TRIS Rating has affirmed the company and senior unsecured 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, benefit from group synergy, and its diverse range of businesses and portfolio of strong brand names. The ratings also take into consideration the extensive market coverage and the growth opportunities in the neighboring countries, particularly Indo-China. These factors are partly offset by intense competition, sluggish economy which limits consumer spending, rising leverage to support growth strategy, and the challenge BJC faces to revive its profit margin.
The “stable” outlook reflects BJC’s competitive strengths in its key business segments. BJC is expected to improve its operating performance and enhance its ability to generate cash flow.
Any downside pressure on the ratings would stem from a change to an aggressive debt policy or if BJC’s profitability continues to deteriorate. BJC's rating could be upgraded, should BJC’s international expansion effort contributes greater sales and earnings, and larger cash flows.
BJC’s history in Thailand dates back over a century. TCC Holding Co., Ltd. (TCCH) has become BJC’s major shareholder since 2001, and owned a 73.7% stake in BJC as of March 2015. TCC Group is a large Thai conglomerate whose lines of business span a wide range of industries. Thai Beverage PLC (ThaiBev) is TCC Group’s flagship company in the beverage industry and has secured reliable orders in BJC's packaging segment.
BJC’s operation includes manufacturing and distributing consumer products, with the market coverage in Thailand, Malaysia, and countries in Indo-China. BJC’s core lines of business comprise: 1) Packaging Supply Chain (PSC), offering glass bottles and aluminum cans; 2) Consumer Supply Chain (CSC), including food and non-food 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, and information technology (IT). Started in 2013, BJC entered into retail sales business by launching "Ogenki" the beauty and wellness shop, and acquiring majority stake in “B's mart” and “M Point mart”, the franchisers of convenience stores in Vietnam and the Lao People's Democratic Republic (Lao PDR), respectively. In Vietnam, BJC also invested in the two distributors who provide the extensive market coverage in both the northern and southern parts of the country.
In 2014, BJC’s total sales reached Bt43,423 million, a 3% increase from 2013. Packaging products remained the largest sales contributor, generating 42% of BJC’s total sales. The consumer product segment contributed 38% of BJC’s total sales, while the healthcare and technical products segment made up 18%. The packaging segment was BJC’s major profit generator, contributing about 67% 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 business profile is supported by its strong positions in its major lines of business. BJC has been ranked as one of the leading producers in the Thai packaging industry and the consumer products industry. BJC’s packaging segment benefits from the sizable and reliable orders from ThaiBev which accounts for around 35% of BJC’s total sales in the packaging segment. The strength of BJC’s consumer products portfolio is supported by its flagship brands, such as Cellox, Zilk, Tasto, Dozo, and Parrot, and several contracted brands, such as Sugus, Nivea, and Babi Mild. BJC's effort to expand the distribution networks strengthens its competitive advantage and creates more opportunities to broaden its market coverage throughout Indo-China.
BJC's financial strength is considered moderate, underpinned by diversified source of revenue, ongoing growth prospect, and a satisfactory level of liquidity. These strengths are partly offset by a rise in leverage and lower profitability. BJC’s sales grew at a double-digit rate annually during 2010-2013. In 2014, although facing economic slowdown, BJC’s sales grew by 3%, due to the growth in Vietnamese market. The Thai economy is expected to minimally recover in 2015, despite high and rising household debt. TRIS Rating’s base-case expects BJC’s revenue growth will be around 5%-7% per annum during 2015-2017. The key growth driver is the reviving economic condition in domestic market and growing sales from overseas markets.
Overseas markets have played an increasing important role, accounting for 23.6% of BJC’s total sales in 2014, compared with 12% in 2012 and 19% in 2013. The revenues from overseas help support BJC’s growth during a recent economic slowdown in Thailand. During the past three years, BJC has built up the extensive distribution network in Southeast Asian region, particularly in Vietnam. Onward, BJC will seek for business opportunity to expand its product portfolio. BJC is currently facing a challenge to create synergy within its business lines and strengthen its earnings.
BJC’s operating margin (operating income before depreciation and amortization as a percentage of sales) dropped from 12.2% in 2013 to 10.4% in 2014, due mainly to a decline in profitability of the glass bottle segment and the consumer products segment affected by the Thai economic slowdown. The operating margin in the packaging segment dropped to 19% in 2014 from 21% in 2013. The margin in consumer products segment dropped from 7% in 2013 to 4% in 2014, squeezed by intense competition, continuing losses in the yogurt segment, and a slowdown of demand in snack segment. BJC’s operating performance is expected to improve, staying above 12% during 2015-2017, supported by recovered consumption sentiment and its ongoing cost-control efforts.
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 stood at about 48% in 2013 and 2014. BJC plans to spend a total of Bt10,000 million in capital expenditures during 2015-2017. The investment projects are mainly to increase its production capacities in the packaging segment and the consumer products segment. The planned investments will likely raise BJC’s level of leverage in the next three years. Without any large debt-funded acquisitions, BJC's debt to capitalization is expected to remain below 50%. For any large investments or acquisitions in the future, BJC has a policy to finance with debt to equity at a ratio of 1:1. This policy will enable BJC to maintain strong capital structure onward.
BJC’s funds from operations (FFO) was lowered to 4,178 million in 2014, compared with Bt4,613 million per annum in 2013. BJC’s ability to generate cash flow is relatively strong, backed by its diversified portfolio of businesses and markets. Liquidity, although weaker during the last two years, was satisfactory. During 2015-2017, FFO is expected to range from Bt5,000-Bt6,000 million per annum. The FFO to total debt ratio will stay around 27%-30% during 2015-2017.
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