The second half of 2018 saw a strong recovery in our core operations. While business started soft during the first and second quarters of 2018 amidst volatile raw material prices and unfavorable currency movement, Thai Union’s financial operation recovered to record the highest quarterly normalized profit in recent years in 3Q18 and record quarterly sales in 4Q18. The company delivered a very strong cash flow performance that led to consistent dividend payments and a gradual debt repayment.
Thai Union posted sales of THB 133.3 billion, a marginal decline of 1.2 percent compared to the previous year. With a contraction of 3.4 percent in 1H18 and growth of 0.8 percent in 2H18, the Thai Baht’s appreciation against key trading currencies and the company’s high exposure to overseas business activities wedged on Thai Union’s top line in 2018. However, in terms of U.S. Dollar, the company achieved record revenue of USD 4.1 billion, an increase of 3.5 percent from the previous year. The underlying sales growth was mainly driven by volume expansion in the course of the year.
Thai Union recorded a 2018 normalized net profit of THB 5.2 billion, down 13.4 percent from its net profit during 2017. The decline was mainly due to weak operations during 1Q18 and the lack of positive one-off items that occurred in 2018. Despite the weakness during 1Q18, Thai Union delivered a solid operation recovery in the second half of 2018, where its 2H18 operating profit improved 44 percent from the similar period in 2017.
Based on its financial statement, Thai Union reported a 2018 net profit of THB 3.3 billion, which accounted for a number of one-time non-operating items including: 1) A U.S. legal settlement net accrual of THB 1.4 billion (2Q18); 2) ESCo chilled salmon Scotland business closure-related expenses of THB 489 million (2H18); and 3) An investment impairment of THB 87 million (4Q18) in our farm and hatchery business.
Thai Union’s free cash flow during 2018 improved significantly to THB 8.4 billion, thanks to strong EBITDA generation and tight control on working capital. The company’s net interest-bearing debt fell THB 3.5 billion to THB 62.9 billion while lowering net-debt-to-equity to 1.35 times at the end of 2018, from 1.38 times at the end of 2017.
The 2018 ambient seafood business saw sales decline slightly from the previous year while gross profit also decreased slightly by 0.7 percent from 2017, mostly from a more stable tuna raw material price environment, which enabled the business margin to recover to a more normalized level. The frozen, chilled and related seafood business saw sales decline by 3.3 percent from the previous year despite sales volume growth of 2.2 percent. The Thai Baht’s appreciation against key trading currencies and a price decline in domestic shrimp prices prompted a sales contraction. We continued our strong growth focus on PetCare and value-added items, as seen in the segment’s revenue growth amidst unfavorable currency movement.
The ambient seafood business remained the largest sales contributor for Thai Union with 46 percent of 2018 total sales. The frozen, chilled seafood and related business accounted for 40 percent of total sales, down marginally from 41 percent a year ago due to a decline in shrimp prices and a depreciating U.S. Dollar against the Thai Baht that affected Thai Baht sales. The segment’s sales volume improved from the previous year due to increased shrimp sales volume during the year.
During 2018, the U.S. market remained the company’s largest market with a contribution of 38 percent to revenue. Thai Union’s European business contributed 30 percent of total sales. Thailand domestic sales accounted for 11 percent, the sales contribution improving from 9 percent a year earlier. Besides product price adjustments to reflect raw material prices, Thailand’s growth came from diversifying sales in the home market to offset weaker export markets from the Thai Baht’s appreciation against key trading currencies, as well as the collaboration from affiliate partner, Thammachart Seafood, which the company has recently invested in. Other important markets were Japan at 6 percent, while markets such as Africa and the rest of Asia made up the remaining 16 percent of Thai Union’s sales. Initiatives in China, including the collaboration with Thammachart Seafood on food service, should continue to explore new channels to the Chinese market in 2019.
The following are key factors which contributed to the company’s 2018 performance:
- More stable tuna raw material prices in 2018
During 2018, the average quarterly tuna price ranged between USD 1,400 - 1,700 per ton. The more stable tuna environment resulted in a profit margin recovery in the ambient seafood business to a more normalized level in the latter half of the year. The domestic private-label tuna business delivered solid sales and a margin recovery during 2018. Despite weak profitability in the ambient business during 1Q18, the overall ambient business gross margin only declined 0.13 percent from the previous year to 16.9 percent in 2018.
- Lobster business recovery in 2018
Lobster business profitability recovered in 2018 for the first time since 2016. Higher production volumes, product price adjustments to reflect prevailing market prices, and more sales of live lobster to the Chinese market all contributed to the lobster business margin recovery. 2018 lobster gross profit significantly improved to THB 250 million, with a gross margin at 5.3 percent, up from 1.1 percent during 2017.
- One-time US legal accrual
During 2Q18, Thai Union’s subsidiary, Chicken of the Sea®, reached a settlement with Walmart in the ongoing antitrust litigation in the U.S., and the company is in advanced negotiations in various other litigation discussions. As a result, Chicken of the Sea® recorded a USD 44 million one-time accrual to reflect potential risks.
- Closure of loss-making Scotland chilled salmon business
Following Thai Union’s subsidiary, Européenne de la Mer’s, announcement of its intention to divest the loss-making chilled salmon business in Scotland, The Edinburgh Salmon Company Ltd (“ESCo”), no feasible alternative solution to closure was found during the collective consultation period. As a result, ESCo ceased operations on December 31, 2018. Thai Union recorded expenses related to the business closure of ESCo of THB 489 million in 2018.
- Strategic investment in Red Lobster contributed to net profit accretion.
In 2016, Thai Union made a USD 575 million strategic investment in Red Lobster, the world’s largest seafood restaurant chain. During 2018, the investment added a net contribution of THB 456 million to the company’s net profits, mostly in the form of interest income from the convertible preferred units and tax credit as a result of the investment. The operational performance of Red Lobster has been below expectations and, while profit recovered, the standalone business has not been net income positive.
Red Lobster is the world’s largest seafood restaurant company with annual revenue of USD 2.5 billion and operates over 750 stores globally through own-operations and franchisees.
- Currency fluctuations
Thai Union has approximately 90 percent of sales occurring in foreign currencies, mostly in U.S. Dollar, Euro, and, to some degree, British Pound. With the Thai Baht significantly appreciating against the U.S. Dollar in 2018, the company recorded a small decline in annual revenue in 2018. However, excluding the currency impact, the company still delivered sales growth of 3.5 percent compared to a year ago. And through prudent currency hedging management, the company capitalized on the Thai Baht’s appreciation, which resulted in significant foreign exchange gains of THB 972 million during the year.
- Prudent SG&A expense management
During 2018, Thai Union continued to focus on internal cost efficiencies, active cost control, and various cost efficiency initiatives implemented during the year. As a result, the company’s 2018 SG&A expense decreased 1.2 percent year-over-year. This resulted in the company achieving SG&A to sales ratio of 10.7 percent, which was stable from a year ago despite a marginal sales decline during the year.
- Strong cash flow reduced balance sheet leverage
Despite a decline in headline net profits, the company recorded free cash flow of THB 8.4 billion during 2018, almost tripling that of 2017. The strong cash flow was supported by core business profitability recovery, efficient working capital management and falling key raw material prices. As a result of the strong cash flow, Thai Union repaid over THB 3.5 billion of debt during the year, and as of end-2018, the net debt-to-equity declined to 1.35 times, down from 1.38 at the end of 2017. Overall, the ratio is still well below our debt covenant threshold of 2.0 times.
AMBIENT SEAFOOD BUSINESS
The ambient seafood business recorded sales of THB 62.3 billion, up 0.1 percent from THB 62.2 billion a year ago. While the average selling price improved 2.8 percent as the company sales mix shifted in favor of higher priced and more value-added product categories, the volume sales declined 2.8 percent compared to 2017 to 359,246 tons as the company reduced sales of bulk, lower-margin products. As a result, the gross profit margin of ambient seafood was relatively stable from a year ago at 17.0 percent in 2018.
On average, the skipjack price (WPO/Bangkok landing) during the year decreased 17.8 percent to USD 1,530 per metric ton from USD 1,860 per metric ton a year ago. While tuna prices dropped sharply during 1Q18, quarterly tuna prices become more stable in a range of USD 1,400 to USD 1,700 throughout the year. As a result, the ambient business gross margin was under pressure in 1Q18 before recovering to a more normalized level in the second half of the year, due to ongoing price negotiations with customers and a keen focus on operation cost optimization.
FROZEN, CHILLED SEAFOOD AND RELATED BUSINESS
The frozen, chilled seafood and related business recorded sales of THB 52.8 billion, down 3.3 percent from THB 54.6 billion a year ago, mainly driven by falling shrimp raw material prices. Thanks to continued demand growth, 2018 sales volume increased 2.2 percent to 246,449 tons. The sales were readjusted downward to exclude the financials of the loss-making chilled salmon business in Scotland, The Edinburgh Salmon Company Ltd (“ESCo”), which ceased operations on December 31, 2018.
Shrimp price declined from a year ago, with the 2018 average domestic shrimp price (60 piece per kilogram) at THB 157 per kilogram, down 14.6 percent from the 2017 average price. The 2018 gross profit margin slightly declined to 9.1 percent from 9.6 percent a year ago. Significant Thai Baht appreciation against U.S. Dollar during 2018 put pressure on the business profitability. The company’s effort to diversify sales into domestic and other overseas markets besides the United States and a keen focus on value-added products resulted in margin recovery throughout the year. Moreover, the lobster business profitability saw some recovery in 2018, due to higher production volume, price adjustment, and more sales of live lobster to the Chinese market.
FINANCING AND INVESTMENT
During 2018, we carried out a few important investment and divestment activities as follows:
- Thai Union acquired 25.1 percent shares of Thammachart Seafood
Thai Union completed the acquisition of 25.1 percent shares of Thammachart Seafood Retail Co., Ltd (TSR) in Thailand, as part of efforts to expand the company’s business portfolio. TSR operates two F&B concepts at eight locations, including The Dock Seafood Bar, The Lobster Lab, and the management of the Ocean Bar. TSR also supplies seafood for seafood counters and handles fresh and frozen products at 158 Thai modern-trade retailing locations. Thai Union also introduced Thammachart Seafood’s premium seafood F&B store, The Lobster Lab, through the King Oscar (China) brand in Alibaba retail supermarket Herma, Shanghai, China. It offers fresh lobsters from the U.S. and Canada, in both take-out and dine-in restaurant formats.
- Thai Union acquired 45 percent shares of TUMD Luxembourg
Thai Union completed an acquisition of 45 percent equity in TUMD Luxembourg S.a.r.l (TUMD). TUMD is a retail-focused fish and seafood business operating Russia’s number one canned tuna producer as well as in the frozen seafood segment. Its brand portfolio includes Maguro, Captain of Tastes and Rybar.
- Divestment of loss-making salmon business
Following Thai Union’s subsidiary, Européenne de la Mer’s, announcement of its intention to divest the loss-making chilled salmon business in Scotland, The Edinburgh Salmon Company Ltd (“ESCo”), no feasible alternative solution to closure was found during collective consultation period. As a result, ESCo ended production operations as of December 31, 2018. Thai Union recorded expenses related to the business closure of ESCo amounted to THB 489 million in 2018.
Future Prospect and Action Plan
In 2019, we expect to deliver sales growth driven by three main sources:
1) organic expansion of our existing business through growing volume sales, 2) growth in our new business divisions, Emerging Markets, Food Service and Ingredients through product and process innovation and further venturing into new markets, and 3) improve business collaboration with the company’s affiliates and subsidiaries.
On the back of continued sales growth expectations into 2019, Thai Union expects its profit margin to improve in 2019 due to 1) a keen emphasis in overhead cost control and operation cost optimization on all levels of organization, 2) turnaround in our North American lobster business, 3) closure of the loss-making Scotland chilled salmon business and 4) introduction of new innovative products.
Thai Union continues to prioritize the following five key areas of operation into 2019:
- Operational Excellence
• Continue to negotiate and reprice our products to reflect actual costs
• Focus on cost productivity in plants and SG&A functions and achieve improved profitability and efficiency of existing operations
- Mergers & Acquisitions / Post-Merger Integrations
• Red Lobster continues to support business growth, net income contribution and international expansion
• Improve business integration and collaboration globally
• Maintain conservative approach on new M&A with a focus on smaller deal sizes rather than large acquisitions
- New Businesses
• Further penetrate into emerging markets and utilize the company’s global brand presence more effectively with a focus on the Chinese market
• Full commercial launch of our Ingredients business to utilize the company’s co-products at higher values
• Expand our Global Innovation Center (GIC) to cover our PetCare and frozen shrimp business and re-align our innovation efforts around packaging technology, process innovation, by-products valorization and continued re-invention of the tuna category
• Successful commercialization of GIC projects, both on new products and processes initiatives
• Expand our SeaChange® sustainability program and Tuna Commitment to address our commitment towards plastic packaging as well as our support to the Global Ghost Gear Initiative
• Demonstrate leading capabilities in responsible sourcing and fair labor
In 2019, total planned capital investment will be THB 4.8 billion as we continue to improve and streamline our existing operations in order to achieve sustainable long-term growth as well as the capital expenditure related to the new business division. Key investment items will be machinery and equipment, construction and improvements on buildings as well as investments in the new shrimp feed business in Indonesia. Due to the continual expansion of our existing business, the general financial health should improve further as positive cash flows increase.
Our dividend policy to pay at least 50 percent of our net profits, remains unchanged. We plan to continue our practice to pay a half yearly interim dividend.
Thanks to our prudent capital working management and key raw material price decline, we have managed to record solid free cash flow of THB 8.4 billion. As a result, the company paid dividend payments of THB 0.40 per share for operating year 2018, which reflected the consistently high dividend payout ratio of 59 percent of normalized net profit. Thai Union has consistently paid dividends every year since the company’s listing on the Stock Exchange of Thailand in 1994.
COMPARATIVE FINANCIAL RATIOS
|Current Ratio (Times)||1.01||1.71||1.36|
|Quick Ratio (Times)||0.29||0.47||0.40|
|Gearing Ratio (Times)||2.00||2.04||2.05|
|Debt to Equity (Times)*||1.39||1.40||1.39|
|Net Debt to Equity (Times)*||1.37||1.38||1.35|
|Time Interest Earned (Times)||5.66||4.02||3.96|
|Efficiency Activity Ratios|
|Total Assets Turnover (Times)||1.06||0.94||0.93|
|Inventory Turnover (Times)||3.06||2.79||2.81|
|Accounts Receivable Turnover (Times)||8.83||9.37||9.56|
|Accounts Payable Turnover (Times)||10.77||9.21||8.54|
|Inventory Days (Days)||118||129||128|
|Account Receivable Days (Days)||41||38||38|
|Account Payable Days (Days)||33||39||42|
|Gross Profit Margin (%)||14.8||14.3||14.2|
|EBITDA margin (%)||8.4||8.6||8.3|
|Net Profit Margin (%)||3.9||4.4||3.9|
|Return on Average Equity (%)||11.8||13.7||11.9|
|Return on Assets (%)**||6.5||6.1||5.6|
|Return on Capital Employed (%)||10.5||9.2||7.7|
|Per Share Data|
|Normalized Earning Per Share (Thai Baht)***||1.10||1.26||1.09|
|Reported Earning Per Share (Thai Baht)||1.10||1.25||0.68|
|Dividend per Share (Thai Baht)||0.63||0.66||0.40|
|Book Value per Share (Thai Baht)||9.06||9.28||9.06|
|*||Debt = Interest bearings debt only|
|**||Pre-tax ROA = EBIT / Average total assets|
|***||Earning per Share: EPS is calculated based on normalized net profit.|
2018 started out challenging with volatile operating environments both on the raw material prices and currencies, before the situation became more stable in the second half of the year. While 2018 sales in Thai Baht terms marginally declined 1.2 percent from the previous year, excluding the foreign currency impact, Thai Union delivered record annual sales in U.S. Dollar terms of USD 4.1 billion, an increase of 3.5 percent from the 2017 level.
The raw material price environment became generally more stable during 2018. Average tuna raw material prices decreased to USD 1,530 per ton, down 17.8 percent compared to the previous year. The average domestic shrimp price also declined from the 2017 average price level. Thai Union managed to recover business profitability toward a more normalized level, especially during the latter half of the year, through ongoing business discussions with customers, production cost optimization and market diversification.
2018 domestic shrimp production remained stable from 2017 levels with the country’s total output estimated at approximately 300,000 tons, due to lower domestic shrimp prices and increased global supply from increased shrimp production out of India. Our frozen, chilled seafood and related business continued to grow in terms of volume sales, due to an increased domestic shrimp export market share and more focus on higher margin value-added products.
Thai Union recorded a 2018 normalized net profit of THB 5.2 billion, down 13.4 percent from the net profit during 2017. The decline was mainly due to weak operations during 1Q18 and a lack of positive one-off items that occurred in 2018. Despite the weaker 2018 net profit year-over-year, Thai Union delivered a solid free cash flow of THB 8.4 billion, up from THB 2.9 billion in 2017. Strong free cash flow enables the company to continue delivering a high dividend payout ratio of 59 percent of normalized net profit during the year.
Based on the financial statement, 2018 reported a net profit of THB 3.3 billion, which when compared to the normalized net profit of THB 5.2 billion, accounted for a number of one-time non-operating items including: 1) A U.S. legal settlement net accrual of THB 1.4 billion (2Q18); 2) ESCo chilled salmon Scotland business closure-related expenses of THB 489 million (2H18); and 3) An investment impairment of THB 87 million (4Q18) in our farm and hatchery business.
Thai Union reported a 2018 sales decline to THB 133.3 billion (down 1.2 percent year-over-year), due to the Thai Baht’s appreciation against the U.S. Dollar throughout the year. However, in U.S. Dollar terms, Thai Union’s 2018 sales were at USD 4.1 billion (up 3.5 percent year-over-year), with the growth driven by organic sales volume growth through new market penetration.
The ambient seafood sales contribution was at 46 percent during 2018, stable from 46 percent in the previous year, as the segment product average selling price increase was offset by a marginal volume contraction. The 2018 frozen, chilled seafood and related business sales contribution marginally declined to 40 percent, down from 41 percent in 2017, due to a decrease in shrimp prices and the Thai Baht’s appreciation affecting export sales out of Thailand. PetCare, value-added and others business segment contributed the remaining 14 percent of total sales (up from 13 percent in 2017).The U.S. market remains Thai Union’s largest market with sales contribution of 38 percent of total sales, down from 39 percent during 2017, mainly due to the depreciation of the U.S. Dollar against the Thai Baht by 4.6 percent during 2018. Sales contributions from European markets was 30 percent (stable from 2017 levels). Thai market sales contribution improved to 11 percent, up from 9 percent, due to improved sales volumes and new product launches. Japan’s market contribution remained at 6 percent, unchanged from the previous year.
2018 branded sales mix decreased to 41 percent (down from 42 percent during 2017), mostly driven by U.S. Dollar and European currencies depreciating against the Thai Baht during the year, leaving the private label sales contributing the remaining 59 percent of 2018 sales (from 58 percent during 2017). The private label sales volume improved by 3.7 percent from a year ago, resulting in a more efficient utilization and margin enhancement. The contribution from sales to the food service channel was at 11 percent of total sales, approximately half in branded and half in private label.
Despite a strong recovery in the second half of 2018, the gross profit for the year was THB 18.9 billion, a decline of 2.2 percent year-over-year, driven mainly by raw material prices and foreign currency volatility that contributed to a weak 1Q18 performance. 2018 gross margin was at 14.2 percent, down from 14.3 percent during 2017.
The ambient seafood business showed a gross margin stable at 17.0 percent. Stable profitability was mainly due to the more stable tuna raw material environment during the year. The company also focused on more value-added products, that while marginally pressured sales volume, benefited segment profitability stability.
With strong Thai Baht appreciation during early 2018, the frozen, chilled seafood and related business gross margin was challenging during the first half of the year. However, with the diversification of the shrimp business outside of the U.S. market and the lobster business recovery, the frozen, chilled seafood and related business gross margin improved to a more normalized level in the second half of 2018. The gross margin of PetCare, value-added and others business improved year-over-year, mainly due to the more stable tuna raw material price environment.
Selling and Administrative Expense (SG&A)
2018 SG&A to sales ratio was 10.7 percent, stable from 2017 levels. However, the SG&A expenses were down 1.2 percent year-over-year to THB 14.2 billion, which is mostly attributed to stringent cost controls across the company.
2018 operating profit was THB 4.7 billion, down from THB 4.9 billion during 2017, mainly due to weak operations in 1Q18 from the Thai Baht appreciation and volatile raw material prices. However, the operating profit in the second half of 2018 significantly improved from the same period a year ago as a result of improved operations from more stable raw material prices and stringent cost controls. The 2018 operating profit margin declined 15 bps year-over-year to 3.5 percent.
Other Income (including share of income from investment in associates)
2018 other incomes decreased 9.6 percent year-over-year to THB 2.5 billion, mainly attributable to a weaker contribution from affiliates and a lack of one-off, non-operating items during 2018.
During 2018, the company reported FX gains of THB 972 million, mainly thanks to a prudent hedging practice amidst strong Thai Baht appreciation, especially during the first half of 2018. However, the FX gain was still down from THB 1.3 billion recorded in 2017, where currency volatility persisted throughout the year.
2018 finance cost was at THB 2.0 billion, down 5.2 percent year-over-year from THB 2.1 billion in 2017, partly due to debt repayment and lower effective interest cost of 3.07 percent versus 3.21 percent during 2017.
Corporate Income Tax
2018 income tax expenses were THB 189 million, from the tax credit of THB 65 million during 2017. Tax expenses during 2018 were mainly due to a lack of tax credit from the French business as a result of corporate tax reductions in 2018.
2018 normalized net profit was at THB 5.2 billion, decreasing by 13.4 percent from THB 6.0 billion in 2017. This decline was mainly attributable to a weak 1Q18 operating result and weaker non-operating items. 2018 reported net profit was at 3.3 billion, which accounted for a number of one-time, non-operating items related to the U.S. legal settlement net accrual of THB 1.4 billion (2Q18), ESCo chilled salmon Scotland business closure-related expenses of THB 489 million (2H18), and an investment impairment of THB 87 million (4Q18) in our farm and hatchery business.
Total assets in 2018 amounted to THB 141.9 billion, representing a decrease of THB 4.2 billion from THB 146.1 billion in 2017.
- Net trade receivables were THB 13.9 billion, down 0.9 percent or THB 119 million from THB 14.0 billion in 2017. Accounts receivable turnover improved to 9.56 times from 9.37 times in 2017, due to a lower average account receivable. 2018 accounts receivable days remained at 38 days. This showed the company’s consistency in terms of collection turnover.
- Net inventories decreased by 11.1 percent to THB 38.4 billion from THB 43.2 billion a year ago due mainly to a decline in tuna raw material prices and more efficient inventory management. As a result, 2018 inventory days decreased to 128 days from 129 days a year ago.
- The asset turnover rate slightly decreased to 0.93 times in 2018 from 0.94 times in 2017 due to a sales decline of 1.2 percent in 2018 compared to the previous year.
- The current ratio declined year-over-year to 1.36 times in 2018 from 1.71 times in 2017. Similarly, the quick ratio decreased to 0.40 times from 0.47 times. The decrease of both ratios was mainly due to increasing the current portion of debentures during 2018.
- Property, plant and equipment totalled THB 26.5 billion, an increase from THB 25.3 billion in 2017 partly due to the capital expenditure for both organic growth and new businesses.
Total liabilities in 2018 amounted to THB 95.4 billion, representing a decrease of THB 2.6 billion from THB 98.0 billion in 2017.
- Trade payables were THB 13.2 billion, down 3.3 percent from THB 13.6 billion in 2017. The 2018 trade payables days increased to 42 days from 39 days in 2017, thanks to better management of trade terms with suppliers as well as a focus on supply chain finance programs to improve overall payables. The accounts payable turnover rate was at 8.54 times compared with 9.21 times a year ago.
- Bank overdrafts and short-term loans decreased by 12.3 percent to THB 13.5 billion from THB 15.2 billion in 2017 due to debt repayments during 2018.
- Long term loans decreased by 18.3 percent to THB 41.6 billion from THB 50.9 billion also due to debt repayment during 2018.
- Interest-bearing debts were THB 64.5 billion, down 4.2 percent from THB 67.3 billion a year ago. The proportion of long-term debts (including the current portion) was at 78 percent of the total interesting-bearing debts.
- Equity attributable to shareholders of the company in 2018 amounted to THB 43.2 billion, representing a decrease of THB 1.1 billion from THB 44.3 billion in 2017 due mainly to declining reported net profit during the year.
- Total liabilities to equity ratio in 2018 marginally increased to 2.05 times, from 2.04 times in 2017 mainly due to a decrease in total shareholders’ equity as a result from declining reported net profit during the year.
- The company’s net debt-to-equity ratio decreased to 1.35 times at end-2018 from 1.38 times a year ago. This ratio is still well below the debt covenant threshold of 2.0 times, but is higher than our long-term target range of 1 to 1.2 times. 2018 net debt was at THB 62.9 billion, a decrease from THB 66.4 billion in 2017.
- Return on average capital employed in 2018 was at 7.7 percent, down from 9.2 percent in 2017, mainly due to a lower profitability. The return on average equity in 2018 decreased to 11.9 percent from 13.7 percent in 2017 due to a decrease in total shareholders’ equity as a result of declining reported net profit during the year.
In 2018, net cash receipts from operating activities were at THB 12.9 billion. Positive cash flow was driven mostly by profitable operation (EBITDA: THB 11.0 billion) from operation improvement. Moreover, efficient working capital management has also eased the pressure on inventory. Despite weak sales, 2018 inventory value declined by 11.1 percent, which was more than sales compared to the previous year.
Net cash payments for investing activities were at THB 3.4 billion (from THB 2.4 billion during 2017), mainly from the regular capital expenditure during 2018.
Thai Union recorded net cash payments for financing activities of THB 8.7 billion during 2018, largely from an interim dividend payment and a short-term debt repayment during the period due to strong operating cash flow generation.
A net increase in cash and cash equivalents, including an exchange gain on cash and cash equivalent, was at THB 707 million, resulting with an end-2018 cash and cash equivalent balance of THB 1.6 billion (excluding the impact from the use of bank overdraft).