TRIS Rating Co., Ltd. has assigned the rating of “A+” to the proposed issue of up to Bt6,750 million in senior debentures of Thai Union Frozen Products PLC (TUF). At the same time, TRIS Rating has affirmed the company and existing issue ratings of TUF at “A+”. The outlook remains “stable”. The proceeds from the new debentures will be used to refinance existing loan. The ratings reflect TUF’s strong market position as one of the world’s leading tuna processors, as well as the diversity of its products and markets. The ratings also take into consideration its valuable “Chicken of the Sea” canned tuna brand name in the United States (US), as well as a number of well-recognized canned seafood brands in Europe. These factors are partially offset by the maturity of the canned tuna industry in the US and European markets, volatility of raw tuna prices, and fluctuations in the Thai baht.
The “stable” outlook reflects TRIS Rating’s view that TUF will continue to maintain its competitive strength through economies of scale and production efficiency. The diversified base of markets and more contribution from branded products are expected to generate more stable profits. Currently high debt to capitalization ratio is expected to fall below its stated policy of 50% in the intermediate term.
TRIS Rating reported that TUF was incorporated in 1988 by the Chansiri family. The company’s management has an experience of over two decades in the seafood processing industry. TUF is Thailand’s leading processor and exporter of canned and frozen seafood products with revenue of Bt71,507 million in 2010. In 2010, TUF produced and sold 220,000 tonnes of canned tuna. Its supply chain was strengthened through the integration of packaging and distribution networks. In October 2010, TUF acquired 100% of the equity of MW Brands Holdings Group (MWB). MWB is a manufacturer of canned seafood products. Its business operation is vertically integrated from fleets to production facilities and distribution channels in Europe. Key production sites are located in Seychelles and Ghana. Major end markets are France, the United Kingdom (UK), Italy, Ireland, and the Netherlands. MWB brought a number of top European brand names, such as Petit Navire, John West, Mareblu, and Hyacinthe Parmentier into TUF’s portfolio in addition to “Chicken of the Sea”, the third-largest brand of canned tuna in the US.
TRIS Rating said, after full consolidation with MWB in November 2010, TUF’s leading position has increasingly strengthened. In the first quarter of 2011, TUF produced more than 85,000 tonnes of tuna or about 330,000 tonnes per annum, equivalent to one fifth of global tuna production. TUF is more geographically diversified. Sales in European markets accounted for 33% of total revenue in the first quarter of 2011 as opposed to 16% in 2010. The US remains TUF’s major market, representing 37% of total revenue in the first quarter. Japan contributed the third largest market with a 9% share. The company’s product portfolio is diverse. For the first three months of 2011, tuna products generated 52% total revenue. Frozen shrimp was the second-largest at 17%, followed by canned pet food (7%), and canned seafood (4%).
TUF’s revenue base rose significantly in the first three months of 2011. TUF reported sales of US$743 million in the first quarter of 2011 or a jump of 49% over the same period of the previous year. Sales under MWB were US$174 million in the first quarter of 2011 or accounted for 23% of total sales. TUF’s sales excluding MWB’s rose by 14% year-on-year (y-o-y) to US$569 million in the first three months of 2011 while sales of MW Brands increased by 16% y-o-y. Mix of better margin of MWB boosted operating margin before depreciation and amortization in the first quarter of 2011 to 7.4% from 6.5% in 2010. However, it was weaker than expectations due to the rising cost of tuna and shrimp. TUF’s operating income was also hurt by an additional EUR2.8 million inventory cost from the accounting adjustment of an inventory reappraisal when it acquired MWB. In the first quarter of 2011, earnings before interest, tax, depreciation, and amortization (EBITDA) grew by 34% y-o-y to Bt1,822 million in line with the growth in total revenue. The debt to capitalization ratio as of March 2011 slightly increased to 62.2% from 61.7% at the end of 2010. An increase of leverage was due to working capital needs and a weaker baht. EBITDA interest coverage was low at 3.5 times in the first three months of 2011. Looking forward, profitability and cash flow protection will improve as high inventory cost from accounting adjustment was sold out in the first quarter of 2011. Gradual price adjustment to reflect rising raw
material cost will recover its profitability. In addition, shortened order period for shrimp products will help TUF to have timely price adjustments to restore the profitability of the shrimp business, said TRIS Rating — End
Company Rating: Affirmed at A+ Issue Ratings: TUF13NA: Bt500 million senior debentures due 2013 Affirmed at A+ Up to Bt6,750 million senior debentures due within 2021 A+ Rating Outlook: Stable
TRIS Rating Co., Ltd./www.trisrating.com Contact: rapee@tris.co.th, Tel: 0-2231-3011 ext 500/Silom Complex Building, 24th Floor, 191 Silom Road, Bangkok 10500, Thailand Copyright 2011, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information. All methodologies used can be found at http://www.trisrating.com/en/rating_information/rating_criteria.html.