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Edited Transcript of Y92.SI earnings conference call or presentation 16-May-18 10:30am GMT

Q2 2018 Thai Beverage PCL Earnings Call

Bangkok Jun 5, 2018 (Thomson StreetEvents) -- Edited Transcript of Thai Beverage PCL earnings conference call or presentation Wednesday, May 16, 2018 at 10:30:00am GMT

TEXT version of Transcript

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Corporate Participants

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* Chaikriangkrai Sithichai

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

* Hwai Keong Lau

Thai Beverage Public Company Limited - Independent Director

* Kim Soon Neo

Thai Beverage Public Company Limited - EVP

* Namfon Aungsutornrungsi

* Prapakon Thongtheppairot

Thai Beverage Public Company Limited - EVP

* Teck Chuan Tan

Thai Beverage Public Company Limited - SVP of Non-Alcoholic Beverage Business (Thailand)

* Vivat Tejapaibul

Thai Beverage Public Company Limited - Director

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Conference Call Participants

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* 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

* Van Linh Vo

* Xuan Tan

CLSA Limited, Research Division - Research Analyst

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Presentation

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Namfon Aungsutornrungsi, [1]

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Good evening, ladies and gentlemen. Welcome to the ThaiBeverage Second Quarter 2018 Ended the 31st of March 2018 Financial Results Conference Call. I am Namfon Aungsutornrungsi, ThaiBev's Head of Investor Relations. We will start the call today with a summary of the second quarter 2018 results, then we will open the line for Q&A with our management team here.

For the summary on the second quarter, total sales revenue of the company in this quarter was THB 67,603 million, an increase of 34.3% year-on-year attributable to an increase in sales revenue of spirits, beer and food businesses. Net profit was THB 7,433 million, increased 13% when compared to the same year of last year, while attributable profit to shareholders of the company was THB 6,345 million, a decrease of 3.2%.

After the acquisition of Sabeco at the end of December 2017, in this quarter, the company started to improve the results of operations and cash flows of Sabeco in our consolidated statement of income and cash flow of the second quarter ended March 2018 onwards. The company obtained bridging loans from various local and foreign banks to fund the acquisitions, which happened in the first quarter. We took out the short-term debt to long-term debt in March 2018 about THB 50 billion. The company will further manage to take out short-term debt to long-term debt per approval at the EGM on the 30th of April this year. ThaiBev's Board of Directors agreed to propose an interim dividend payment of THB 3,767 million or THB 0.1 per share.

For the highlights of this quarter, in the second quarter, the company's spirits business generated sales revenue amounting to THB 33,043 million, up 14.3% compared to the same period last year. Sales volume recorded by the company's spirits business increased 0.7% when compared to the Grand Royal Group sales -- when excluding Grand Royal Group sales and increased 17.7% when including the Grand Royal Group sales.

Even though advertising and promotion expenses as well as personnel expenses rose during this quarter, the business recorded attributable profit of THB 5,696 million, an increase of THB 155 million or 2.8%. This was mainly due to an increase in net profit from the Grand Royal Group.

The company's beer business registered sales revenue amounting to THB 27,077 million in the second quarter 2018, which is 74.4% higher than the sales revenue profit in the same year of last year due to 153.3% increase in sales volume, including that of Sabeco. However, sales volume recorded by the company's beer business declined 7.3% when excluding Sabeco sales as a result of stagnant economy and low customer processing power.

Attributable profit for the beer business was THB 307 million, a decrease of THB 616 million. This was mainly due to a decrease in net profit from the company's existing beer, although there was an increase in net profit from Sabeco. Sabeco acquisition is considered as earning accretive to us.

For the company, nonalcoholic beverage business in this quarter generated sales revenue amounting to THB 4,089 million, down 4.8% when compared to the same period last year despite an increase in drinking water and carbonated soft drink sales volumes. Attributable loss during this quarter increased 22.7% year-on-year to THB 351 million.

For the food business, it recorded sales revenue totaling THB 3,421 million in the second quarter, up 107.7% compared to the same period last year. This was due to the increase in the number of Spice of Asia and KFC restaurants. Consequently, the attributable profit, [done] 626.4% year-on-year to THB 209 million for the food.

Sales revenue recorded by the company's international business, done 1,001% year-on-year. International spirits sales revenue increased, driven mainly by the Grand Royal Group and the bulk whisky sales in U.K. and some Asian countries. (inaudible) International beer sales revenue results on account of Sabeco sales, which were consolidated in the company's earnings this quarter. We will now start the call -- start to open for the question. Please give your -- please type in your question, and we will open that for our management.

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Questions and Answers

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Unidentified Analyst, [1]

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So I have 3 questions. The first question about the spirits business, particularly on the margin. I wanted to understand why the spirit margins are a bit lower on a year-on-year basis despite volumes amount having improved? And also on a consolidated basis, Myanmar will have better margins. So (inaudible) where are the margins actually weaker on a year-on-year basis? That's the first question. The second question is on the beer business. Based on our implied calculations, it just seemed to be that the beer margin for the domestic business is less than 2% this quarter, could you just clarify if that's correct and if you've seen any improvement in volumes in April? And the third question is on market share, if you could tell us the market share trend in beer as well as in spirits.

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Prapakon Thongtheppairot, Thai Beverage Public Company Limited - EVP [2]

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I have Vivat as well. I'm Prapakon. The general market share for the spirit in Thailand has been stable, and this has been stable for both white spirit and brown spirit for the past 2, 3 years. Although there are changes in shares between -- in the brown spirits among our own brands where HongThong remained a strong brand. And over the past 2 years, Blend 285 brand has been losing a bit to HongThong and losing a bit to SangSom. But it's -- the aggregate between the 2 brands in brown spirits has always been very high numbers and this hasn't changed for the past 2, 3 years. White spirits remained stable, same thing. Back to the margins of the overall business, the spirits business domestically, by volume, is quite big. So by far, so changes in the cost structures in the domestic spirit therefore make -- could affect the total margins when we look at them. So in terms of the numbers, in the past quarter, we experienced some cost-push. It's mainly cost-push. One notably was the molasses cost-push that was average cost that we use for -- to calculate in the finished goods being sold for this quarter. These molasses, the last crop being October. Last crop is actually being October to April, actually April of '17. Those are basically the average price built into the molasses in push. And other -- that's reflected in our finished goods for this quarter. So as for the molasses, the outlook is much (inaudible). The input price in new molasses crop that we have bought in this season and what we expected in the next crop will be lower than what we have today. So we have some visibility on that, so we think it's going to head lower. But this is a blip on the cost side. Other than that, there are some basically overall packaging costs from the overall paper, glasses and those are just some cost-push on that end. We have, in the domestic market, spent a bit more on marketing spends compared to the same quarter last year. And that was as part of the program on advertising the brands in Thailand. So with those, we see some selling and -- those are the number that's squeezing in the margin domestically. As far as the Myanmar business, it remains to be good. Year-on-year, it's positive on both profit and volumes. So that's -- and other than that, the smaller product in the international market out in Scotland, the sale in Scottish products around the world. Those remain positive year-on-year, far better than the year before. So that's the overall outlook for us. Okay, Divya? (inaudible). Edmond?

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Kim Soon Neo, Thai Beverage Public Company Limited - EVP [3]

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Yes. Hi, Divya Kothiyal. Okay. Lots -- so a question about beer margin being less than 2%. I'm not sure where you've gotten this figure because that's not our margins, actually. First, let me clarify with you. So Divya, this is our beer margin. Just to clarify, you're referring to the net profit margin, right?

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [4]

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No. Actually, I'm trying to arrive at the operating margin for the domestic businesses, but I'm not able to because of the difference in the market. So maybe if you can just talk about the domestic beer margin, that would help -- the operating margin for beer.

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Kim Soon Neo, Thai Beverage Public Company Limited - EVP [5]

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In terms of the operating margin for domestic market in Thailand, yes, you're right. It has dropped slightly. It actually has to do with the higher A&P spend versus the same period last year because last year was a bit of a (inaudible). Second was packaging cost because we found that for this year, the price of cans as well as paper carton has gone up quite a bit. And the last bit is also the early tax that was imposed in January this year, which we did not pass on to the trade. So basically, these are the components that actually resulted in that [similar] margin. The next bit is about market share. Market share, as I have shared before, we have kind of maintained it. In fact, for this quarter, it has gone up slightly this last quarter. Overall, so this (inaudible) EBITDA, plus/minus 1% margin. So there are some months we go up, some months we come down. But overall, it's fair to say it's (inaudible)

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

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Can I just make you clarify what exactly is the operating margin for domestic beer?

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Namfon Aungsutornrungsi, [7]

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Divya, actually, in terms of separating the margin for the domestic or excluding Sabeco, actually we now include Sabeco in our consolidated. So we don't separate it. We only show the separation at the attributable profit at the bottom line. But we do not disclose separate for Chang beer or Sabeco (inaudible)

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

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Okay. Can I also then clarify that the revenue that you consolidate for Sabeco is 20% higher than the revenue that's reported by Sabeco? What's the difference between the 2?

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Namfon Aungsutornrungsi, [9]

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I think what you are referring to revenue that is reported by Sabeco. If you look at their reporting, I think that [your net sales for us is not for us] because we have excise tax. And the Thai economic standard, we -- you need to add the excise tax.

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

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Okay. So that 20% (inaudible) the excise tax?

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Namfon Aungsutornrungsi, [11]

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Yes, we reported THB 13 billion (inaudible)

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

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Okay. And I'm sorry, can I also clarify because the line was so unclear, and confirm you had mentioned that the cumulative molasses prices have gone up in October to April. Could you give a -- could you just repeat exactly how much have those prices gone up? And what's your outlook for spirit margins? I mean, is that higher price going to continue through this year? Or is the -- I mean (inaudible) price hike to offset this increase?

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Vivat Tejapaibul, Thai Beverage Public Company Limited - Director [13]

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It's Vivat. So I think just put this again, molasses come from by-product from sugar refineries. So in Thailand, there's the sugar crop plantations, sugar crop harvesting, so that when we refer to the last crop, then we normally crop start around December and then in around April. So what I was saying was that a crop that started in December 2016 and in April 2017, those crop are relatively quite expensive. And therefore, it's then being used throughout the year and then coming in, let's say, goods as a finished good cost. And what I'm saying is that the crop of this year, that is already over. We have seen those molasses cost come down by a very reasonable decline. And we think the outlook for the crop, that will start probably later on in the year. It's hard to say, but we think that price will not be higher than the previous crop. So all in all, what I meant was that the new input price that we have for this crop that's being delivered to us are cheaper than the year before. And therefore, going forward from the molasses perspective, we think it will come down as an input cost to us. I wouldn't quantify exactly how much because normally we don't -- it's -- we won't go out in this -- in that detail. In terms of the cost of goods margin, we think it's going to be stable going up. We don't -- we think the cost-push that we have seen is not going to come any further. So that, therefore, imply that our margin should be stable.

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Divya Gangahar Kothiyal, Morgan Stanley, Research Division - Equity Analyst [14]

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Okay. I kind of admit I had to also ask about the improvement in April volumes that you've seen in there because beer volumes have been -- the pricing is very weak. Can you give us some color on the recent trends?

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Kim Soon Neo, Thai Beverage Public Company Limited - EVP [15]

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Okay. I think generally the beer market is still very soft. We are really crossing our fingers and hope that the (inaudible) the market. But so far, it is still very soft.

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Operator [16]

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Our next question, Juliana Cai from RHB Research.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [17]

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I'm Juliana Cai. I just want to understand the talk about this demand situation. Is that for the spirits side? The volumes have picked up quietly in comparables for last year. But (inaudible) you seemed to be pretty (inaudible). Could you just talk about the competitiveness? And also on the spirits side, how is that demand between the white spirit and the brown spirit?

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Kim Soon Neo, Thai Beverage Public Company Limited - EVP [18]

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Okay. For the beer side, generally, it is quite really soft because -- there are couple of factors there that is affecting consumption. Because in terms of -- a large chunk of our drinkers are pretty much in the rural and farmers themselves. And in that part of the segment, (inaudible) in terms of that business. So in fact, it in terms of the level of debt, it's actually very hard because no debt is actually (inaudible). So we do notice that there's a bit of spending power issue. So they're expecting us quite a bit in terms of beer consumption for all drinkers concerned. In terms of competition for beer, we've got -- have been pretty active with the key brands like Mule and Singha. (inaudible) Of course, on our end, we have continued to be very active in the market. It's safe to say that in terms of brand equity, we still surpass the revenue. So far, it's still quite strong in terms of our brand strength, but the competitive scenario is a lot more intense now.

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Vivat Tejapaibul, Thai Beverage Public Company Limited - Director [19]

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This is in Thailand, right? So I mean, when we take the beer outlook and the spirit outlook, generally they're not that much different. The volumes that we have for this quarter looking pretty good for our domestic number. We -- in terms of a breakdown, we actually sold more brown spirit as a percentage than the quarter before. We think that the softness in the economy is dependent on -- it happened in patches in the area. So I wouldn't give much outlook for you on that. But we're still hopeful that things should be turning up fairly easy.

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Operator [20]

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Our next question from Thitithep from Phatra Securities.

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

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Just follow-up questions. Why is it so much different in the outlook of beer and spirits in the (inaudible). Why is there so much difference between the 2? That's the first question. And then the second question is that your net debt to EBITDA had increased during the past 2 quarters which surprised the economy (inaudible) your net debt-to-EBITDA ratio. And then the third question, since the [acquisition] is over, I'm not sure if you have the potential to (inaudible).

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Unidentified Company Representative, [22]

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Thitithep, I will respond to your first question between the beer and spirits. Finally, we don't have a clear answer, but what I can say is only this because the entrée of the market is downed a lot, and beer hasn't been on the entrée more than spirit. The whole consumption is still there. That's why spirit has benefited a bit on the consumption. As you know that how economy, the GDP growth look good, but it's only come from 2 sectors, which is tourism and export. Tourism doesn't help us very much. And export, the only 2 sectors that's growing is can pick up; and the second one, as you know, is computer part that we do assemble. Our growth industry, which is most of our customers -- our consumers depend on is still not good. The price of the ruble, as you know, is still about low and at 40. And now ruble is very important because it's going around Thailand. That's really the question in consumption. Entrée, it is not doing very well. The restaurant business and the pubs and bar, not doing very well. But we have the main spirit, which is heavy consumption involved, okay, especially the white spirit and then Ruang Khao and (inaudible)

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

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I have a question. I understand that consumption (inaudible)

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Unidentified Company Representative, [24]

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Well, the brown is a bit of a technical here because if you remember, the old people tax is 2%, which effect in January. Remember that we had another 2% of the excise tax effective on January that helped the volume a bit because the trade stuck up a bit, but not much. But that's not the reason. But as you heard from Edmond, because beer we didn't increase the price, because we have to look at the competitions. It's so fierce right now, so we pull back and look at the competitors before we decide to move up the price, probably now to be a couple -- 1 to 2 months when the cost [vendor] where that competitor move. As you know (inaudible). But in terms of spirits, we did move up the price to cover all the costs (inaudible). So that's the first question.

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

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So you mean (inaudible)

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Unidentified Company Representative, [26]

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It is soft. Actually, the figures from Nielsen is saying that the consumption is still single digit lower -- I mean, lower than last year, but high single digit, like pretty close to 10%. That's consumption of the brown spirit because Nielsen didn't cover the white spirit. Now the white spirit consumption is still okay because people who can't afford the brown moved out a bit to the white. So I think -- I feel the white spirit taste, we believe, is still quite okay. But the brown spirit -- some of the brown spirit also depend on the entrée, which affect them all. You see that not only the economy, but also the government actions and (inaudible) places and everything, that has really depressed the consumption. But hopefully, in June when the World Cup come, the beer consumption usually has a positive impact during that sort of period. We hope that we -- actually, (inaudible) have prepared a lot of activities and everything to respond to that event, okay? That's all I can say. Because you asked between spirit and beer, none of them can answer. So I'm the middleman. So I'm just the one who can respond, okay? The second question, couldn't reach (inaudible) to respond.

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [27]

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Sithichai, CFO. When we were told of the event, we had only one covenant, which is (inaudible) through equity. Our covenant of (inaudible) you can see that our (inaudible). Going forward, this has increased our profit. We have both the (inaudible) and debt. So I think, going forward, this will be less than this one. Our commencing plan -- that's why I'm also (inaudible). On Vietnam acquisition, we probably cannot say much, but let's say our guy is Michael (inaudible) who resides there quite often, so he should be able to say something.

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Hwai Keong Lau, Thai Beverage Public Company Limited - Independent Director [28]

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So I think everybody is very interested to hear how things are progressing. So your question was whether we can see any synergies at this stage. Well, we can. Just last week, we finally got our fourth member of the board, so we now have 4 seats in the board. And we also managed to get appointed to the senior management team 3 people to take over basically the general management, finance as well as sales. These are 3 very important positions. I can tell you the first management meeting is actually on Monday. And I must say prior to that we haven't really had much access to the information within the company. So at this stage, if you talk about synergies, I can tell you that -- and I think I'm comfortable to tell you that I think there are lots of opportunities across the whole business, but maybe a little bit premature to talk about any concrete proposals at this stage, right? And maybe it just gives me some comfort that the team has been out there. We are in the process of conducting an assessment on the breweries. But I'm sure you understand that having 26 breweries and all of them requires a little bit of time. So let's not jump to conclusions at this stage other than to say that with 26 breweries out there, there must be something we can do in terms of synergies, right? Other than that, I don't think I can really add much color. It wouldn't be fair to give you information that's -- that we know very little about at this stage. But hopefully, by the next quarter, we will be able to tell you a little bit more. I hope you understand where we're coming from, okay?

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Operator [29]

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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 [30]

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I have 3 questions. So the first one in terms of the driver of the spirits volume growth, domestic spirit of 0.7%. Would you mind just sharing some insights into which brands drove the growth? And if you can also talk about basically white spirits' growing and now getting (inaudible) and if you could just also highlight the brands that are doing better in the entire network, that would be great. Secondly, the SG&A has increased quite aggressively in the second quarter and first half. Can you sort of just break that down roughly what is the impact on consolidation and also the increase in advertising expenditure as well as the staff expenses? And are we -- will we sort of -- should we expect higher sustained SG&A ratio going forward? And lastly, thirdly can I confirm that in terms of your consolidation of Sabeco, I calculate that the minority interest is roughly 73% of Sabeco's first quarter on the earnings. Is that correct?

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Namfon Aungsutornrungsi, [31]

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Well, for the information regarding the interest and the cost on SG&A (inaudible) you are talking about? Or for overall?

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Permada Darmono, UBS Investment Bank, Research Division - Executive Director & ASEAN Consumer Analyst [32]

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Yes. Just overall because in general, the increase is obviously quite (inaudible) the growth in both revenue as well as gross profit, which produce a slower growth in operating profit. So I think (inaudible) the SG&A sort of growth largely is driven by beer as well as (inaudible). So is that primarily the driver in acquisition? Or should we expect the higher sustained kind of SG&A going forward? Because in the explanations in your report, you mentioned basically higher advertising as well as higher staff expenses.

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Unidentified Company Representative, [33]

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(inaudible) let me respond to your first 2 questions and the third question (inaudible) which I will respond. First, the driver of the spirit. The brand is HongThong, which is a local brand spirit, consumed mainly in home, not on the entrée. That's already mentioned that entrée had suffered a bit, but (inaudible) is still okay. The second question on SG&A, you have to understand that compared with last year, it's not a good comparison because last year was the year that we can't spend money so much because of the incident that King Rama passed away, okay? So this year, we're coming back and then spend (inaudible) ratio you should compare to the year before last. Last year was exceptional because we have to pull back a lot of activities because of the incidents, okay? And the third question, the consolidation, Michael?

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Hwai Keong Lau, Thai Beverage Public Company Limited - Independent Director [34]

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I think the way we calculate our net effective interest is really by taking 49% of 53.59%. The 49% is our stake in the company called (inaudible) which holds 100% of the (inaudible) which holds 53.59%. So the interest comes up to (inaudible) and that was about 26.26%. So technically...

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Unidentified Company Representative, [35]

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(inaudible)

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Hwai Keong Lau, Thai Beverage Public Company Limited - Independent Director [36]

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Some minorities (inaudible). Is that okay?

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Unidentified Analyst, [37]

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So minority interest, therefore, is roughly [23%] of Sabeco's first quarter earnings in this calendar year. Would that be fair to say?

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Hwai Keong Lau, Thai Beverage Public Company Limited - Independent Director [38]

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Yes, it would be fair to say.

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Operator [39]

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Our next question (inaudible).

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Unidentified Analyst, [40]

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My first question is on SG&A (inaudible) for spirit. I think when you compare to the previous year, the SG&A has been a lot higher. Is it something that we can see going forward?

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Unidentified Company Representative, [41]

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It is for the quarter. I mean, the level of SG&A that we have on (inaudible), it is a level of spending that we have liked. The earlier answer was given that the spending in the year before was actually was a cutback spending. So this is back to our normal spending level.

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Unidentified Analyst, [42]

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Right. But if you go back to the 2016 (inaudible) your SG&A is much lower than the current level. So why is -- what is (inaudible) anything that we should...

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Unidentified Company Representative, [43]

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Well, we're looking at the number. And because we know that in Thailand it's not that far off from what we have, so I think the current teams have confirmed that. Because when we add and consolidate the Myanmar business into it, the Myanmar business although have very high profit margin, it -- the proportions of the selling expense are much higher as a percentage of sales. I think this is mainly due to the nature of the business in Myanmar where the UTC program were the [incentive] tight promotions rebate under the cap rebate (inaudible) still allowing the (inaudible) in Myanmar. So that's why when we factor that in, generally the expenses are much higher. So once you add them all up in presentation, the weighted numbers shifted up for the quarter. I hope that explains.

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Unidentified Analyst, [44]

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A question on the group (inaudible). I think the (inaudible) increased about 4% from (inaudible) -- I think on the previous call, you said that (inaudible) rate was down 9%. So if (inaudible) increase is mainly due to the (inaudible) anything changed due to (inaudible) any of the new sales.

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Unidentified Company Representative, [45]

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No. I think (inaudible) referring to the (inaudible) overall spirit, right, including Myanmar business, right?

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Unidentified Analyst, [46]

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I think domestic -- just domestic on a year-on-year basis.

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Namfon Aungsutornrungsi, [47]

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Okay. As on the -- and you look at the second quarter this year compared to the second quarter last year, don't forget that late last year we had the excise tax increase. So that's the new price that's applied when comparing year-on-year.

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Unidentified Analyst, [48]

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Okay. One more question on Myanmar. So assuming your revenue growth seems to be quite strong, is that due to seasonality? Or is there any other reasons for that?

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Unidentified Company Representative, [49]

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The -- generally, this quarter would describe as a stronger quarter in Myanmar in general than the quarter before. I would say that 2 sales season in Myanmar, which is quite similar to Thailand. See October to December quarter generally described as I just -- quarter where most celebrated New Years' time. And then Jan, Feb, March, which is generally to be March, which is a period before the Water Festival in April. So generally, these are the -- these 6 months would be higher than the next 6 months, which is going to the rainy season start in April, May, June. So May start of rainy season. Buddhist lenting between (inaudible) of the lent in early October. So we would say that the second half generally are lower than the first half, and that's the same in Myanmar as well. So that's why you take -- Myanmar business we see this quarter is bigger than the last quarter seasonal-wise. And also year-on-year, we see double -- I think this is a double-digit growth in volumes.

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Unidentified Analyst, [50]

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Okay. Just one last question on the ready-to-drink tea. I think that the volume, the volume declined about 20% on a year-on-year basis. Why the decline is so sharp and do you see any trend (inaudible) just want some clarity on this.

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Teck Chuan Tan, Thai Beverage Public Company Limited - SVP of Non-Alcoholic Beverage Business (Thailand) [51]

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All right. This is Lester here, NAV Thailand. Yes, the 20% really was a big price increase, so we went for a bottle of (inaudible) went from THB 20 to THB 25, which is fairly substantial. So -- yes -- and this is also a result of the tax -- of the excise tax that pushed the prices up. So that result in drop in volume, of course, that's hit us quite hard, but we're looking to -- we do have plans for the future. Nothing that we can reveal at the moment, but we do have plans to try to recover this volume.

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Operator [52]

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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 [53]

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A couple of questions for me. Can you hear me?

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Namfon Aungsutornrungsi, [54]

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Yes. Yes, we can hear you.

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Nicholas Teh, Crédit Suisse AG, Research Division - Research Analyst [55]

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Okay. So I just wanted to ask firstly on opportunity cost of the year. It seems that the percentage of revenues shot up quite a bit after they included Sabeco. So it would kind of tell me that Sabeco's opportunity costs are generally much higher than what you guys get entitled. So how is the (inaudible) we can start jointly procuring raw materials for both the businesses. And also, I wanted to ask if we can get a sense on what the market volume growth would like in April from...

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Unidentified Company Representative, [56]

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Basically, Sabeco, as was mentioned is now 26 breweries, but they only have fully owned, I think, about 3. And then there are about maybe 8 or 10 that we own (inaudible) and then there are no other associated breweries less significant portion. So the reason why I explained this is because as far as the finished goods that they produce themselves, it is accounted for in the normal way because they know what the costs are -- cost of goods sold of the [elements]. But the way we treat the purchase of finished goods on the other associated breweries, you can treat that as raw materials. So that's the reason why you will see higher increase. Now we need to sort all these out. I mentioned -- we just first mentioned in meeting that these are some of the issues that we need to streamline, so that the numbers will get more meaningful going forward.

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Unidentified Company Representative, [57]

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Nicholas regarding April, you refer to beer domestic, is this correct?

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Nicholas Teh, Crédit Suisse AG, Research Division - Research Analyst [58]

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Yes, the April (inaudible). Domestic.

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Unidentified Company Representative, [59]

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I think (inaudible) April so far seems a little bit soft. We had (inaudible) but it was largely (inaudible) quite soft. So we just hope that the coming up market so that's the general sentiment at this point in time for beer. For spirit, it's fair to say it was more or less the same for spirit, so the markets are resistant.

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Operator [60]

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Our next question, Xuan Tan from CLSA.

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

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Can you provide more color on cost inflation, particularly on all the cost inflation that you see in packaging cost, SG&A or any other (inaudible) which one have the biggest impact on your margin and is it affecting spirit (inaudible)?

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Unidentified Company Representative, [62]

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In terms of giving some color, it is cost inflation. On the production side, I think it's actually to do with packaging because there's general increase in the cotton cost as well as (inaudible) has grown quite a bit. So I think in terms of (inaudible) affects both spirit and beer. Otherwise, in terms of A&P, at least for beer, I won't call it inflation. But in terms of spend relative to last year's (inaudible) and moving forward, we probably mentioned on the things I presented (inaudible) because it's a very competitive market for the beer business. I think that's above in terms of cost realized.

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

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Can you provide interest cost (inaudible) interest costs have decreased to your bottom right. Can you share how much of the interest (inaudible)?

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [64]

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(inaudible) Normally, you can say that we just are now over the (inaudible) on that one. This will take out the Myanmar (inaudible) and the KFC in Thailand. (inaudible) normally in the next quarter because have 4% (inaudible) 2% how the higher then 3%, less than 3% and (inaudible).

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [65]

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And can you clarify on the statement (inaudible) equity to the bottom line? And (inaudible) interest?

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Unidentified Company Representative, [66]

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Yes.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [67]

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Okay. And my last question, I apologize for (inaudible) spirits because it's quite good and expected. And also would that seem to be to be the cost inflation in higher. So overall, it paints quite a great picture for the domestic business. So is that anything that we can look forward to (inaudible) on the revenue side?

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Unidentified Company Representative, [68]

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Okay. I think the question is not blunt. It's a very honest question. (inaudible) face it. The fact is that the market is soft because there are a lot of macro factors that are affecting us. Actually it's not just a comp business, but generally some other (inaudible) products are also (inaudible). In terms of how we kind of manage our margins moving forward, of course, there are cost management initiatives in place (inaudible). We believe we actually manage our business in the production side as well as in terms of our commercial side, we just need to make sure that the dollar spent will maximize our returns. So we are -- our spend and making sure that every dollar spent is highly effective. In terms of the future, I think, very importantly, it's about the macroeconomic (inaudible) it's just a matter of time. We do hope that (inaudible) help distribution and also see that goes (inaudible).

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Operator [69]

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Our next question (inaudible) Security.

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Unidentified Analyst, [70]

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I would like to ask (inaudible) strong growth of quarter-on-quarter (inaudible) this year.

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Namfon Aungsutornrungsi, [71]

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Is this still from food growth? Actually, basically, the growth is coming from the acquisition of last year that we have with us part of Asia and KFC, okay? So it's almost double of our number of our outlets comparing to last year. So that is basically the growth coming from.

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Unidentified Analyst, [72]

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Sorry, (inaudible) what spent was (inaudible) the second quarter second actually about (inaudible) figures.

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Namfon Aungsutornrungsi, [73]

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Yes. Because if you're talking about KFC inclusion, we bought KFC late last year. For KFC, we only December month that we included the first Q. But if you're looking on the second quarter, you will see bigger impact because that is KFC for 3 months.

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Unidentified Analyst, [74]

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Okay. My second question is on (inaudible). I'm not sure whether (inaudible).

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Unidentified Company Representative, [75]

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Sorry, the reason is really simply because it's an issue -- internal issue. We didn't create an issue. It happens to be there with the company and management, I think, is sorting out with the government. So I don't think it's okay for us to comment at this stage given the nature of the business.

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Operator [76]

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Our next question, Linh Vo from Albizia Capital.

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Van Linh Vo, [77]

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My question is a bit more technical. Just (inaudible) if you put that out consolidated Sabeco net profits (inaudible). And the second quarter (inaudible) profit sharing (inaudible). So that would suggest that (inaudible) generated a lot of (inaudible) revenue, would that be correct?

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Namfon Aungsutornrungsi, [78]

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Yes. I mean, I can't tell you (inaudible) but I can tell you that our domestic (inaudible) created a loss in that quarter.

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Van Linh Vo, [79]

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Okay. (inaudible) and maybe I'll just move on to the next question, which is on the company when you consolidated (inaudible) average. Is there a lot of changes between the 2 (inaudible) whereby if you do get to another program, for example, (inaudible) trends, then you consolidate (inaudible).

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Unidentified Company Representative, [80]

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For consolidation of (inaudible), we will adjust real non-GAAP to higher company standards. So we use the same company standards for our (inaudible) consolidation.

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Van Linh Vo, [81]

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Would it be possible to maybe go through the key items that would change as a result of that?

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Unidentified Company Representative, [82]

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Well, not much. Just reclassify some investment property or some private properties (inaudible) investment property, something like that, just reclassify.

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Van Linh Vo, [83]

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Okay, okay. Got it. So then if we look at capital public financials in the group you brought in here to work out. Okay. And my other question is on the Myanmar business, just a follow up (inaudible) and especially in terms of the net margin. I mean, what's the net margins in the second quarter to be kind of 8.5% and the third quarter to be (inaudible)

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Unidentified Company Representative, [84]

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The numbers have to do with the mix of the different segment in (inaudible) brand. So yes.

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Van Linh Vo, [85]

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And then (inaudible) in terms of seasonality, (inaudible).

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Unidentified Company Representative, [86]

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That's right.

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Van Linh Vo, [87]

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(inaudible) The whole business. Do you think we should expect that margin to grow (inaudible) [or 24%]?

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Unidentified Company Representative, [88]

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No, I wouldn't give you any indications on what we expected.

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Van Linh Vo, [89]

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Okay, but generally, (inaudible) in the next second and third quarter of the year, that should have lower net margins (inaudible).

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Unidentified Company Representative, [90]

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Yes, you can say that. Yes.

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Van Linh Vo, [91]

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Okay, understood. I guess, my last question, just to go back on the (inaudible) part. Are there any discussions at the moment with your auditors to consolidate (inaudible) 54% (inaudible). Would it be part of the discussions between you and auditors to consolidate Sabeco's 54% (inaudible) you're managing almost (inaudible)

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Unidentified Company Representative, [92]

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We've consolidated Sabeco. So that Sabeco including (inaudible) Thai batt financials (inaudible) got 100%.

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Van Linh Vo, [93]

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Right. What I'm asking is, is it possible to increase your share of Sabeco that is attributable to shareholders (inaudible)

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Unidentified Company Representative, [94]

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The effective rate will be about 26% for the ownership of ThaiBev in Sabeco.

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Van Linh Vo, [95]

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Okay. And that will not change for foreseeable future?

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

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As well -- as we still hold 49 of the JV. It's still the same, 56 something on the A&P side.

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Operator [97]

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Our next question, (inaudible) from Morgan Stanley.

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Unidentified Analyst, [98]

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I just wanted to clarify a few things. You mentioned spirits you guys are very active here. (inaudible) much price hike in the spirits domestically and (inaudible)?

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Unidentified Company Representative, [99]

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Okay. The introductions of the elderly tax came into effect in 26th of January on both alcohol and tobacco. So for the Spirit business, we slowly increased our price to offset the new tax being introduced. The brown spirit, we -- some of the brown spirit we start to increase price in February and most of it on the 1st of April. So the rest of the brown spirit that need, require price increase that we already increased on the 1st of April. As for the wine spirit, we enter into some -- we basically increased our price in mid-April. So that at this point, our price have just been adjusted to absorb those tax and pass it to the consumer.

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Unidentified Analyst, [100]

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Okay. And can you also clarify that how many weeks of inventory do you think that (inaudible) for spirits business domestically right now?

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Unidentified Company Representative, [101]

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I would say it's normal. We're tracking this the past 2, 3 years. There's up and down. We must say that in September, there was lots of stock buildup on the tax in last September. And in the first quarter of this year, meaning, October, November, December, we have experienced destocking. So the level of stock have declined in -- as a consequence 3 months toward January, both brown and white. So back to quite a normal level, some of them actually below our trend line. And this price increase have basically put some of stock back up, but we have seen the latest number, they are not that -- they are not at the level that we have seen in September last year. So that's why we don't think there will be much of destocking going into the next quarter. It's not what we have seen in that level because those are major tax increase and major tax scheme change in September last year. That's why the trade had and turn into a stock build.

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Unidentified Analyst, [102]

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Okay. Just one last question for me. Can you share what's (inaudible) your growth and the industrial level?

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Unidentified Company Representative, [103]

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Sorry, I don't have the answer with me. You probably can find it out in (inaudible)

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Operator [104]

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Our next question is Cezzane from CIMB.

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Cezzane See, CIMB Research - Analyst [105]

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Okay. I just wanted to reclarify on the packaging cost. You mentioned like the (inaudible) packages have actually been on an uptrend. Do you think this will continue to move ahead? What sort of (inaudible) position if we take a look at that? Or is it mainly (inaudible) has to do (inaudible)

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Unidentified Company Representative, [106]

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I think we have controlled the situation. I think the price has already escalated up to a peak, so it should be like this for a while. That is what our anticipation. We cannot say that we're already going to come down, but it should be like this. Normally, we have fixed long term, okay? This is the answer from our group. Thank you.

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Cezzane See, CIMB Research - Analyst [107]

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Okay. And next question, part of the (inaudible) profits, but (inaudible) your minority interest number this quarter, because the [THB 1.6 billion] for Sabeco numbers. If that comes up the above [68%]. Is there something that I should be looking at in terms of adjustments between (inaudible)

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [108]

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The minority (inaudible) they have so many (inaudible) . Let's say (inaudible) is just over in terms of (inaudible), and they added 25 on this one. On that Sabeco side, our economic interest about 56%. So they have a minority, it's about 70% something. Even on the (inaudible) in terms of we had the minority also, (inaudible) many minority. (inaudible) Sabeco, followed by the (inaudible) at Myanmar and (inaudible)

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Operator [109]

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Our next follow-up question, Tan Xuan from CLSA.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [110]

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I have 2 questions for Sabeco (inaudible) can we get a sense of the time line? When would you be able to provide more clarity on plans to -- and what kind of synergy that you get with Sabeco?

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Unidentified Company Representative, [111]

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I think, just now I give my response earlier. I said that I would hope by the time we have next conference call, we'll be able to add more color to the situation. But if you ask me how long it's going to take, (inaudible), 3 months, 6 months. I think 3 months would be very, very fast, to be honest, but I'm sure we would have done something by then. Hopefully, we'll have something tangible to talk about.

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Xuan Tan, CLSA Limited, Research Division - Research Analyst [112]

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Okay. Can you give us a sense in terms of the actual raw material per liter of beer margin on your basis? Is Sabeco's raw material cost similar to ThaiBev?

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Unidentified Company Representative, [113]

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No, I don't think we have the figures to make a fair comparison at this stage, because we imagine some of the material costs will need to be dissected. And then we need to take weight, make some adjustment before we can compare. So I don't think we can make any meaningful comparison at this stage.

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Operator [114]

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Our next follow-up question, Linh Vo from Albizia Capital.

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Van Linh Vo, [115]

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So I have just a follow-up to the (inaudible) question. (inaudible), follow up with a question just now on why the consolidated business attributed for (inaudible) Sabeco is THB 400 million and our beer net content is THB 300 million.

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [116]

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Because the THB 400 million is on the Sabeco 100%. But our (inaudible), which has about [20] (inaudible) [7%]. But we had to deduct our transition cost. So the total THB 300 million (inaudible) is up come (inaudible). Our existing beer profit and the Sabeco profit. THB 400 million (inaudible) deduct out of finance costs, acquisition finance cost. [One is] 100%? We touched on, [53%].

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Van Linh Vo, [117]

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Okay. I can't understand. So then with the finance acquisition cost, the beer segment would have been (inaudible).

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [118]

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No, no, profit, profit. We (inaudible) our profit, because our finance costs are very low. So our finance cost is lower than the attributable profit for Sabeco. Profit (inaudible) still be on profit. Sabeco profit, more profit, no loss.

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Operator [119]

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Our next follow-up question, Juliana from RHB (inaudible)

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [120]

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Just a follow-up on the (inaudible). Would you share what is the interest cost attributed for Sabeco business?

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [121]

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Sithichai speaking. [Juliana], I don't know (inaudible) the figure, the percentage, but we cannot -- it's obviously not a public figure.

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Juliana Cai, RHB Research Institute Sdn Bhd - Research Analyst [122]

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Okay. Because we did not take the THB 400 million for Sabeco and compared to the (inaudible) net profit number of THB 307 million, it looked like...

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [123]

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Madam, I just answered. I just answered. THB 400 million is 100% of the Sabeco, which have 26% only, but we have to deduct our finance costs. After deduct our finance cost, we still have accretive, we have a profit and include our (inaudible) comfortable THB 300 million.

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Operator [124]

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(Operator Instructions) Our next question, [Manush] from [Berring Accept].

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Unidentified Analyst, [125]

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I missed the one part of the Sabeco answer that you just gave a couple of questions back. So I'm sorry if I ask again. So my question is that as you mentioned that you've obviously got control now of the whole (inaudible) but also you mentioned that you have 3 people in senior management, general management, finance and sales. So can we see, do we have complete, effective operational management control of Sabeco right now? And basically from now on, like the effective CEO, the effective things that Sabeco will do is that we have control for it from now on?

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Unidentified Company Representative, [126]

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[Manush], is it?

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Unidentified Analyst, [127]

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Yes.

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Unidentified Company Representative, [128]

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The short answer is yes. When you may ask, ask some questions, because there was news (inaudible) that the CEO remains where he is. Now the transition process in Vietnam has its own set of rules and regulations, so it is a transitionary phase. So what we've done effectively is put in 3 very senior management staff controlling those very important functions. And the CEO, because it represents 36% shareholder, has delegated or assigned powers to the various critical functions to us. So just to give you some color. I think that will probably prevent more question, help you avoid more questions about control. So that is the reason why, I think, effectively, as of Monday, when we have (inaudible) management (inaudible) meeting (inaudible) , we're basically driving the business forward now. And that is the reason why we are now on -- Wednesday, right? So it's a bit earlier. So 3 days of being in management to be able to tell you more than that. Is that okay?

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Unidentified Analyst, [129]

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Fair enough. And yes, that is fair.

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Unidentified Company Representative, [130]

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Yes. I know people is anxious everywhere, wants to ask all these questions, right. But we also will be careful with the answers that we give you, right. Because we also have to respect Sabeco, which is the listed company. So we have a partner who owns 36% of the company. So that's why we need to be a bit cautious, so I hope you understand.

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Unidentified Analyst, [131]

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No, so (inaudible) was clear that from now on, we completely control the company from now on. So that's pretty good. And just one more thing. As you said, we did not have as much access to the company trial to -- this last week. So when we obviously acquired the company and we put in such a large amount for it. Looking at the company from outside, so what was the key logic for it? Because as simple as that, it's a government-owned marketing company, obviously, they won't be doing as good a job, and we can add a lot of marketing acumen there of (inaudible) that ASP is extremely low. And in Thailand, the ASP of the price of beer has gone up a lot in the last 10, 15 years. And given where the economy is, the per capita income, that's what will happen here as well. So were these the 2 main driving factors to look at it and thinking that we can improve the sales and marketing, and everything will follow after that?

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Unidentified Company Representative, [132]

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Sorry, [Manu] you were disconnecting a little bit. Sorry, what is the question?

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Unidentified Analyst, [133]

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The question was what was the thinking for the acquisition in terms of where we saw the opportunity that we can add value, positive value add, in terms of the marketing that we could bring and that the branding were extremely low, and that is the value-add that we can do? And over a period of time, the average selling price will also increase, and that's what you've seen in Thailand, so therefore, the same experience will be seen here. So were these the 2 main drivers for the -- to acquire?

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Unidentified Company Representative, [134]

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Yes, okay. [Manu], I think I understand your question now. Yes, obviously, we saw potential synergies from combining our ourself, ThaiBev as well as Sabeco. Other than the fact, I think the big picture was that, number one, market share in Vietnam, huge country, huge market, and our ambition is to be #1 in (inaudible). So I guess short answer is yes.

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Unidentified Analyst, [135]

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Right. And just then just one follow-up. Sabeco's marketing cost-to-sale is 9%? I think ours is much higher or if I'm wrong -- or I think I'm wrong. So if I'm not wrong, then would our thinking would be that we -- okay, I think that was a sensitive question. I'll not ask that now.

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Unidentified Company Representative, [136]

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Thank you, [Manu].

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Unidentified Analyst, [137]

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Last question from me. I'm just wondering in terms of your dividend, how that will look going forward, given that the [EBITDA growth] (inaudible) is down. So how should we think going forward.

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Chaikriangkrai Sithichai, Thai Beverage Public Company Limited - CFO, Senior EVP of Finance & Director [138]

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(inaudible) was 15. We're still committed to our dividend policy, the average of not less than 15%, but subject to cash flow. Subject to cash flow. You can see that (inaudible) only one buyback (inaudible) [520] for a couple of years. Now since we have [Sabeco] come to our normal (inaudible) [515]. (inaudible) is subject to the cash flow, subject to the debt, subject to (inaudible) at that time.

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Operator [139]

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Our next question, Tan Xuan from CLSA.

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

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Can I just confirm that ThaiBev is not looking to pay down (inaudible) via issuance of equity.

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Namfon Aungsutornrungsi, [141]

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So far, we don't have a plan.

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Operator [142]

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With no further questions, we will now taking closing comments. (inaudible) Please go ahead, (inaudible).

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Namfon Aungsutornrungsi, [143]

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Thank you for joining ThaiBev conference call tonight. We are sorry that [we are able to issue] a dividend, and we wish you a happy -- very good night. And if you have any questions, please feel free to contact IR at thaibev.com. Thank you.