2016 was a challenging year for Thai Union with key raw material prices rising significantly. Despite an unfavorable external environment, the company managed to report a record result in terms of revenue while keeping operational expenses under control. Thai Union posted record high sales of THB 134.4 billion (USD 3.8 billion). The sales growth was 7.3 percent from the previous year in Thai baht terms, and 2.3 percent in US dollar terms. The underlying sales growth was driven by a number of acquisitions during 2016. Overall volume continued to increase, partly from organic growth in all three key business segments and partly due to business acquisitions during the year.
Thai Union recorded a 2016 net profit of THB 5.3 billion, stable from the net profit during 2015. While the company faced a challenging raw material price environment, the weak operation was offset by stringent cost control and an increase in other income contribution from our Red Lobster investment that started to contribute from the fourth quarter of 2016.
Excluding M&A activities, Thai Union’s free cash flow from its 2016 operations was still positive thanks to strong EBITDA generation and tight control on capital expenditure and working capital amid rising raw material prices. Including the M&A and financing activities, the company’s interest-bearing debt rose to THB 65.9 billion and net debt to equity ratio increased to 1.37 times at the end of 2016.
The ambient seafood business saw gross profits decline during 2016 due mostly to the unanticipated high tuna cost toward the second half of the year that put pressure on ambient seafood business margin. Given a significant increase in salmon prices, the frozen, chilled and related seafood business managed to improve in revene due to product price adjustments during 2016 and the improvement in domestic shrimp production to 310,979 tons (up 18 percent from 2015 production levels). Our continued focus on PetCare and value-added items so far has proven resilient, both in term of revenue growth and margin improvement, amidst the unfavorable situation of tuna raw material prices.
The ambient seafood business remained the largest sales contributor of Thai Union at 45 percent of total sales. The ambient seafood business sales growth was driven mainly by volume growth as a result of the German-based Rügen Fisch acquisition during early 2016. Frozen, chilled seafood and related business accounted for 42 percent of total 2016 sales. The segment’s sales growth was also driven by volume growth during the year as a result of increased domestic shrimp production and the acquisition of Canadianbased lobster supplier Chez Nous during 2016. The average selling prices (ASP) across all categories were generally stable from 2015.
During 2016, Thai Union’s European business contributed 33 percent of total sales. While remaining the second largest market for the company, the sales contribution improved from 29 percent a year earlier. The growth was driven by both strong growth in branded product sales and the acquisition of Rügen Fisch. The U.S. market remained the company’s largest market and contributed 39 percent to the revenue. The other important markets were Thailand at 8 percent and Japan at 6 percent. Other smaller markets, such as Africa and the rest of Asia, made up the remaining 13 percent of Thai Union’s sales.
The following are the key factors that contributed to the company’s 2016 performance:
- Tuna raw material price increased significantly
In 2016, the average tuna raw material price was USD 1,425 per ton, up 22 percent from the 2015 average price. The higher YoY tuna raw material prices since early 2016 prompted cost pressure, especially in the branded business, particularly in France, UK and Italy, where selling prices tend to be inflexible during the short term. As the tuna business is a major contributor of the ambient seafood business, the segment’s gross margin declined to 17.0 percent during 2016, down from 18.7 percent a year earlier.
- Record salmon price from production disruption in
In 2016, the average salmon raw material price was at NOK 63 per kilogram, up 50 percent from the 2015 average price. The sudden increase in salmon raw material prices since early 2016 prompted cost pressure, especially in the private label MerAlliance in France and UK, where long-term selling price contracts are a normal business practice. Due to the significant increase in raw material pricing, Thai Union’s European salmon operation reported net losses of EUR 13 million during 2016. As a result, the frozen, chilled seafood and related business saw the gross margin decline to 9.1 percent during 2016 from 10.7 percent in 2015.
- Growing domestic shrimp production
Thailand continued to see shrimp production recover during 2016, with the country’s total output at 310,979 tons, an increase of 18 percent from 2015, as Thai shrimp farmers coped better with the shrimp EMS disease. The 2016 average Thailand shrimp price (60 pieces per kilogram) also increased 6.0 percent from the 2015 level to THB 179 per kilogram due to strong global demand.
- Acquisition-driven growth
During 2016, Thai Union acquired a majority stake of 51 percent in Rügen Fisch AG, Germany’s leading shelf-stable seafood operator, and 80 percent in Les Pecheries de Chez Nous (Chez Nous) the lobster supplier based in Canada. As a result, the consolidation of these two companies contributed to the sales growth of the ambient seafood and frozen, chilled seafood and related businesses, respectively, during the year.
While not consolidated to Thai Union’s profit and loss statement due to the nature of the investment, the investment in Red Lobster, the world’s largest seafood restaurant chain, started to contribute profits to the company during the fourth quarter of 2016.
- Currency fluctuation
The company has approximately 92 percent of sales occurring in foreign currencies from the reporting Thai Baht, mostly in USD, Euro and GBP. Despite currency volatility during the year from the various political changes in different countries, the company minimized the negative impact from the currency volatility, which resulted in minimal foreign exchange gains of THB 84 million during the year.
- Prudent SG&A expenses management
Given the difficult external environment during 2016, Thai Union focused on internal cost efficiency, primarily thanks to active cost control and capitalization of the Global Innovation Incubator (Gii) investment, supported by privileges granted by the Thai government. We also had success with our 2016 SG&A expenses, which increased by 3.2 percent YoY, compared to the sales growth 7.3 percent. This resulted in SG&A to sales ratio of 9.8 percent versus 10.2 percent a year ago and below the company’s SG&A to sales ratio target of 10 percent.
- A more levered balance sheet from M&A activities
Due to the number of investments made during 2016, where all deals were immediately net profit accretive, 2016 net debt-to-equity ratio increased YoY to 1.37 time from 0.75 time a year ago. While this increased, the ratio is still well below the debt covenant threshold of 2.0 times. Net debt was higher at THB 64.9 billion, from THB 36.4 billion in 2015.
AMBIENT SEAFOOD BUSINESS
The ambient seafood business recorded sales of THB 61,042 million, up 3.2 percent from THB 59,414 million a year ago, thanks mainly to the Rugen Fisch consolidation. While the volume grew 2.9 percent to 375,916 tones, the average selling price increased 0.3 percent in 2016. Gross profit margin of ambient seafood declined to 17.0 percent from 18.7 percent a year ago, mainly driven by rising tuna prices, which posted a challenge to Thailand-based export business as well as European branded business.
On average, the skipjack price (WPO/Bangkok landing) during the year increased 22 percent to USD 1,425 per metric ton from USD 1,170 per metric tons a year ago. While the increase in tuna price supported the average selling prices and sales growth of the ambient seafood business, the gross margin has been compromised during 2016. Ongoing product price negotiation should help alleviate the impact of the high raw material price and support margin recovery into 2017.
FROZEN, CHILLED SEAFOOD AND RELATED BUSINESSES
Frozen, chilled seafood and related business recorded sales of THB 55,832 million, up 11 percent from THB 50,307 million a year ago, thanks to increased sales volume, and rising raw material prices prompted some price adjustment, and the Chez Nous consolidation. The volume increased 9.8 percent to 239,143 tons, and the average selling price increased 1.1 percent. The sales growth was driven by Thailand’s improved shrimp output to 310,979 tons in 2016, accounting for 18 percent growth. Thailand’s Department of Fisheries expects to see shrimp output to increase to 330,000-340,000 tons in 2017
Rising shrimp and salmon prices put pressure on profit margins of frozen, chilled seafood and related businesses. The gross profit margin declined to 9.1 percent from 10.7 percent a year ago. The average price of shrimp was at THB 179 per kilogram (60 piece per kilogram), a 6 percent increase from last year. The salmon price faced the largest increase of 50 percent to NOK 63 per kilogram due to the supply shortage from algae bloom in Chile. Despite the sharp increase in salmon raw material prices during the year, the frozen, chilled seafood and related business margin gradually improved from the trough in the second quarter of 2016 into the end of 2016, thanks to the proactive price renegotiation with customers.
FINANCING AND INVESTMENT
During 2016, we have carried out a few important financing and investment activities as follows:
- Thai Union acquired a majority stake in Rügen
Fisch - Germany’s Shelf-Stable Seafood Leader
Thai Union acquired a 51 percent equity stake in Rügen Fisch AG, Germany’s leading shelf-stable seafood operator during 2016. Rügen Fisch, based in North-East Germany, supplies ambient and chilled fish including herring, mackerel and salmon across Germany to all of the leading retailers under key brands such as Rügen Fisch, Hawesta, Ostsee Fisch and Lysell, along with a significant private label business. The company employs over 850 people across the four primary state-of-the-art facilities in Germany and Lithuania. The company recorded sales of approximately EUR 140 million in 2015.
- Thai Union acquired a majority stake in Chez
Nous – Canadian-based Lobster Processor
Thai Union acquired a majority stake in Canadian lobster processor Les Pecheries de Chez Nous (Chez Nous), while Francois “Frankie” Benoit, the founder of the company, will retain a minority share. Chez Nous is based in New Brunswick with a processing facility strategically located on the Gulf of St. Lawrence. Chez Nous employed up to 200 seasonal workers during the lobster harvest. The company recorded sales of approximately CAD50 million in 2015.
Along with the acquisition of Orion Seafood International in 2015, Thai Union was one of the largest sellers of North Atlantic lobster in the U.S. The acquisition will give Thai Union Group companies enhanced traceability and quality control, and expanded product offerings into specialty grades and packs.
- Thai Union made a strategic investment in Red
Lobster– World’s Largest Seafood Restaurant
Thai Union made a USD 575 million strategic investment in Red Lobster, the world’s largest seafood restaurant chain. Post transaction, TU would own a 25 percent equity stake of Red Lobster and certain 10-year convertible preferred units which could be converted into a 24 percent equity stake of Red Lobster on a fully-diluted basis. Golden Gate Capital would remain the majority owner and retain operational control of Red Lobster.
Red Lobster is the world’s largest seafood restaurant company with annual revenue of USD 2.5 billion and operates over 700 stores in North America and other 50 overseas branches through franchise.
- Thai Union Acquired a Minority Stake in Avanti
Frozen Foods Private Limited – One of Indian’s
Largest Shrimp Processor
Thai Union acquired a 40 percent equity stake of Avanti Feeds Limited’s wholly owned shrimp processing unit Avanti Frozen Foods Private Limited (AFFPL). AFFPL focuses on shrimp processing in India for exports and domestic markets. With the proceeds, AFFPL will increase processing capacity from 35 tons per day to a total of 110 tons per day.
- Thai Union issued USD 75 million “Muay Thai” FX
Thai Union issued its first USD debenture “Muay Thai Bond” worth USD 75 million, with 10-year tenor in the Thai bond market. TU is locally rated at AA-by TRIS Rating Co., Ltd. The debenture was issued according to FX bond regulations stipulated by Securities and Exchange Commission of Thailand and approved by the Bank of Thailand. The proceeds from this issuance will be for general corporate purposes and to support Thailand’s Global Treasury Center functions. This USD debenture was an important step for the company in the international debt capital markets and also a great first fund raising transaction done by the company after receiving Thailand’s Global Treasury Center license.
- Thai Union issued THB 10,000 million bond
TU issued THB 10,000 million debentures in July 2016. The debentures were assigned AA-rating by TRIS Rating, a local credit rating agency. The proceeds from the debentures would mostly be used to refinance existing Asset-Backed Loans (ABLs) borrowed by TU’s subsidiaries in the U.S. This would help TU in finalizing the establishment of a Global Treasury Center in Thailand to improve the overall cost of borrowing for the Group, and to release assets placed with the bank as security for its loans which will provide more flexibility in accessing financial markets in the future.
Future Prospect and Action Plan
In 2017, we expect a year of continued sales growth driven by three main sources: 1) organic expansion of our existing business, 2) new business divisions through product and process innovation and venturing into the new markets, and 3) price adjustment to reflect the rising raw material prices during 2016. Together, they will drive our sales and support the company’s sales target of USD 8.0 billion by 2020.
On the back of continued sales growth expectation into 2017, Thai Union expects its profit margin to improve in 2017 due to 1) a recovery in the salmon business of MerAlliance, 2) Thai tuna export business (private label), and 3) increased profits contributed from investments in Red Lobster. Aside from the business operation growth, the company will continue to focus on prudent cost control.
Thai Union prioritizes the following five key areas of operation into 2017:
- Operation improvement
• Continue to profitably grow market share in European ambient markets
• Improved profitability of tuna and salmon
- M&A / Post Merger Integration
• Red Lobster continues to support business growth
• Improved business integration and collaboration globally
- New Businesses
• Develop King Oscar as a global brand and grow related business
• Launch the marine ingredients business to utilize the company’s co-product at higher value
• Implementing Gii commercialization, both on new products and processes initiatives
• ‘SeaChange’ and Tuna Commitment sustainability programs
• Demonstrate leading capabilities in responsible sourcing and fair labor
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 & equipment and construction and improvements on buildings. Due to the continual expansion of our existing business, the general financial health should improve further as positive cash flows increase.
Our dividend policy is to pay at least 50 percent of our net profit twice a year.
Thanks to our prudent management and strong cash flow profile despite difficult environment, we have managed to report stable profits and maintain dividend paying of THB 0.63 per share for operating year 2016, same level as 2015 payout. Thai Union have consistently pay dividend every year since the company’s listing on the Stock Exchange of Thailand in 1994.
In addition to the proper execution of our focused strategy and employee determination to achieve success, we believe the likelihood of meeting our goal this year will also be subject to the following critical factors:
We are affected by fluctuations in prices or disruptions in the supply of key raw materials
Our operations depend upon the pricing and adequate supplies of raw materials and in particular tuna and shrimp, which we procure globally. Raw material and frozen shrimp prices are volatile and are affected by, among other factors, changes in the global or regional levels of supply and demand, weather conditions, customs and import duties, government controls, marine diseases and energy prices.
Although we actively monitor the availability and prices of raw materials and shrimp supplies, we cannot assure stakeholders that we can always procure raw materials or shrimp in adequate quantities or at the required quality to meet our production requirements, or that these supplies will not be subject to significant price volatility in the future. Volatility in raw materials prices or shrimp supplies can adversely affect our business. Falling prices may also result in a decrease in the value of our inventory. Rising raw material prices generally have a greater adverse impact on our branded products business as compared to our private label business, as our private label pricing is generally on a “cost-plus” pricing basis, which may allow us to set higher product prices. However, we may not succeed in all cases in passing on these higher costs to our customers.
Our long term track record shows that non-speculative procurement, careful inventory management of raw materials and timely adjustment of the selling price has helped us minimize most impacts from such volatility. Our selling prices, particularly for private label business, are normally set on the (raw material) cost -plus (processing fees) basis.
Outbreak of marine diseases may affect our ability to conduct our business and harm demand for our products
An outbreak of disease affecting our raw materials can result in supply shortages that could disrupt our business or reduce our production, as well as increase raw materials’ costs, reduce sales and attract negative publicity concerning the quality and safety of seafood products generally, including ours. For example, the 2012 outbreak of EMS in Thailand caused the 2013 and 2014 aggregate shrimp production in Thailand declined materially when compared to 2012. Raw shrimp prices increased significantly in 2013 as a result of the shortage in supply, reaching a peak in February 2014, but subsequently declining. As a result of the EMS outbreak, both our Thailand-based shrimp private label business suffered severe losses in the first half of 2013.
There can be no assurance that EMS will not continue to be present in Thailand or that future outbreaks of marine diseases will not adversely affect our business, financial conditions, results of operations and prospects.
As the country’s major player in shrimp upstream and processing business, we have educated local shrimp farmer of the proper farming practice that could reduce mortality rate of shrimp raising. Moreover, the company, through our trading companies, has global sourcing network to procure shrimps from other non-EMS affected countries to ensure ongoing shrimp supply for our operations.
We may be affected by the international regulation on human rights and the threat to ban seafood imports from Thailand
In 2014, the U.S. Department of State downgraded Thailand to a ‘Tier 3’ ranking in its Trafficking in Persons report. A ‘Tier 3’ ranking indicates that the relevant government does not fully comply with the minimum standards of the U.S. Trafficking Victims Protection Act of 2000 (the “TVPA”) and is not making significant efforts to do so.
On April 21, 2015, the European Union placed Thailand on formal notice for the potential ban of seafood imports from Thailand if the European Union determines that Thailand continues to take insufficient action against illegal, unreported and unregulated (“IUU”) fishing.
While there can be no assurance that the measures with respect to combating IUU fishing undertaken by the Thai government will be deemed sufficient by the European Union. We have implemented a strong sustainability development program and proactive policies on these areas, we nevertheless managed to turn around the situation and earned our customers’ trust as their primary supplier. This can be further proved by our voluntary launch of our 2nd Sustainability Development (SD) report and the admission to the highly selective and prestigious Dow Jones Sustainability Index (DJSI) Emerging Markets for 2 years in a row, together with the Outstanding CSR award granted by the Stock Exchange of Thailand. These events demonstrated our proactive stance on sustainable business practices.
Fluctuations in currency exchange rates and related risks may adversely affect our results of operations
Exchange rate fluctuations may cause translation effects. Although we are a company incorporated in Thailand, we export our products abroad and generate most of our sales from foreign currencies such as the USD and the EUR. For the year ending December 31, 2015, we generated more than 90% of our total sales in currencies other than the THB. As such, we have historically been subject to fluctuations of other currencies, primarily the USD and EUR.
In particular, we may observe a negative impact caused by translation effects when the THB is strong in comparison to the USD and EUR, as for instance, the U.S. dollar-denominated revenues translate into a comparatively smaller amount of THB. In addition, appreciation of the THB could result in a competitive disadvantage for us with respect to our competitors from other currency regions and could lead to declines in others. All of these factors could have a material adverse effect on our business, financial condition, and results of operations.
Thanks to our non-speculative and timely currency hedging policy, we have been successful in hedging out most of the foreign exchange rate fluctuations to minimize the impact of currency volatility on our operational performance.
Our growth strategies, including making acquisitions and entering new product categories, may not be successful or may entail significant costs
Business acquisitions involve unforeseen contingent risks relating to these businesses that may only become apparent after the acquisition is finalized. Additionally there are integration risks such as difficulties associated with integration and the management of operations and systems, integration and retention of key personnel, co-ordination of sales and marketing efforts and diversion of management’s attention from other ongoing business concerns.
Our growth strategy also includes creating innovative new products, which may include product categories expansion, and entering new markets. However, we may not have sufficient experience or expertise to expand successfully into completely new product categories or new markets, and we may not be successful in developing the knowledge and expertise for the development of such new product categories or to compete in such new markets. In addition, expansion into new product categories or new markets may require significant managerial and operational resources.
Thai Union has set a growth target to combine both aspects of organic growth and acquisitions. While we have good track record of past acquisitions, we continue to remain prudent regarding acquisition selection and execution for the best interests of shareholders. We are committed to acquiring businesses that are related to the interests of Thai Union Group, where integration would end up in synergy between the current operation and the acquired entity. In the event of any disruption or cancellation, we also execute any transaction in such a way to make sure that the company does not need to incur unnecessary additional expenses.
COMPARATIVE FINANCIAL RATIOS
|Current Ratio (Times)||1.51||1.47||1.01|
|Quick Ratio (Times)||0.43||0.48||0.29|
|Gearing Ratio (Times)||1.43||1.29||2.00|
|Debt to Equity (Times)*||0.98||0.81||1.39|
|Net Debt to Equity (Times)*||0.85||0.75||1.37|
|Time Interest Earned (Times)||5.07||5.55||5.66|
|Efficiency Activity Ratios|
|Total Assets Turnover (Times)||1.09||1.11||1.06|
|Inventory Turnover (Times)||2.75||2.91||3.06|
|Accounts Receivable Turnover (Times)||8.42||8.09||8.83|
|Accounts Payable Turnover (Times)||12.65||11.66||10.77|
|Inventory Days (Days)||131||124||118|
|Account Receivable Days (Days)||43||44||41|
|Account Payable Days (Days)||28||31||33|
|Gross Profit Margin (%)||15.7||15.6||14.8|
|EBITDA margin (%)||9.1||9.2||8.3|
|Net Profit Margin (%)||4.2||4.2||3.9|
|Return on Average Equity (%)||12.2||11.9||11.8|
|Return on Assets (%)**||7.6||7.8||6.4|
|Return on Capital Employed (%)||12.5||12.0||10.5|
|Per Share Data|
|Earnings per Share (Thai Baht)||1.099***||1.11||1.10|
|Dividend per Share (Thai Baht)||0.54||0.63||0.63|
|Book Value per Share (Thai Baht)||9.42||9.60||9.06|
|Remark: 2015 ratios were based on financial statement reported on 23 February 2016|
|*||Debt = Interest bearings debt only|
|**||Pre-tax ROA = EBIT / Average total assets|
|***||Restated for par change to THB 0.25 (from THB 1.00) in December 2014|
2016 was another consecutive year of record sales for Thai Union. Despite the business operation facing the challenge of rising tuna and salmon raw material prices, the company managed to maintain the stable operating profits and net profits from 2015.
The average tuna raw material prices increased 22 percent compared to the previous year to USD 1,425 per ton during 2016. Moreover, average salmon prices also increased by 50 percent to NOK 63 per kilogram over the same period. While Thai Union managed to pass on some price increase to customers, the high raw material price situation has put pressure on the company’s profitability.
2016 domestic shrimp production improved to 310,979 tons, up 18 percent from 2015 production due to the improved situation of shrimp EMS disease and a more sustainable farming methods. Our shrimp & related business continued to grow in term of revenue, thanks to increased domestic shrimp supply, more focus on higher margin value-added products, as well as the recent acquisition of the Canadian lobster supplier.
Towards the end of the year, Thai Union announced its intention to divest its fishing fleet business in Ghana. The subsidiary comprised in this segment was reported in the financial statements as a discontinuing operation. The Sales Contract and Memorandum of Understanding were signed for the sales of vessels in December 2016. The Group expects to dispose all relating assets in 2017.
2016 sales set a new record at THB 134.4 billion (+7.3 percent year-over-year), equivalent to USD 3.80 billion (+2.3 percent YoY), where the growth was mostly driven by consolidation of the recent acquisitions of Rügen Fisch and Chez Nous, and the price adjustment of frozen and chilled products to reflect higher raw material prices.
The ambient seafood sales contribution was at 45.4 percent during 2016, down from 47.2 percent in the previous year, while the segment sales still reported positive growth, driven by the acquisition of Rügen Fisch. The 2016 frozen, chilled seafood and related business sales contribution improved to 41.6 percent (from 40.2 percent in 2015) due to an increase in domestic shrimp production and the acquisition of Chez Nous during the year. PetCare, value-added and others business segments contributed the remaining 13.0 percent of total sales (versus12.6 percent in 2015).
The U.S. market remain Thai Union’s largest market with sales contribution of 39 percent of total sales. Sales contribution from the European markets increased to 33 percent (from 29 percent during 2015), driven by a strong performance of our existing brands and consolidation of recent acquisitions. Thailand and Japan markets contributed 8 percent and 6 percent, respectively, of total sales, which were stable from the contribution during the previous year.
Of the total sales, 2016 branded and private label business sale contributions were stable from 2015 at 42 percent and 58 percent, respectively, as the company consolidated both branded and private label operation during 2016.
2016 gross profit was at THB 19.9 billion, an increase of 2.2 percent year-over-year. Despite the gross margin declining slightly to 14.8 percent from 15.6 percent in 2015, driven mainly by a rise in tuna and salmon raw material prices, the gross profit still improved, thanks to solid sales growth during the year.
The ambient seafood business showed a gross margin contraction to 17.0 percent (from 18.7 percent in 2015). Lower profitability was due to the rising tuna raw material prices during the year, which put pressure on both branded and private label ambient seafood business segment.
With the salmon production disruption problem in Chile, the 2016 average salmon price rose 50 percent year-over-year, putting pressure on the frozen, chilled seafood and related business gross margin. The gross margin decreased year-over-year to 9.1 percent (from 10.7 percent in 2015). The gross margin of PetCare, value-added and others business was higher YoY, thanks to the deconsolidation of the loss-making fishing fleet operation.
Selling and Administrative Expense (SG&A)
2016 SG&A expenses increased by 3.2 percent YoY to THB 13.1 billion. Compared to the sales growth of 7.3 percent, the 2016 SG&A to sales ratio was at 9.8 percent, down from 10.2 percent in the previous year. Despite solid sales growth, a number of investment and acquisitions, and a number of growth initiatives, Thai Union managed to prudently control cost well below the company’s target cost ratio of 10 percent.
2016 operating profit was THB 6,805 million, up 0.3 percent YoY, due to rising tuna and salmon raw material prices, which drove the company’s salmon operation to a loss during the year. While the SG&A cost ratio has partly offset the impact of the declining gross margin, the 2016 operating profit margin still declined 36bps year-over-year to 5.1 percent.
Other Income (including share of income from investment in associates)
2016 other incomes increased by 29.8 percent yearover- year to THB 1.3 billion, mainly due to the dividend income from the investment in Red Lobster that started to contribute to the company’s other incomes since 4Q16.
2016 FX gain was at THB 84 million, down from a gain of THB 1,012 million. The decline was due to the absence of the one-time FX gains from unwinding of hedged EUR in 1Q15 and unwinding of FX derivatives related to Bumble Bee acquisition deal. Otherwise, Thai Union managed to neutralize the FX impact on the company’s operation during 2016.
Despite the Red Lobster acquisitions and other investment during the year that drove the interestbearing debt of the company up to THB 65,919 million (up from THB 39,179 million in 2015), interest expenses actually declined to THB 1,440 million, down from THB 1,592 million during 2015. The decline was mainly due to a number of debt refinancing during the year that reduced the company’s effective interest rate and the funding for Red Lobster, which was acquired during 4Q16.
Corporate Income Tax
2016 corporate income tax decreased by 56 percent YoY to THB 583 million from THB 1,332 million in 2015. The 2016 effective tax rate was 8.7 percent, which is lower than the 2015 effective tax rate of 18.4 percent. The decline in the effective tax rate was mainly due to the decrease in deferred tax liabilities as a result of tax rate reduction in France. This was due to the tax effects from the French tax re-assessment, and this is reflective of current French tax rules which may need to be adjusted if tax legislation changes again. Moreover, the continued lost-making European salmon business still provided some tax credit for the company.
2016 net profit was at THB 5,254 million, stable from THB 5,303 million reported during 2015. The high raw material prices were offset by strong sales growth, stringent cost control, rising other incomes and lower tax expenses during the year. Net profit margin was at 3.9 percent, down from 4.2 percent a year earlier.
Total assets in 2016 amounted to THB 142.4 billion, representing an increase of THB 31.4 billion from THB 111.5 billion in 2015.
- Net trade receivables were THB 14.8 billion, down 5.4 percent from THB 15.6 billion in 2015, in contrast of the growing consolidated sales. Accounts receivable turnover improved to 8.83 times from 8.09 times in 2015, due to a lower average accounts receivables and strong sales growth. 2016 accounts receivable days declined to 41 days from 44 days in 2015.
- Net inventories increased by 12.6 percent to THB 39.6 billion from THB 35.2 billion a year ago due mainly to a higher tuna and salmon raw material price. 2016 inventory days declined slightly to 118 days from 124 days a year ago, mainly due to an average inventory value increased by 2.9 percent, lower than 5.8 percent increase in average cost of sales. The improved turnover rate was a result of in house proactive measures taken to keep inventory at the optimal level.
- Asset turnover rate decreased to 1.06 times in 2016 from 1.11 times in 2015 due to a higher growth rate of total assets from a number of investments, including Red Lobster, made during 2016. Moreover, some investments did not contribute to the consolidated sales due to the nature of investment holdings.
- Current ratio declined YoY at 1.01 times in 2016 from 1.47 times in 2015. Similarly, the quick ratio declined to 0.29 times from 0.48 times. The reduction of both ratios was due to the short-term bridge loans to fund the Red Lobster acquisition during 4Q16. The short-term bridge loan has already been refinanced into the long-term debenture and loans as of the first quarter of 2017.
- Property plant and equipment totaled THB 23.3 billion, slightly increased from THB 23.1 billion in 2015 partly due to the consolidation of some businesses during the year.
Total liabilities in 2016 amounted to THB 94.9 billion, representing an increase of THB 32.1 billion from THB 62.9 billion in 2015.
- Trade payables were THB 11.5 billion, up 17.8 percent from THB 9.8 billion in 2015. 2016 trade payables days increased to 33 days from 31 days in 2015, thanks to a lower accounts payable turnover rate (10.8 times compared with 11.7 times a year ago).
- Mainly due to the bridge loan sucured for Red Lobster investment in fourth quarter of 2016
- Long term loans increased by 59 percent to THB 25.4 billion from THB 15.9 billion as the company refinanced its short term debt with long-term debentures to finance investments during the year.
- Interest-bearing debts were THB 65.9 billion, up 68 percent from THB 39.2 billion a year ago. The proportion of long term debts (including the current portion) declined from 51 percent of the total interesting bearing debts to 44 percent, due mainly to the short-term bridge loan to finance the Red Lobster investment.
Equity attributable to shareholders of the Company in 2016 amounted to THB 43.2 billion, representing a decline of THB 2.5 billion from THB 45.8 billion in 2016 due mainly to a challenging operation while the company continue to pay dividends during the year.
- Total liabilities to equity ratio in 2016 increased to 2.0 times from 1.3 times in 2015 mainly due to an increase in interest bearing debts to fund acquisitions and investments during the year.
- With a number of investments during 2016, including the Red Lobster, 2016 net debt-to-equity ratio increased YoY to 1.37 time from 0.75 time a year ago. While increase, this ratio was still well below the debt covenant threshold of 2.0 times. Net debt was higher at THB 64.9 billion, from THB 36.4 billion in 2015.
- Return on average capital employed in 2016 was at 10.5 percent, down from 12.0 percent in 2015, mainly due to an increase in debt funding for the Red Lobster investments, while the benefit contribution incurred only during the fourth quarter of the year. The return on average equity in 2016 remained high at 11.8 percent, relatively stable with 11.9 percent in 2015, which reflected the stable net profits performance during 2016.
In 2016, net cash receipts from operating activities were THB 7,770 million. Positive cash flow was driven mostly by profitable operation (EBITDA: THB 11,138 million) during the year despite a challenging operational outlook. A sharp rise in tuna and salmon raw material prices and a new business consolidation resulted in higher inventory value and a negative net working capital of THB 1,026 million during 2016.
Net cash payments for investing activities were THB 29,400 million due to M&A and investment in related companies, namely: 1) Red Lobster; 2) Rügen Fisch AG; 3) Les Pecheries de Chez Nous; 4) Avanti Frozen Foods Private Limited; and 5) the buyout of the minority stake of Tri-Union Frozen Products, Inc.
Thai Union recorded net cash receipts from financing activities of THB 19,821 million, mainly debenture issuanes and debt raising to fund a number of M&A and investment transactions during the year. However, the strong operating cash flow still enabled the company to pay a dividend (THB 2,982 million) during 2016.
Net decreases in cash and cash equivalents, including an exchange loss on cash and cash equivalent were THB 1,840 million. Cash and cash equivalents at the beginning period were THB 2,816 million. In sum, the balance at the end of period was THB 976 million.