Annual Review
Overview
The 2022 global economy was confronted by several unforeseen challenges, including the war between Russia and Ukraine, interest rate increases to contain inflation, and lingering pandemic effects such as lockdowns in China and disruptions in supply chains. While inflationary pressures continued across all markets where Thai Union operates, the Company was able to limit the impact through price negotiations with customers, hedging of key materials and foreign exchange, and strong inventory management.
The continued diversification of the business also contributed to the positive result in 2022, with Thai Union reporting record sales of THB 155.6 billion, an increase of 10.3 percent compared to the previous year, driven by continued growth in the PetCare, value-added, and ambient seafood businesses and favorable foreign exchange. This was partly offset by a normalization of the frozen and chilled business after an exceptional recovery in the U.S. food service businesses post-COVID-19. Furthermore, overall sales volumes increased 4.7 percent year-over-year, thanks mainly to solid performances from the PetCare, value-added, and ambient seafood businesses.
The Company booked a record high gross profit of THB 27.2 billion in 2022, up 5.8 percent year-over-year. Thai Union continued to deliver a healthy gross profit margin at 17.5 percent, as a result of our strong sales performance and margin improvement, despite higher raw material prices and freight costs.
Thai Union reported a net profit of THB 7.1 billion in 2022, which was down from last year’s exceptional performance due to a higher share of loss from Red Lobster’s operations (THB 1.2 billion vs. THB 178 million in 2021) and two non-cash one-off impacts. The two one-off items were (1) THB 900 million (after tax) change in fair value of Red Lobster’s preferred interest and (2) THB 195 million (after tax) in restructuring costs related to the closure of one Rügen Fisch plant.
This was partially offset by strong performances in Thai Union’s core businesses, favorable foreign exchange, and a higher tax credit. Net profit margin (NPM) was resilient at 3.1 percent. Excluding non-cash items from Red Lobster’s preferred interest and Rügen Fisch’s restructuring costs, adjusted net profit was THB 8.2 billion.
Free cash flow remained positive in 2022 at THB 1.8 billion, mainly from a substantial improvement in net working capital, thanks to freight cost and transit time normalization, close to pre-COVID levels. Thai Union’s 2022 net-debtto-equity ratio was at 0.54 times, down from 0.99 times at the end of 2021, thanks to the successful IPO of i-Tail Corporation (ITC) in 4Q22 and strong EBITDA, representing a healthy financial position.
The ambient seafood business remained the largest sales contributor for Thai Union with 43 percent of total sales in 2022, thanks to higher selling prices and strong demand. The frozen, chilled seafood and related business accounted for 37 percent of total sales. The PetCare business saw a significant increase in its sales contribution, accounting for 14 percent, up from 10 percent in 2021, a result of a low baseline comparison after last year’s temporary factory closure, continued strong demand, and higher selling prices. The value-added and others business segment contributed 7 percent of total sales, slightly up from 6 percent in 2021.
The following are key factors which contributed to the Company’s 2022 performance:
1. Strong Demand for PetCare Business And Successful Spin-off
As part of TU’s focus to unlock hidden value and spin-off its high-potential businesses, ITC, our flagship PetCare business and one of the world’s leading manufacturers of pet food products focusing on premium wet and treat offerings, was listed on the Stock Exchange of Thailand on Dec 9, 2022.
From the IPO transaction, ITC offered a total of 660 million shares, comprised of 600 million newly issued shares from ITC and 60 million existing shares from Thai Union, to the general public at THB 32 per share. The 660 million shares raised a total of THB 21 billion, making it the largest ever IPO in the food and beverage sector in Thailand and the largest public offering in 2022. After the IPO, the market capitalization of ITC stood at THB 96 billion.
After this transaction, Thai Union’s shareholding interest in ITC diluted from 99.78 percent to 77.82 percent.
2. Challenges At Red Lobster
In 2016, Thai Union made a strategic investment in Red Lobster, the world’s largest seafood restaurant company, holding 25 percent of common units and 24 percent of preferred units. During 2022, the share of loss from operations increased to THB 1.2 billion (compared to THB 178 million share of loss in 2021), mostly due to the impact of the Omicron variant and the spread of COVID-19 along with high inflation which limited the number of guest counts, slowed consumer spending, and threatened supply chains.
Moreover, the value of Red Lobster’s preferred units recorded was THB 18 million (compared to THB 1.2 billion of other income in 2021) due to a significant increase in the U.S. interest rate. However, these were offset by a tax credit from Red Lobster of THB 734 million in 2022.
3. Currency Fluctuations
Thai Union has approximately 89 percent of sales occurring in foreign currencies, mostly in U.S. dollars, Euro, and British Pound. The Thai Baht significantly appreciated against the U.S. dollar during 4Q22 to 34.95 in December 2022, after reaching a peaked at 38.08 in October 2022 (Source: BOT). However, the Company policy is always to hedge, which covers more than 80 percent of anticipated sales to mitigate the risks from FX volatility.
The USD was extremely dynamic throughout 2022 and depreciated quickly against the THB at the end of the year, with the Company recording negative sales adjustments of THB 2.1 billion in annual revenues and FX gains of THB 800 million in 2022.
AMBIENT SEAFOOD BUSINESS
The ambient seafood business recorded high sales of THB 66.5 billion, up 12.8 percent from THB 59.0 billion in 2021. Volume sales increased to 355,088 tons, an increase of 1.6 percent from the previous year, mainly from higher selling prices and strong demand, especially in Asia and the U.S. after last year’s normalization from pantry-loading during the first wave of the pandemic in 2020. Consequently, the gross profit margin remained solid at 21.3 percent in 2022, thanks to improved profitability across the products.
On average, the skipjack tuna price (WPO/Bangkok landing) during the year increased 18.3 percent to USD 1,663 per metric ton from USD 1,406 per metric ton in 2021.
FROZEN, CHILLED SEAFOOD AND RELATED BUSINESS
Thai Union’s frozen, chilled seafood and related business recorded sales of THB 57.0 billion, down 2.5 percent from THB 58.4 billion the previous year, mainly from softer demand from retail and foodservice businesses in the U.S. due to high inflation. This was partly offset by strong demand in Asia and Europe, supported by higher selling prices. The gross profit margin of the frozen and chilled seafood and related business was 7.7 percent, down from 11.8 percent in 2021 due to the market normalization in the U.S., higher raw material prices, especially shrimp and salmon, and supply chain challenges. The average shrimp price (60 pieces per kilogram) rose 17.5 percent to THB 162 per kilogram in 2022 from a year earlier at THB 138 per kilogram. The average salmon price in 2022 was at NOK 80 per kilogram, up 36.3 percent from the previous year at NOK 59 per kilogram.
PETCARE BUSINESS
The PetCare business recorded high sales of THB 21.7 billion, up 48.0 percent from the previous year, on the back of a 33.3 percent in sales volumes over the same period, thanks to higher selling prices and strong demand momentum. Moreover, the gross margin of the PetCare business in 2022 grew significantly to 26.3 percent, up from 24.3 percent during 2021, from more automation and our strategy to focus on a new innovative products portfolio with higher margins such as pet treats.
VALUE-ADDED AND OTHER BUSINESSES
Value-added and other businesses recorded high sales of THB 10.4 billion, up 15.6 percent from the previous year, on the back of an increase in sales volumes by 9.9 percent over the same period, driven by all business units including packaging, value-added products, and new value-enhancing businesses. The gross margin of value-added and other businesses in 2022 dropped slightly to 28.0 percent, from 29.4 percent in 2021 from mix business changes.
Business Overview by Region
During 2022, the U.S. remained the Company’s largest market, contributing 44 percent of total sales while the European market contributed 26 percent of total sales. The contribution enhancement from the U.S. and Europe was mainly due to growth in the PetCare business. In Thailand, domestic sales accounted for 11 percent, growing strongly thanks to PetCare and ambient. Emerging markets and the rest of the world contributed 19 percent of total sales.
The Thai Baht moved against key currencies as follows; USD/ THB (+9.2% YoY), EUR/THB (-2.5% YoY), and GBP/THB (-1.7% YoY). USD/THB movement is extremely volatile, as well as EUR and GBP depreciation against THB throughout 2022, which was a key factor impacting our performance.
Sales growth in the U.S. was up 9.2 percent year-over-year in 2022, driven by strong growth of ambient seafood and PetCare, higher selling prices, and favorable FX. These were partly offset by frozen seafood deterioration from a market correction after 2021’s exceptional performance.
Sales growth in Europe was up 2.6 percent year-over-year in 2022, driven by higher selling prices and volume growth of frozen & chilled seafood and value-added, especially in Germany and France, despite the energy crisis, recession concerns and Baht appreciation.
Sales growth in Thailand and emerging markets and the rest of the world were up 12.4 percent and 24.8 percent year-over-year in 2022 respectively, from higher selling prices and volume growth of ambient seafood, PetCare, and value-added.
Future Prospect and Action Plan
Thai Union’s vision is to be the world’s most trusted seafood leader, caring for our resources to nurture generations to come. We also seek to continue to deliver healthy and responsibly-sourced nutrition to our consumers globally, while creating long-term value for our stakeholders. Thai Union has made a commitment, through the SeaChange® sustainability strategy, to ‘Healthy Living, Healthy Oceans.’ In early 2023, Thai Union will announce a major update to SeaChange® with new goals and new commitments through to 2030. This will include actions across a wide range of topics to address such as the decline in biodiversity, tackling climate change, ensuring endangered species are protected, important ecosystems are restored, and that natural resources are managed sustainably.
With our global business portfolio, we have focused on continuous performance improvement as part of our 2025 targets, driving towards an EBITDA of USD 450-550 million with a gross profit margin above 20 percent. We are committed to innovation as a key differentiator, and we put sustainability at the heart of our operations and all of our decisions and target to achieve 10 percent of revenue contribution from innovative products.
As part of our guidance for 2023, Thai Union will focus on sales growth of 5-6 percent from a year earlier. We aim to reach a gross profit margin level at approximately 18.0-18.5 percent in 2023. The SG&A to sales ratio will be at approximately 11.0-12.0 percent. Additionally, we expect an increase in the effective interest rate at 0.5-1.0 percent in 2023.
In 2023, the total planned capital investment will be approximately at THB 6.0-6.5 billion as we focus on carrying out capital expenditure related to both existing and new business divisions and continue to improve and streamline our existing operations in order to achieve sustainable, profitable growth.
Our key investment items during 2023 will be a culinary plant for ready-to-eat products, a protein hydrolysate and collagen peptide plant, and a wet pet food plant in Thailand. Additionally, we will continue to invest in machinery and equipment, construction and improvements on buildings, as well as capacity expansion on our core businesses. Due to the ongoing continuous improvement in manufacturing and expansion of our existing business, Thai Union’s general financial health should improve further as positive cash flows increase.
We continue our commitment to deliver a high dividend payout ratio, with a minimum of 50 percent payout of our net profit with semi-annual payments.
COMPARATIVE FINANCIAL RATIOS
| Ratios | 2020 | 2021 | 2022 |
|---|---|---|---|
| Liquidity Ratios | |||
| Current Ratio (Times) | 1.37 | 1.56 | 2.38 |
| Quick Ratio (Times) | 0.45 | 0.54 | 0.83 |
| Leverage Ratios | |||
| Total Debt to Equity Ratio (Times) | 1.59 | 1.68 | 1.07 |
| Debt to Equity (Times)** | 1.05 | 1.14 | 0.68 |
| Net Debt to Equity (Times)** | 0.94 | 0.99 | 0.54 |
| Time Interest Earned (Times) | 5.22 | 6.21 | 4.29 |
| Efficiency Activity Ratios | |||
| Total Assets Turnover (Times) | 0.92 | 0.91 | 0.89 |
| Inventory Turnover (Times) | 2.89 | 2.71 | 2.59 |
| Accounts Receivable Turnover (Times) | 11.11 | 11.81 | 11.50 |
| Accounts Payable Turnover (Times) | 9.64 | 10.03 | 9.90 |
| Inventory Days (Days) | 125 | 133 | 139 |
| Account Receivable Days (Days) | 32 | 30 | 31 |
| Account Payable Days (Days) | 37 | 36 | 36 |
| Profitability Ratios | |||
| Gross Profit Margin (%) | 17.7 | 18.2 | 17.5 |
| EBITDA margin (%) | 9.8 | 10.6 | 8.3 |
| Net Profit Margin (%) | 4.7 | 5.7 | 4.6 |
| Return on Average Equity (%) | 14.1 | 16.1 | 11.1 |
| Return on Assets (%)*** | 6.3 | 6.9 | 4.9 |
| Return on Capital Employed (%) | 9.2 | 10.1 | 6.8 |
| Per Share Data | |||
| Earnings Per Share (Thai Baht) | 1.26 | 1.66 | 1.47 |
| Dividend per Share (Thai Baht) | 0.72 | 0.95 | 0.84 |
| Book Value per Share (Thai Baht) | 9.69 | 11.18 | 15.7 |
| * | Debt = Interest bearing debt only |
| ** | Pre-tax ROA = EBIT/Average total assets |
FINANCIAL ANALYSIS
Sales
Thai Union reported all-time high sales of THB 155.6 billion in 2022 (up 10.3 percent year-over-year), thanks to strong core business operations boosted by PetCare (+48.0% YoY), value-added (+15.6% YoY), and ambient seafood (+12.8% YoY) and the Thai Baht’s depreciation against the U.S. dollar, partially offset by a drop in frozen and chilled seafood (-2.5% YoY). Furthermore, overall sales volumes increased 4.7 percent year-over-year, thanks to higher volumes of PetCare, value-added, and ambient seafood businesses. The details are as follows:
- Ambient seafood recorded all-time high sales at THB 66.5 billion, representing 43 percent of 2022 total sales, an increase of 13 percent from the previous year, as a result of higher selling prices, and strong demand in key markets after last year’s normalization from pantry loading during the first wave of the pandemic in 2020.
- Frozen and chilled seafood and related business sales declined 2 percent year-over-year, reducing its contribution to 37 percent of total sales, down from 41 percent of total sales in 2021, due to softer demand from retail and foodservice businesses in the U.S. because of high inflation. This was partly offset by strong demand in Asia and Europe, supported by higher selling prices.
- PetCare’s sales contribution grew substantially from 10 percent of total sales in 2021 to 14 percent of total sales, reaching THB 21.7 billion in 2022, thanks to higher selling prices and strong demand momentum.
- Sales of value-added and others business segment grew 16 percent to THB 10.4 billion from the previous year, driven by all business units. In 2022 our private label business sales outgrew the branded business, with the sales mix at 62 percent and 38 percent, respectively. Our 2022 total branded sales increased 2 percent year-over-year, mainly from strong sales for branded products with sales up 5 percent year-over-year, offset by a declining performance of the foodservice business. In the period under review, private label sales were up 16 percent year-over-year, mainly thanks to higher selling prices and sales volume growth of 12 percent year-on-year from higher demand from key businesses, especially in PetCare, ambient seafood, and value- added, and a portfolio adjustment between branded and private labels.
Gross Profit
Gross profit reached a record high in 2022, up 5.8 percent year-over-year to THB 27.2 billion and gross profit margin was at 17.5 percent, as a result of the strong sales performance of PetCare, ambient seafood, and value-added businesses. The details are as follows:
- Ambient seafood: GPM was solid at 21.3 percent, driven by product mix, despite an increase in raw material prices, especially tuna.
- Frozen and chilled seafood: GPM dropped YoY from the market normalization in the U.S., raw material prices, especially shrimp and salmon, remained at a high level, and supply chain challenges.
- PetCare: GPM was at 26.3 percent, thanks to more automation and a growing new innovative products portfolio such as pet treats.
- • Value-added and others: GPM was at 28.0 percent, thanks to more automation and a growing new innovative products portfolio such as ready-to-eat, new value-enhancing products, and sustainable packaging.
Selling and Administrative Expense (SG&A)
2022 SG&A expenses increased 9.6 percent from last year in line with sales growth and the impact from rising freight costs, partially offset by lower marketing and advertising expenses. Yet, the SG&A to sales ratio during 2022 declined a bit over the whole year to 12.3 percent vs. 12.4 percent in 2021.
Operating Profit
The 2022 reported an operating profit of THB 8.1 billion, down 2.5 percent from THB 8.3 billion in 2021, mainly from the one-time impact from Rügen Fisch restructuring costs of THB 274 million (before tax). This was partially offset by overall operational improvements and lower SG&A to sales ratio. Excluding the one-time impact, the operating profit in 2022 was THB 8.3 billion.
Other Income (Including Share of Income From Investment in Associates)
2022 other income was THB 0.9 billion, a decrease of 49.9 percent from THB 1.8 billion in 2021, mostly due to lower Red Lobster preferred shares interest, marked at THB 18 million in 2022 compared to THB 1.2 billion in 2021, from a significant increase in the U.S. interest rate.
FX Gain/Loss
FX gains declined 16.5 percent year-over-year to THB 800 million, as a result of temporary exposure to extremely volatile USD/THB throughout 2022, especially in 4Q22.
Finance Costs
Finance costs in 2022 were THB 2.0 billion, up 15.5 percent year-over-year. The increase was mainly due to interest rate increases, growing net working capital from inflationary pressures, and high inventory, which resulted in an increase in the effective interest rate to 3.04 percent, from 2.67 percent in 2021.
Corporate Income Tax
In the year to 31 December, 2022, the income tax credit was THB 840 million, an increase from a tax expense of THB 742 million in 2021. This increase was mostly explained by lower profitability from Red Lobster and our U.S. operations. The 2022 effective tax rate was at -12.8 percent, versus 8.2 percent in 2021.
Net Profit
Thai Union reported a net profit at THB 7.1 billion in 2022, a 10.9 percent decline year-over-year. The lower net profit was mainly from Red Lobster’s higher share of loss, lower other income from Red Lobster’s fair value adjustment, and the one-time impact of Rügen Fisch restructuring costs of THB 195 million (after tax). Excluding non-cash items from Red Lobster’s preferred share adjustment and the German factory closure, Thai Union would have delivered a strong net profit of THB 8.2 billion. The 2022 net profit margin was 4.6 percent, compared to 5.7 percent in 2021.
Financial Position
As of December 31, 2022, Thai Union’s total assets were at THB 182.6 billion, an increase of 9.6 percent from end-2021 at THB 166.6 billion, due to higher inventory and trade and other receivables in line with sales growth, as well as higher cash and cash equivalents mostly from ITC’s initial public offering (IPO) transaction.
Total liabilities decreased to THB 94.4 billion, a drop of 9.5 percent from THB 104.4 billion at end-2021, thanks to a decrease in the current portion of long-term loans from financial institutions of THB 12.5 billion from a loan repayment after ITC’s spin-off.
Total equity (including perpetual debentures of THB 6 billion) were at THB 88.1 billion, an increase of 41.7 percent from end-2021 at THB 62.2 billion, mostly thanks to positive changes in ownership interest in subsidiaries from ITC’s IPO transaction.
Cash Flows
In 2022, net cash receipts for operating activities amounted to THB 5.9 billion. Free cash flow turned positive at THB 1.8 billion, thanks to strong EBITDA of THB 12.9 billion, offset by an increase in net working capital.
Net cash payments for investing activities were at THB 5.4 billion, decreasing from THB 8.1 billion at the same period of last year, mainly from lower new investments in associates (THB 0.3 billion in 2022 vs THB 3.0 billion in 2021), and cash receipts from short-term investments reaching maturity.
Thai Union recorded net cash receipts from financing activities of THB 2.7 billion during 2022, decreasing from THB 4.6 billion at the same period last year, which were largely due to cash repayments for long-term loans from financial institutions and a debenture issuance which reached maturity in January 2022.
A net increase in cash and cash equivalents of THB 3.2 billion during 2022 resulted in outstanding cash and cash equivalents of THB 13.0 billion at the end of the year (including the impact from the use of a Bank Overdraft).