TRIS Rating Co., Ltd. has affirmed the company and senior debenture ratings of Thai Union Frozen Products PLC (TUF) at “A+” with “stable” outlook. 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, and the group’s well-recognized canned seafood brands in Europe and canned tuna brand in the United States (US). The ratings also take into consideration higher labor costs from the minimum wage hike in Thailand, the maturity of the canned tuna market in the US and Europe, and the volatility of raw tuna prices. While 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 company’s diversified base of markets and products is expected to stabilize revenue. Cost savings, arising from increased scale along with automation and more efficient supply management after the acquisition of MW Brands Holdings Group (MWB), will partly support TUF’s profitability despite the potential increase in labor and raw material costs.
TRIS Rating reported that TUF was incorporated in 1988 by the Chansiri family. The company 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 MWB. MWB is a manufacturer of canned seafood products. It is vertically integrated, from fishing fleets to production facilities, and to distribution channels in Europe. Key production sites are located in Seychelles and Ghana. MWB’s major end markets are France, the United Kingdom (UK), Italy, Ireland, and the Netherlands. MWB acquisition 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 canned tuna brand in the US.
TRIS Rating said, after the MWB acquisition in November 2010, TUF has strengthened its market leading position. In the first nine months of 2011, TUF produced almost 230,000 tonnes of tuna or about 300,000 tonnes per annum, equivalent to one fifth of tuna production worldwide. TUF is geographically diversified and more balanced. The US, TUF’s major market, represented 36% of total revenue in the first nine months of 2011. Sales to European markets accounted for 32% of total revenue as opposed to 16% in 2010. Japan was the third largest market with a 9% share. In terms of products, for the first nine months of 2011, tuna products generated 49% of total revenue. Frozen shrimp products were the second-largest (19%), followed by canned pet food (6%), and canned seafood (5%).
TUF reported sales of US$2,395 million in the first nine months of 2011 or a jump of 51.9% over the same period of the previous year after consolidating MWB’s revenues. Sales of MWB were US$554 million in the first nine months of 2011 or 23% of total sales. TUF’s sales, excluding MWB’s, rose by 16.4% year-on-year (y-o-y) to US$1,841 million in the first nine months of 2011 while sales of MWB increased by 9.9% y-o-y. Operating margin before depreciation and amortization in the first nine months of 2011 rose to 9.5% from 6.5% in 2010. Consolidation with high margin of MWB helped improve the overall margin. The rising margin was also attributed to gradual price adjustments for tuna products to reflect rising raw material costs. In addition, shortened order period for shrimp products and falling price of shrimp raw material help restore the profitability of the shrimp segment. The improved profitability and increasing sales drove earnings before interest, tax, depreciation, and amortization (EBITDA) to jump by 82% y-o-y to Bt7,406 million. The debt to capitalization ratio as of September 2011 remained high at 61.3%, from 61.7% at the end of 2010, because more working capital was needed given the high raw tuna prices. The currently high debt to capitalization ratio is expected to fall below the company’s stated policy of 50% in the intermediate term. EBITDA interest coverage was 4.4 times in the first nine months of 2011, relatively low compared with TUF’s historical average. However, the ratio is expected to improve gradually in the medium term following the planned debt repayment. TUF recently announced a cash tender offer for not less than 40% of the total outstanding share of Pakfood PLC (PPC), a Thai exporter of frozen food products. The offer price is equal to the book value of PPC as of December 2011. The investment should have a limited impact on TUF’s financial profile as PPC’s assets equals to 5% of TUF’s assets as of September 2011. Looking forward, the economic slowdown in the developed countries, especially European countries, and higher labor costs from the minimum wage hike in Thailand may pose some challenges for the company in the medium term, said TRIS Rating. — End
Company Rating: Affirmed at A+ Issue Ratings: TUF13NA: Bt500 million senior debentures due 2013 Affirmed at A+ TUF147A: Bt3,300 million senior debentures due 2014 Affirmed at A+ TUF167A: Bt1,950 million senior debentures due 2016 Affirmed at A+ TUF217A: Bt1,500 million senior debentures due 2021 Affirmed at A+ Rating Outlook: Stable
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