TRIS Rating has affirmed the company and senior debenture ratings of Berli Jucker PLC (BJC) at “A+” with “stable” outlook. The ratings reflect the company’s strong competitive positions in its major business lines, its diverse range of business with portfolio of strong brand names, and its good relationships with suppliers and clients. The ratings also take into consideration the company’s solid sales across all its businesses segments and the growth opportunities in the neighboring countries in Association of South East Asian Nations (ASEAN). These factors are partly offset by the intensely competitive environment, exposure to commodity price fluctuations, a rise in leverage due to a debt-financed expansion, and concerns over business risks in overseas markets. The “stable” outlook reflects the expectation that BJC could maintain its competitive strengths in key business segments. BJC is also expected to sustain its profit margins and enhance its ability to generate cash flow. Future investments or acquisitions, if any, should be prudently considered and not to jeopardize its financial strength.
BJC’s history in Thailand dates back over a century. A major transformation happened in 2001, when TCC Holding Co., Ltd. became BJC’s major shareholder. TCC Group, which owned a 70.06% stake in BJC as of March 2013, is a large Thai conglomerate whose business spans various industries. Thai Beverage PLC (ThaiBev) is TCC’s flagship company in beverage industry.
BJC’s operations include the distribution and manufacturing of its own products plus contract distribution and manufacturing for other firms. BJC’s core lines of business comprise: 1) Packaging Supply Chain (PSC), offering glass bottles and aluminum cans packaging; 2) Consumer Supply Chain (CSC), manufacturing, marketing, and distributing food and consumer products; 3) Healthcare and Technical Supply Chain (HTSC), focusing on medical products, hospital equipment and supplies, specialty chemicals, graphics and printing products, stationery and etc.; and 4) other businesses, including international business, Asia Book, and information technology. In 2012, BJC’s total sales reached Bt37,429 million, a 20% increase from 2011, supported by strong growth from all core business lines. PSC remained the biggest sales contributor, generating 45% of BJC’s total sales. CSC contributed 29.5% of BJC’s total sales, and HTSC made up 21.5%. The packaging segment was BJC’s major profit generator, contributing about 60% of earnings before interest, tax, depreciation and amortization (EBITDA).
BJC’s strong business profile is enhanced by its well-diversified portfolio of businesses and sources of income. The company has been ranked among top two major producers in the packaging and consumer products industries. BJC’s packaging segment benefits from sizable and secured orders from ThaiBev which accounts for around 40% of BJC’s total sales in the packaging segment. The business synergy is expected to enhance further, following TCC Group’s acquisition of Fraser and Neave Limited (F&N), the Singapore-based conglomerate, spanning its business in food & beverages, properties and publishing and printing. BJC’s consumer products portfolio consists of various strong brands, i.e., Cellox, Zilk, Tasto, Dozo, Parrot, and newly acquired brand, Activia. BJC has put a solid effort to introduce new products in order to strengthen competition edge and improve profitability.
BJC's business strategy is to become an extensive regional distributor, initially in Indo-China. At the same time, it seeks for business opportunity to expand its product portfolio. BJC currently has market access in Malaysia, Vietnam, Laos, Cambodia, and Myanmar. In recent years, Vietnam is viewed as strategic location where BJC has made substantial investment. Firstly, the company jointly invested and has operated with its partner, Owens-Illinois Inc. (O-I), in glass factories in Vietnam and Malaysia. The operation has been satisfied. Recently, BJC acquired two distribution companies: 75% of shares in Thai Corp International Vietnam Co., Ltd. (TCIVN) in September 2010, and 65% stake in Thai An Vietnam Joint Stock Company (Thai An) in February 2013. Both subsidiaries will provide the nationwide market coverage in Vietnam with around 200,000 sales points. A green field project under joint venture with Ball Corporation (BALL) to produce aluminum can in Vietnam, was commercially launched in May 2012. In addition, BJC, via its wholly-owned subsidiary (BJC International Co., Ltd.), acquired 75% stake in Ichiban Co., Ltd. (Ichiban) in early 2013. Ichiban is the manufacturer and distributor of tofu, or bean curd, and related products in Vietnam. Total investment in Thai An and Ichiban was approximately Bt1,130 million. In Thailand, BJC acquired 51% shares of Danone Dairy (Thailand) Co., Ltd. (Danone Dairy Thailand) from Groupe Danone SA in April 2012. The total investment was Bt210 million. Danone Dairy Thailand is a manufacturer of yogurt and dairy products under the Danone and Activia brands, two established global brands. This investment adds the health food segment to BJC’s product portfolio, at the same time, strengthens its distribution network. The contribution from overseas markets accounted for 12% of BJC’s total sales in 2012. The revenue generated from overseas will continue to grow further in 2013, upon the full consolidation of the aluminum can business and Thai An in Vietnam. Following a series of acquisition, the company faces challenges to maximize the return on investment, to activate business synergy with the group, and to manage the increased operating risk, especially in the overseas markets.
BJC's financial profile is highlighted by strong sales across all segments, a satisfactory level of liquidity, and a rise in leverage. BJC’s operating income before depreciation and amortization as a percentage of sales was volatile in the narrow range, thanks to the firm’s well-diversified product portfolio. In 2012, operating margin fell to 12.5%, compared with 15%-16% during 2010 and 2011. The drop was mainly due to several factors: the start-up cost of the aluminum can business in Vietnam, losses from Danone Dairy Thailand, and a softened profit margin in the Thai Malaya Glass factory. In addition, the selling and administrative expense as of sales was higher due to the intense competition especially in consumer product segment and healthcare product segment. The full utilization of the aluminum can factory in Vietnam is expected to improve its cost position in 2013.
BJC’s funds from operations (FFO) was relatively flat at around Bt4,000 million during 2011 and 2012. Total debt rose from Bt11,110 million in 2011 to Bt13,171 million in 2012, to finance acquisition activities and its production capacity expansion, mainly in the packaging segment. BJC’s financial leverage, as measured by the total debt to capitalization ratio, slightly rose from 43.3% in 2011 to 44.7% in 2012. Liquidity softened, though remained satisfactory, as the EBITDA interest coverage ratio dropped to 10.5 times in 2012, from 14.1 times in 2011. The FFO to total debt ratio was 29.9% in 2012, compared with 36.1% in 2011. BJC plans to spend Bt4,000-Bt7,000 million per annum in capital expenditures during 2013-2015. The projects for capital investment are to increase its packaging production capacity both for glass bottles and aluminum cans, as well as to expand its tissue paper production capacity, and relocate its glass factory. In addition, BJC is looking for opportunities to expand its distribution network. The increase in capital spending will likely raise its leverage in the medium term. Any large debt-financed acquisition will weaken the company’s financial position and add pressure on the credit ratings. TRIS Rating expects BJC to well manage its capital structure and maintain a sufficient level of liquidity.
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