TRIS Rating Co., Ltd. has affirmed the company rating of I.C.C. International PLC (ICC) at “AA” with “stable” outlook. The rating reflects the company’s position as Thailand’s leading distributor of lingerie; men’s apparel; and cosmetics, a diverse portfolio of products and brands, capable management team, and its solid relations with department stores and discount stores. The rating also takes into consideration the stability of the company’s operations and its debt free position under the conservative financial policy. However, the rating is constrained by the low level of profitability typically associated with trading companies, and the complex shareholding structure of the Saha Group. The “stable” outlook reflects
TRIS Rating’s expectation that ICC will continue to maintain its strong completive positions in its key product lines, in spite of intense competition. A diverse product portfolio and a conservative financial policy help support the company’s credit quality.
TRIS Rating reported that ICC is one of Thailand’s largest wholesalers and distributors of consumer products, particularly lingerie, apparel, and cosmetics. The company offers more than 80 brands, covering international licensed brands and its own brands. The international brands under the ICC umbrella, such as Wacoal, Arrow, Lacoste, Daks, Guy Laroche, and ELLE, are well-known by Thai consumers. ICC’s products are available in department stores, discount stores, and shops in more than 3,600 locations nationwide. The competence and experience of ICC’s management team, together with the support provided by suppliers within the Saha Group, have allowed the company to maintain its market-leading positions.
TRIS Rating said, in 2011, ICC’s revenue grew by 14% year-on-year (y-o-y) to Bt12,825 million. Impact from severe flood in 4Q2011 was considered minimal as ICC’s revenue in this period of time rose by 9.3% y-o-y. The revenue continued to grow in the first three months of 2012, rising by 7.5% compared with the same period in 2011. The increase came from all product categories, reflecting its well-diversified products and market coverage, supported by solid relations with its suppliers and distribution channels. In addition, the jump in sales was due in part to the management stimulus strategy to push for an aggressive growth.
The three major contributors to ICC’s top line are the lingerie, men’s apparel, and cosmetics product lines. During the last three years and the first quarter of 2012, the lingerie and men’s apparel lines each generated 25%-28% of ICC’s total revenue, while the cosmetics line contributed 12%-13%. In the lingerie market, ICC has dominated the middle- to high-end lingerie segment, with a combined market share over 60% in 2011, as measured by sales of all brands through department stores. Wacoal has remained the leading lingerie brand for over a decade, with 56% market share in 2011. Although Wacoal’s market share has gradually declined due to aggressive competition and competition from new brands, it is more than four times beyond the share of the second-largest competitor. The Wacoal product line alone has generated 20%-22% of ICC’s total sales every year since 2008. The strength of ICC’s men apparel segment is derived from the Lacoste and Arrow brands which contributed 10% and 9% of ICC’s total sales, respectively. BSC Cosmetology, ICC’s own brand, is the core product brand in the cosmetics segment. Annual sales were Bt750-Bt850 million per annum during the past three years.
The severe flood in late 2011 slightly affected ICC’s operating performance and its margins. In 2011, the ICC’s operating income before depreciation as a percentage of sales lowered to 5.5%, compared with 5.9% in 2010. The operating profit margin improved to 8.1% for the first three months of 2012. As the nature of trading companies, ICC’s profitability is fairly thin. Affiliated companies in the Saha Group constitute much of ICC’s supply chain and help support ICC’s product development efforts. However, ICC has to allocate some profit margin to those suppliers, making it hard to adjust. ICC needs to continuously launch promotional campaigns and other marketing activities to raise demand and strengthen brand awareness. As a result, ICC’s selling expenditures rose by 32% y-o-y in 2011 and 15% y-o-y for the first quarter of 2012. Going forward, the ongoing efficiency of the supply chain under the Saha Group, cost control initiatives, and new product introductions will remain the key points of focus for ICC.
ICC’s financial profile and liquidity remain strong, underpinned by its debt-free position and stable operating cash flows. ICC has continued its conservative financial policy, as the company has had no major capital investments planned, and has remained debt-free since 2002. ICC has made some guarantees to related companies to strengthen its supply chain. The total amount of outstanding guarantees has gradually reduced, and remained at Bt152 million from 2009 through the end of March 2012. Funds from operations (FFOs) improved from Bt863 million in 2010 to Bt914 million in 2011, and stood at Bt188 million for the first three months of 2012. As there is no financing burden, ICC retains all cash flows for working capital needs and continues its minimal dividend payout.
In the near future, ICC plans to enter the property development business by utilizing its existing non-performing asset (NPA). In TRIS Rating’s view, the company will be exposed to a higher risk as the property development industry is intensely competitive and more sensitive to cyclical economy. TRIS Rating expects that any future investments should be prudently considered so as to maintain ICC’s financial strength and ample liquidity at all times.
ICC and other Saha Group companies have complex cross-holding structures. TRIS Rating expects that all transactions between ICC and companies in the group should conform to the regulations of the Stock Exchange of Thailand (SET) and the Securities and Exchange Commission (SEC), said TRIS Rating. — End
Company Rating: Affirmed at AA Rating Outlook: Stable
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