TRIS Rating Co., Ltd. has affirmed the company rating of I.C.C. International PLC (ICC) at “AA” with “stable” outlook. The rating reflects ICC’s debt-free status, management team with proven capability and experience, a diverse portfolio of products and brands, solid relations with department stores and discount stores, and the firm’s position as Thailand’s leading distributor of lingerie, men’s apparel, and cosmetics. The rating also takes into consideration the low profitability typically associated with trading companies, lower consumer confidence amid Thai political unrest, and the complex shareholding structure of the Saha Group.
The “stable” outlook reflects TRIS Rating’s expectation that ICC will sustain its solid market positions across its product lines despite intense competition. A diverse product portfolio and conservative financial policy strongly support the company’s credit quality.
TRIS Rating reported that ICC is one of Thailand’s largest wholesalers and distributors, who operates marketing activities and distributes consumer products, particularly lingerie, apparel, and cosmetics under both international brands and its own brands. The company offers more than 80 brands. The international brands under the ICC umbrella such as Wacoal, Arrow, Lacoste, Guy Laroche, and ELLE are well-accepted by the Thai consumers. ICC’s products are available in department stores, discount stores and shops in nearly 3,600 locations nationwide. The competence and experience of ICC’s management team, together with support from suppliers within the Saha Group, have allowed the company to maintain market-leading positions. ICC has dominated the middle- to high-end lingerie market, with a combined market share over 60%, measured by sales through department stores. The Wacoal product line is a major contributor, with a market share of around 57%. This product line alone generated 22% of ICC’s sales in 2009 and the first quarter of 2010. Men’s apparel made up a large portion of total sales, contributing 26%-27% of total revenue in 2009 and the first quarter of 2010. Lacoste and Arrow products are the main men’s apparel product lines. The cosmetics segment generated approximately 13% of ICC’s total sales during the same period. BSC Cosmetology is the core product in the cosmetics segment with annual sales of approximately Bt800 million.
TRIS Rating said, ICC maintains conservative financial policies, making its financial profile very strong. The company has had no debt obligations since 2002 and has minimal capital expenditures. The company has made guarantees to related companies in order to strengthen its supply chain. However, the amounts of these contingent liabilities have gradually declined. The total amount of outstanding guarantees was Bt152 million at the end of March 2010, compared with Bt322 million at the end of March 2009.
The fragile economy in 2009 adversely affected consumer confidence, shrinking ICC’s sales and margins. Total sales in 2009 were Bt10,649 million, down 2.7% from 2008. The operating profit margin in 2009 declined to 4.9%, compared with over 6% each year during 2004-2008. Falling margins were largely a result of more aggressive promotional and marketing campaigns and an increase in the number of counter sales persons. However, for the first quarter of 2010, operating performance recovered. Revenue for the first three months of 2010 reached Bt2,707 million, up 7.5% from the same period of the previous year. The operating margin also improved to 7.21% of total sales, driven by continuing cost control initiatives.
TRIS Rating said, prolonged political unrest in Thailand could make the economy unstable and have a negative impact on consumer confidence. The recent political crisis in Bangkok worsened consumer sentiment, particularly in the second quarter of 2010. A number of major shopping centers, especially in the Rajprasong area, were shut down for nearly one month. The political chaos and the fire at the Central World shopping center caused Bt100 million damage of ICC’s asset, including sales points, shops, and inventory. ICC estimated an approximately Bt100 million loss in sales during April and May 2010. However, thanks to ICC’s diverse nationwide distribution channels, the sales from the Bangkok suburban outlets and upcountry can mitigate the fall in sales from the Rajprasong area. The company plans to boost the full year sales performance by launching more interesting promotional campaigns and events plus increasing the marketing activity frequency to attract customers and boost consumer sentiment.
ICC’s liquidity remains strong as the company has maintained a debt free position. Fund from operations (FFO) was Bt833 million in 2009, compared with an average of Bt890 million per annum for the last four years. FFO in the first quarter of 2010 was Bt166 million, up 10% from the same period in the prior year. However, the return on permanent capital has gradually dropped since ICC has accumulated its equity base over the years and has maintained a moderate dividend payout.
Although ICC and other Saha Group companies have a complex cross-holding structure, all transactions between ICC and companies in the group 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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