something that, I think, has helped the company's business a lot. We've got 26 breweries spread out throughout the country, the product is available. And I think, in terms of awareness for the brand, it's there. So what management is trying to do now, of course, is to start to differentiate the brands. We seem to have a few brands, but they also look about the same, targeting the same customer segment. Let's wait when they've completed their brand portfolio review, right? New positionings. They've started to look at market segmentation. And the aim is to develop different kinds of -- differentiate the brands and target specific customers. This is in general the approach being adopted, but it needs a bit of time. I know I keep saying this, but time seems to fly by very quickly. But when you stop and think about it, it's quite a short period of time that has passed. And we're already seeing the results, and these results have been quite positive. And these are things that I'm quite happy to say.

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Operator [89]

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Our next question, Cezzane from CIMB.

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Cezzane See, CIMB Research - Analyst [90]

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Congrats on the uptick in the volumes. I just had a few questions. Firstly, it's in regard to the [MIS]. You've been getting this the whole night. But how should we look at it going forward in terms of being normalized, moving ahead? That's my first question. Secondly, in terms of spirit volumes. I understand -- just recapping on what you mentioned earlier. Did you just say that the stock level -- or the consumption level is still quite positive? You think moving ahead until the election? That's for the spirits. Is that similar as well for the beer? Or is there more -- or is there a different scenario within the 2 products? Yes, that's it from me.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [91]

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What's the first question? Normalized...

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Namfon Aungsutornrungsi, [92]

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Normalized in (technical difficulty)

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [93]

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We tried to explain, this is rather unusual this quarter because of the heavy provisions that were made. I mean, once we stop having to make these provisions, I think we can say that it's normalized. Edmond?

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Kim Soon Neo, Thai Beverage Public Company Limited - Chief Brand Investment & Executive VP [94]

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And I think the questions on the consumptions in Thai domestic market for alcoholic beverage being the trends at the same, both beer and spirit, because we all -- I mean, the elections is in the end of March, which is this quarter. And then that follow with the Water Festival. So that's Songkran, so that's kind of similar, as expected.

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Cezzane See, CIMB Research - Analyst [95]

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Okay. And lastly maybe, can I just touch on your debts in terms of the last tranche of financing? How should we look at it moving ahead? Is there any time line of when you are looking to complete that although...

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [96]

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It's Sithichai speaking. You can see that on the '18 and even the IR presentation. We have -- we still have the [existing] loan that will be due at the end of this year. But now we are in the process to issue the debenture, the third tranche, that we expect that we will issue the different debt in the second Q and that we must, in 2019, to take out for the existing loan THB 71 million to the long-term loan.

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Cezzane See, CIMB Research - Analyst [97]

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Okay. So is it second -- as in, in March, second quarter that is, right?

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

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Yes, we highlight in the IR presentation also.

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Operator [99]

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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 [100]

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Just a couple of questions from me. In terms of the alcohol volumes in Thailand, I just wanted to get a sense of how much you think it's driven by the elections, i.e., would -- should we be expecting a slowdown in the kind of growth rates you're seeing now as in that 5%, 6% average after March? Also, given the pickup in the consumption, I just wanted to get a sense of how you guys are thinking about marketing spend in Thailand. You had some launches over this past quarter. I just want to get a sense of would you be looking to be more aggressive or anything to take market share.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [101]

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Right. This is Ueychai speaking. Talking about the market outlook after the elections. I mean, during the past many years, elections always boost some consumption because money circulations in the country. So after that, it will be followed by some promises of normal seasonal thinking. But -- then come to May, it'd probably come back to normal. We expect that this year, the economy, overall economy is good. So it should get some -- we should get some growth even after the elections in May. As you know that in Thailand, during Buddhist Lent, then the consumption of alcohol would decline a bit, but that is quite normal. In all, we think that it would be quite high during elections, and then the follow up -- following the elections, it's still high because this leads to some grand celebration of the new MP, new positions. In May, remember there will be some big celebrations because of Rama X, the coronation of Rama X. So we expect that there would be a celebration mood, which is not happening last year. So this year, we are quite confident that the overall business into our alcohol would be okay.

And the marketing spend, I think, we do not plan to spend anything extra because the law doesn't allow us to spend in many -- in media and everything already. So we didn't plan to put any extra money because the growth will come from the natural growth of consumptions. So we will -- we are right along that.

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Nicholas Teh, Crédit Suisse AG, Research Division - Research Analyst [102]

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Sure. Just 1 follow-up on that. In terms of the -- I just wanted to get a sense and a reminder perhaps, is the World Cup has much of an impact last year?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [103]

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Not much, not much, not much. The World Cup impact more beer than spirit, but very small, very small.

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Operator [104]

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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 [105]

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I have a few questions. Number one, on the private consumption. We didn't see a recovery in private consumption. If you look at what's indicated there, no matter what the private consumption index of the sales of the Thai Beverage, you have seen a very mild recovery, but it's staggered, linear. But if you look at the rates, it seems to me that the recovery is at a much steeper pace. Is there any particular reason for that? Number 2 question is that when Khun Prapakon mentioned about a Nielsen survey on the spirit sales. I just would like to confirm that, that's a sales to the end consumer. And then the third question, Nielsen survey suggest that the beer sales grow by only 4% year-on-year in the last quarter of the year, whereas ThaiBev beer sales in domestic market grew by almost 8%. Is it fair to say that you actually gained market share in here? And then the last one is it's actually not a question, it's my feedback, I hope you don't mind. In the past, you do release the sales and profit breakdown of Sabeco and Grand Royal in the annual financial statement. But then you stopped releasing such figures in the first quarter of this year. I'm not sure if there's any way that you would consider releasing those figures again because those figures are extremely helpful for the analysts to understand ThaiBev better, especially when you become the regional company now. So that's all I have.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [106]

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Thitithep, Ueychai here. I will address the first questions. Actually, alcohol beverage -- alcoholic beverage has been -- the consumption has been depressed since Rama IX event. And it has been coming down quite a bit. Now when things are getting better, we get some good celebration mood. So it's coming back. The big -- actually, this quarter, we have to say the white spirit is doing very well because the crops' price and everything is good. The rice price is up. Per ton, it's up quite a bit. And also the cost of -- to the farmers is also lower because the government subsidized harvesting cost, if you remember, BHT 15 per rice. So that give a lot of money to the pocket -- in the pocket of the farmer. That's why, starting October, we see the white spirit going up quite a lot. And now followed by the brown spirit that Prapakon mentioned, the Nielsen report is only on brown spirit. And beer market share is still stagnant. Overall, around 39% to 40%. So -- but actually, if you remember the government recently announced that the growth production -- the growth was about 10%, 12%, but that's what's the production because there's an excised tax paid. So that's -- I mean, the stock built up for the industry. So actually, we are not surprised of this spirit growth rate very much because last year, if you remember from October to December, our sales on spirits and beer were quite depressed because it's right after the tax increased in September, which Prapakon already mentioned, that your stock -- I mean, selling during that time was quite low. So it's quite a low base for -- especially for spirit. And now it's coming back. And we checked the stock between the trade now, it's not abnormal at all. So we are quite pleased to see the results. And we hope that going forward, we should be able to do good. But do not expect it to be like 30% every quarter, okay? Because this is a special quarter. Thank you. On the last -- on your comment, we will consider -- we will take the comment and consider, okay?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [107]

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The EBITDA is stable. The accounting standard we got on -- when you make any acquisition during the year -- on the full year operation, this accounting standard to this growth, how impact for the full year. But this FY '19, on the acquisition come to full year operation that's why they don't disclose.

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Thitithep Nophaket, Phatra Securities Public Co. Ltd., Research Division - Director & Analyst [108]

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Great. Okay. I guess I leave it to you. You said that you continue to disclose the Thai Accounting Standard I believe.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [109]

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We have to consult with the auditor, the [economy] accounting standard, they just leave you on the -- not full year. If they come to full year, they don't disclose. Okay. I think (inaudible) have to consult the auditor first.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [110]

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Thitithep, just -- this is Prapakon. I think I heard you saying beer growth for the quarter, it's -- third-party research is 4%. (inaudible) data is not 4%, it's 5%. So 5% for the 3 months, October to December. And I think in January, that data, just 1 month is 11%. So the 4-month period, the consumption report is around 6% now.

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Operator [111]

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Andy Sim from DBS.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [112]

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Yes. Sorry, I was on mute. Yes, I have two questions. The first one is actually on Thai domestic. You mentioned that the beer market is -- stood at -- market share stood at 39%, 40%. Can you just give us a sense on the competitive landscape? And also, if you mentioned earlier that A&P spend for beers increase was partly due to the craft beer. So does it means that the main beer brands, you have to spend a fee due to the increase to that? And all of that? Of this, I think previously in previous call, you mentioned that A&P spend would be more prudent target that -- focusing on -- when it comes to channel. That's one. The two -- and also, it's got a -- at most, below the line kind of activities. How is this going? And what else that could be done? This is my first question. Second question is on Sabeco. Well, just a quick update. Were there anything post the update on the excess fee payment issue that the government has, which [cost] anything since December or January?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [113]

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Okay. (foreign language).

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Kim Soon Neo, Thai Beverage Public Company Limited - Chief Brand Investment & Executive VP [114]

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Kim Neo speaking. Okay, in terms of the competitiveness in the beer landscape in Thailand is still, well, highly competitive. And I think that the fact that you've mentioned a bit about the increase in the cost of the launch of the new product. I think that's quite normal because we launched the 2 craft beer late in October. So I think that the spending, that's actually associated with that. So I -- the moving forward trend is quite okay. So I think that the beer -- the 2 products has performed quite well in our [industry] and in line with our expectations. And we will continue to monitor the market closely to align our spending with the competitors. In terms of the below the line, I think the strategy for us right now is trying to convince all the consumers to I think switch to our product. So of course, I think the strategy has to be the -- on productivity. So that's pretty much what we aims to accomplish for this year.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [115]

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Okay. Sabeco?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [116]

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Oh, regarding Sabeco, there has been no development on the tax issue. We have continued to maintain to the Prime Minister Office that Sabeco has complied with all regulations. So it didn't seem to be a problem before when they owned 91%, and I don't see why it should be a problem now.

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Andy Sim, DBS Bank Ltd., Research Division - VP of Equity Research [117]

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Okay. Back to the -- on the [Grand]. You did -- how is it? Is it meeting your target so far in terms of the type via domestic? Or is it achieving that results that you're waiting to achieve? I know that you will continue doing that.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [118]

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I think so far, I'm quite (inaudible). So far I'm quite optimistic about the result that we are doing. And we will continue to, as I said, closely monitor the trend in the market. So, so far, so good. That's what I say. Thank you.

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Operator [119]

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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 [120]

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I have a follow-up questions on beer. I noticed that the craft beer market in Thailand has been quite active. And there has been quite a new entrants, including root beers. My question is that how big is the craft beer market in Thailand and what is the growth rate?

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [121]

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Small, so small.

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Kim Soon Neo, Thai Beverage Public Company Limited - Chief Brand Investment & Executive VP [122]

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Well, it is very small. A very small niche market. And as just for your information, it's a trendy -- that's a -- the younger generation love to explore new products. And I think that's -- we still keep a close eyes on the new development in the market.

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Ueychai Tantha-Obhas, Thai Beverage Public Company Limited - Senior EVP, COO & Director [123]

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But Thitithep, right now, all the brand together, probably about 1% market share, 1% to 1.2%. Still small, but we have to -- have it closely watched that segment because if it grow, then we do not miss the trend.

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Operator [124]

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

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Unidentified Analyst, [125]

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I have two questions, both on Sabeco. One is, when you mentioned market share, would you be able to share is it more specifically within Ba Ba Ba? Or is it more special -- Saigon Special? The second question is -- sorry, I missed it earlier, the negative minority interest in the first quarter of 2019, your financial year, what was that due to? Because the write-down provisions I think were much smaller than the actual profit recorded at Sabeco.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [126]

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So let's do the first question there. No. The increase in market share, we don't have the breakdown. Basically, it's just a composite number. On the second one -- well, sorry, the question on minority interest, I thought we had really answered that. Is there something more to it?

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Unidentified Analyst, [127]

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It's all right. I didn't catch it. Would you mind going through it quickly and be more substantive on why's it negative?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [128]

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Well, what I explained was that in the last quarter of last year for Sabeco, we had to make a lot of provisions, right? These provisions were rather large, right? And they are one-time provisions. And therefore, reduced the profit of Sabeco.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [129]

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Sithichai speaking, CFO. Sabeco minority, it have 2 sections. First, minority on the Sabeco label, we own 53%; minority Sabeco own 40% something. But on the 53%, if you remember, we have a JV with the Vietnamese people. We own 49% and them 51%. This have to -- this level that make the minority net effect. But I think on the second Q, if you'd -- the [write-down], we have an announcement that now we buy the stake on the Vietnamese JV, it come to the figures of 49%, now we come to 99%. So on the second quarter, we would -- maybe didn't own this one because on the JV level, now we hold 99% and come to -- didn't have minority level on this JV side.

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Unidentified Analyst, [130]

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Okay, I understand. But just to clarify because if I look at the financial statements, I understand there's a bit of a changes when you move from 1 accounting standards to the other. But we do see that the provisions in the fourth quarter -- sorry, the first quarter of 2019 at Sabeco, the provisions made were much smaller than the actual profits. So that would mean that most of the negatives...

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [131]

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Yes. That one happened on the JV level between we and the -- with the principal to acquire 53%. But second Q, we didn't have this profit because we buy on that level, it come to be a 99% on this JV side.

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Operator [132]

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Nico Yosman from Morgan Stanley.

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Nico Yosman, Morgan Stanley, Research Division - Former Research Associate [133]

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Just one question from me. Can you just share what's your current composition for brown and white spirits currently? Has that changed over the years?

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Namfon Aungsutornrungsi, [134]

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So in terms of the proportion.

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Nico Yosman, Morgan Stanley, Research Division - Former Research Associate [135]

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Can you probably share some number?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [136]

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No.

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Namfon Aungsutornrungsi, [137]

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In terms of the breakdown, the current -- I mean, we don't give the breakdown. Sorry about that.

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Operator [138]

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Our next question, [Manuch] from [Barrick Asset Management].

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Unidentified Analyst, [139]

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So when you said on margins will improve in 2019, so we meant that we go back to the pre-M&A margins of Sabeco. So we bought the company in '16, '17 when the margins were 17%. So are we saying that we'll go back to those margins? Or we're just going to improve on 2018? That was one. And secondly, in the Sabeco cost of goods sold, what will be the -- given we have all the other subsidiaries who are paying excise duty and other taxes, what is the on a consolidated basis in the total cost of goods sold? What will be the total excise duty in the cost of goods sold? And just one question was asked that we managed to gain market share even though our volume growth was lower. But if it's so, I'm guessing what you're saying is that the sell-out growth was probably higher than the market growth of 4%, 5%?

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Namfon Aungsutornrungsi, [140]

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Can you wait one moment for the answer? Just one moment.

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Unidentified Company Representative, [141]

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We need to answer that question.

Yes, [Manuch], in terms of the profit margin, obviously, we're trying to get as high in profit margin as possible. I don't want to just restrict us to the 18%. So that's my answer to the first question. And your second question, I think it's something to do with the -- is it the tax, right?

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Namfon Aungsutornrungsi, [142]

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Yes.

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Unidentified Company Representative, [143]

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And the cost of those sold? You know when we buy our beer from the associated breweries, the taxes levied on those goods which are sold to our breweries, they are included in the cost of goods sold that's consolidated in Sabeco. They don't come under tax. Maybe that helps to explain maybe the question that you asked. Okay. Can you, Prapakon?

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - Executive VP, Chief Spirit Product Group & Chief Route-to-Market [144]

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Yes. Tax, I think in earlier questions, we explained. The reported growth for the quarters of 4%, 5%. That, for the quarter, was just brown spirit. We also sell white spirit. And the white spirit do not have recent data reporting. We explained earlier that we believe that the consumer -- the mass market consumer and especially lower part -- lower income part have more money in the past quarter, and then the past economy picked up as well. So that's to explain. And earlier on, there was another gentleman who asked the same question, which we already explained that with the lower base, destocking of the old waters that give a lower base and with a newer base. With -- if we normalize the base, we're probably be looking at growth around double -- high digit or low double digit. So that's to explain it.

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Unidentified Analyst, [145]

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So we grow on a apple-to-apple

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calculated, we grow low double digit in your -- in Sabeco?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [146]

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[Manuch], on the last question that we answered is on spirit of Thailand, nothing to do with Sabeco.

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Unidentified Company Representative, [147]

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I do understand, sorry.

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Unidentified Analyst, [148]

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Then on my question was on Sabeco, actually, that -- when you said that we increase market share in Sabeco. Is that right?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [149]

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Okay, [Manuch], let me try to put my Vietnamese hat on, okay? The market shares is up, that's according to the report of the third party, third-party researcher. But even though the sales is down, it is possible because the sales of the report is the sales for trade. But because before they have a lot of stocks to sell through to the customer can be more than the sale to trade.

You have to understand, the report in -- on the Sabeco sales declined a bit because it's a sale to trade. But because before that, there are a lot stock in the trade, so the sell through to the consumers can be more than the sell-in. I hope I'm not confusing you. Okay? Thank you.

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Unidentified Analyst, [150]

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No, no. Of course. Okay, just going back on the cost of goods sold. Are you saying on cost of goods sold, there is no excise [tax]?

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Unidentified Company Representative, [151]

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No.

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Namfon Aungsutornrungsi, [152]

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Okay. It's

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For cost of goods sold. And that have -- when we see that, we bring its -- part of it is excise tax, right? But some after products. So at Sabeco, we buy it as a OEM. So when we book that cost, it's under our finished goods. We couldn't separate the excise tax out. So you won't see the excise tax number on some of the OEM that we bought. But if it -- in Thailand, when we produce it, we can book the tax because we produce. But in Vietnam, some of it we bought it as a -- for OEM.

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Operator [153]

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Our next question, Manik Mahajan from Goldman Sachs.

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Manik Mahajan, Goldman Sachs Group Inc., Research Division - Research Analyst [154]

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I just have one question on your cost of goods sold. So we have noticed there has been an increase in the cost of barley over the last few months. So just trying to understand what's the company's strategy in terms of hedging this risk? Or if the barley cost remain high, could we see a compression in gross margins?

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Namfon Aungsutornrungsi, [155]

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(foreign language)

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Unidentified Company Representative, [156]

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About beer barley, we always buy forward. So I think I can inform you that we have booked our beer barley at a really good price. And yes, that is a good news from us. So now we started to buy already. But this year, our strategy is different from the other years. Rather than buy ahead now, we deplete our stock first and then waiting for the price to come down. And successfully, we have got it as we expected. So I don't want to tell you the figure, but it is significant, what you call, millions euros that we can save from this booking.

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Operator [157]

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Our next question, Xuan Tan from CLSA.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [158]

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I have one question with regards to the change in Vietnam Beverage ownership. Is the ownership -- are there any changes with regard to how its finance costs being booked? Are these booked under ThaiBev level or the Sabeco JV level?

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [159]

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Okay. When we change ownership it will be booked on ThaiBev level, but since when we buy from that one, normally, we have the margins on -- in the late half to them since we buy from them. Now since the second Q, no more in the less margin come to pure margin on the borrowing side.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [160]

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Both ways, the finance cost are being booked on the ThaiBev level, so [there is] no tax.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [161]

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Yes. Yes, we book on ThaiBev level. No, no margin on [the list]. It's in the second Q.

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Operator [162]

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Anymore further questions or attention?

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Unidentified Company Representative, [163]

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Okay, let's go.

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Unidentified Analyst, [164]

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Very, very sorry, management. I just really wanted to reconfirm one more thing. So the change in ownership structure for Sabeco, will it be taking effect in second quarter of FY '19? Or it's already taken effect in first quarter FY '19? Sorry about that.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [165]

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Second quarter FY '19 onward.

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Sithichai Chaikriangkrai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [166]

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We can go now. We're (inaudible).

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Operator [167]

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[Q4] to follow up

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Namfon Aungsutornrungsi, [168]

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Okay. Thank you for joining our conference call tonight. If you have any further questions, please contact IR department at ir@thaibev.com.

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