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Sales Fall At Thai Beverage

Ser Jing - Thai Beverage First Quarter Results, Weighed Down by Acquisitions (pic)

The aptly-named Thailand-based beverage and snacks maker Thai Beverage (SGX: Y92) announced its third quarter earnings yesterday evening and saw year-on-year drops in both revenue and profits.

Thai Bev, which might be well-known for its Chang brand of beers with the elephant logo, has four business segments: Beer; Spirits; Non-Alcoholic Beverages; and Food.

Of the four, the most important segment for the company (for the first nine months of 2013 at least) would be Spirits. Excluding contributions from Fraser and Neave (SGX: F99), of which Thai Bev has a 29% ownership stake, the Spirits segment is responsible for 113% of the company’s net profits as Beer and Non-Alcoholic Beverages made losses.

Some basic numbers

For the three months ended 30 Sep 2013, Thai Bev’s revenue slipped 7% year-on-year to 35b baht. The reported figures for its quarterly profit seemed really bad as it got slashed by almost three-quarters from 15.7b baht to 4.03b.

But, there’s more to the story behind the apparent profit collapse and I’ll touch on that later.

The main reason for Thai Bev’s top-line decline can be traced to a 52% drop in sales to 3.54b baht for the Non-Alcoholic Beverages segment. The segment had terminated some of its licensed brand products in Nov 2012 and will be focusing on selling its own brands. That was what caused the fall.

As for the profit-scare, if we look behind the curtains, things look slightly better. In the third quarter of 2012, Thai Bev had logged a 12.7b baht one-off gain related to the acquisition of F&N. If we strip that off, the company’s profits actually grew by 32.5% from 3.04b to 4.03b.

When Thai Bev acquired F&N’s shares, it conducted an assessment of the latter’s assets. The study was completed on Sep 2013 and given the 12.7b baht gains recorded, it was likely that the conclusion was that Thai Bev had acquired assets that were more valuable than what it paid for.

The company then decided to revise its financial statements for the third quarter last year to include the 12.7b baht acquisition-related gain, hence the reported profit decline.

Operational highlights and the balance sheet

The tables below summaries the changes in sales and sales volume for Thai Bev in its various segments:

  Quarterly Sales Year-on-Year change
Spirits 23.4b baht 7.4%
Beer 6.62b baht -7.4%
Non-alcoholic Beverages (NAB) 3.54b baht -52%
Food 1.5b baht 10.5%

 

  Sales Volume For Nine Months ended 30 Sep 2013 Year-on-Year change
Spirits 408 million litres -4.3%
Beer 430 million litres -6.5%
Oishi (part of NAB) 205 million litres 10.1%
Sermsuk (part of NAB) 680 million litres -34.6%
Chang­-branded Sodas (part of NAB) 19 million litres -19.7%
Chang-branded Water (part of NAB) 137 million litres -1%

Thai Bev’s balance sheet has improved quite a fair bit compared to a year ago, though it still employs a high amount of leverage according to its debt-to-equity ratio.

The company’s total debt has decreased from 109.4b baht to 68.4b while cash on hand has increased from 3.7b baht to 4.7b. Its debt-to-equity ratio has come down by almost half from 186% to 93%, but that’s still a high figure, as mentioned earlier, and bears watching from investors.

What’s next for Thai Beverage

As Thai Bev’s business is heavily dependent on alcoholic beverages, this piece of commentary by the company should be worthy of note:

ThaiBev’s business has been impacted by the new excise tax that was effective since 4 September 2013. The excise tax calculation methodology for alcohol beverage was previously imposed by either value of ex-factory price or volume of pure alcohol, whichever was higher. Now it is based on both value and alcohol content. Therefore, price of all alcohol products will be adjusted differently in accordance with the product types.”

In addition, Thai Bev mentioned in its earnings presentation for the third quarter of last year that (emphasis mine) “the new excise taxes [referring to a change in excise taxes that took place on 22 Aug 2012] caused a rise in the company’s excise tax cost of white spirits, compounded spirits and brandy of about 25%, 16.7% and 4.2% respectively. However, the company passed on the tax increase to its customers directly.”

The ability to pass on costs is important for any business. And from Thai Bev’s remarks so far, it seems that they can do so and that’s a good thing. But, can they do so in the future? That’s something for investors to think about.

Valuation

Shares of Thai Bev seem slightly unloved in the market today as it’s down by 1.9% to S$0.53  at the time of writing, even as the broader market, represented by the Straits Times Index (SGX: ^STI), is up by 0.2% to 3,197 points.

At that price, shares of Thai Bev are selling for around 22 times trailing earnings and carry a dividend yield of 3% based on its pay-out last year.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Chong Ser Jing doesn’t own shares in any companies mentioned.