TRIS Rating has affirmed the company and senior debenture ratings of Berli Jucker PLC (BJC) at “A+” with “stable” outlook. The ratings reflect BJC’s strong competitive positions in its major business lines, diverse range of businesses with portfolio of strong brand names, extensive market coverage, and good relationships with suppliers and clients. The ratings also take into consideration the company’s strong sales across all its business segments and the growth opportunities in the neighboring countries, particularly Indo-China. These factors are partly offset by intense competition, exposure to raw material price fluctuations, and a rise in leverage due to a debt-financed expansion. The “stable” outlook reflects the expectation that BJC could maintain its competitive strengths in all its key business segments. BJC is also expected to sustain its profit margins and enhance its ability to generate cash flow. Any large investments or acquisitions in the future, BJC should be able to keep the debt to capitalization ratio in a medium level and maintain an adequate financial cushion.
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 73.8% stake in BJC as of March 2014, is a large Thai conglomerate whose business spans various industries. Thai Beverage PLC (ThaiBev) is TCC’s flagship company in the beverage industry.
BJC’s operations provide the manufacturing and distributing services for various consumer products, including its own products. BJC has production plants and distribution networks covering Thailand, Malaysia, and Indo-China countries. BJC’s core lines of business comprise: 1) Packaging Supply Chain (PSC), offering packaging glass bottles and aluminum cans; 2) Consumer Supply Chain (CSC), manufacturing, marketing, and distributing food and consumer products; 3) Healthcare and Technical Supply Chain (HTSC), focusing on medicine, hospital equipment and supplies, and technical products; and 4) other businesses, including Asia Books, information technology (IT), and retailing. Currently, BJC has expanded its footprints in retailing business in domestic and overseas markets. In Thailand, BJC established “Ogenki”, a health and wellness shops. In Vietnam, “B’s mart” convenient store was officially launched in mid-2013, now has about 83 stores. In the Lao People's Democratic Republic (Lao PDR), BJC entered a joint venture investment to operate “M-point mart” retail shops. Going forwards, BJC plans to rapidly expand retailing business, targeting large convenience store chains in Vietnam and Lao PDR.
In 2013, BJC’s total sales reached Bt42,226 million, a 13% increase from 2012, supported by organic growth and the consolidation of a recently acquired distribution business in Vietnam. PSC remained the biggest sales contributor, generating 42% of BJC’s total sales. CSC product segment contributed 35% of BJC’s total sales, and HTSC made up 17%. The packaging segment was BJC’s major profit generator, contributing about 65% of earnings before interest, tax, depreciation and amortization (EBITDA).
BJC’s strong business profile reflects its diversified portfolio of businesses and sources of income. BJC’s strong business diversity could reduce the risk of certain business down cycle. BJC has been ranked as one of the leading producers in the Thai packaging and the consumer product industries. BJC’s packaging segment benefits from the sizable and secure orders from ThaiBev which accounts for around 37% of BJC’s total sales in the packaging segment. The strength of BJC’s consumer product portfolio is supported by its flagship brands, such as Cellox, Zilk, Tasto, Dozo, and Parrot, along with nationwide distribution networks. An extensive distribution networks will strengthen the company’s competitive advantage and create more opportunities to provide distributing service to the end consumers throughout Indo-China.
BJC's financial strength is considered moderate, underpinned by strong sales growth, growing cash flow, and a satisfactory level of liquidity, but offset by a rise in leverage. BJC’s sales have shown double-digit growths during the last four years. Overseas markets have played an increasing important role, accounting for 20% of BJC’s total sales in 2013, rising from 12% in 2012. The revenue generated from overseas help support BJC’s growth momentum during economic downturn and political instability in Thailand. Funds from operations (FFO) increased to Bt4,613 million per annum in 2013, compared with about Bt4,000 million per annum in 2011 and 2012. BJC’s ability to generate cash flow is strong, backed by diversified portfolio of businesses and large distribution network. Liquidity, although softened during the last two years, was satisfactory. The EBITDA interest coverage ratio slipped to about 10 times, compared with 14.1 times in 2011.
Operating margin (operating income before depreciation and amortization as a percentage of sales) has fluctuated in a narrow range, staying at 12%-12.5% during the last two years. Thanks to BJC’s well-diversified product portfolio. The operating margin in the packaging segment improved to 21% in 2013, from 19% in 2012, because of higher utilization in the aluminum can factory in Vietnam. However, sales in the consumer product segment particularly personal care products, were pressured by the Thai economic slowdown. By nature of consumer products, the operating margin in this segment is thin, averagely about 10%. The margin in 2013 dropped to 7%, due to intense competition, loss in yogurt business, and a slowdown in demand. The prolonged political instability is expected to continue pressure on BJC’s operating margin.
BJC’s leverage profile is moderate. Total debt continued to rise during the last five years as the company expanded its production capacity and distribution networks. The debt to capitalization ratio was 48.5% in 2013, compared with 44% in 2011 and 2012. Following its growth strategy, BJC plans to spend a total of Bt12,000 million in capital expenditures during 2014-2016. The projects for capital investment are to increase the production capacity for glass bottles, as well as to expand its data storage capability and the retailing business. The increase in capital spending will likely raise BJC’s level of leverage in the medium term. TRIS Rating views that BJC has some certain financial cushion to support for any new investments of around Bt5,000 million. Larger rise in investments may negatively affect the company’s financial strength.
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