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Annual Review

Overview

Thai Union reported a record gross profit levels during 2019. This strong improvement in core operations resulted in a gross profit margin of 15.9 percent, our highest level since 2011. We recorded solid net profit during the year. Even though we faced some challenges to our top line throughout 2019, mainly from falling raw material prices and the very strong Thai Baht appreciation against key trading currencies, Thai Union’s financial operations saw improvement, with operating profit increasing 20.8 percent compared to the previous year. The Company delivered a solid cash flow performance that led to an increased dividend payment by 17.5 percent and continued debt repayment to a 1.07 times Net Debt to Equity ratio.

Thai Union posted sales of THB 126.3 billion, a decline of 5.3 percent compared to the previous year. The Thai Baht appreciation against key trading currencies and the Company’s high exposure of overseas business activities affected Thai Union’s top line during 2019. In US Dollar terms, Thai Union’s 2019 sales were USD 4.1 billion, a decline by 1.2 percent from a year ago due mostly to falling raw material prices. However, overall sales volume increased 2.7 percent year-over-year thanks to growing frozen and chilled seafood and PetCare businesses.

Thai Union recorded a 2019 normalized net profit of THB 5.2 billion, up 0.5 percent from the normalized net profit during 2018. The strong profitability improvement was offset by a challenging sales environment. With prudent cost control, SG&A expenses slightly increased on an absolute basis, resulting in 2019 normalized operating profit improving 20.8 percent from the previous year. Normalized net profit excluded one-time legal-related expenses in the U.S.

Based on the financial statement, 2019 reported net profit was at THB 3.8 billion, which accounted for a net one-time, non-operating US legal-related settlement of THB 1,402 million during the second quarter of 2019. Reported profit improved 17.2 percent from 2018.

Thai Union’s free cash flow during 2019 was at THB 7.1 billion, thanks to strong EBITDA generation and tight control on working capital. The Company’s net interest-bearing debt fell THB 9.2 billion to THB 55.2 billion due partly to an issuance of perpetual debentures during the fourth quarter of 2019 and partly to continued debt repayment. Measures to reduce debt lowered our net debt-to-equity to 1.07 times at the end of 2019, down from 1.40 times at the end of 2018.

In 2019, the ambient seafood business saw a sales decline from the previous year although gross profit margin improved 19.4 percent, up from 16.9 percent during 2018, as a result of profitability improvement in the European ambient seafood business. The frozen, chilled and related seafood business saw sales decline by 0.7 percent from the previous year despite sales volume growth of 12.8 percent. This was as a result of Thai Baht appreciation against key trading currencies and a domestic shrimp price decline. We continued our strong growth focus on PetCare and value-added items, as seen in the segment’s revenue growth amidst unfavourable currency movements.

The ambient seafood business remained the largest sales contributor for Thai Union with 44 percent of 2019 total sales. Frozen, chilled seafood and related business accounted for 41 percent of total sales, up from 39 percent a year ago driven by shrimp and salmon volume growth. The segment’s sales volume improved from the previous year due to increased shrimp sales volume during the year. PetCare, value-added and others business segment contributed 15 percent of total sales, up from 14 percent in 2018.

During 2019, the United States market remained the Company’s largest market, contributing 40 percent of revenue. Thai Union’s European market contributed 28 percent of total sales. In Thailand, domestic sales accounted for 12 percent, improving from 11 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 Thai Baht appreciation. There was additional contribution from our affiliate partner, Thammachart Seafood, as a result of increasing our investment in the Company in 2019. Japan was also an important market, with 5 percent of sales, while markets such as Africa and the rest of Asia made up the remaining 15 percent of Thai Union’s sales.

The following are key factors which contributed to the Company’s 2019 performance:

  1. Lower level of tuna raw material prices during 2019

    In 2019, while some oceans saw lower catch volumes, producers generally maintained high inventory levels, leading to an oversupply. As a result, average tuna raw material prices in 2019 decreased to USD 1,209 per ton, down 20.9 percent compared to the previous year. The overall ambient seafood business gross margin thus improved to 19.4 percent, up from 16.9 percent in 2018.

  2. Strategic investment in Red Lobster contributed to net profit

    In 2016, Thai Union made a USD 575 million strategic investment in Red Lobster. During 2019, the investment has added net contribution of THB 419 million to the Company’s net profits, mostly in the form of interest income from convertible preferred units and tax credit as a result of the investment. Red Lobster is the world’s largest seafood restaurant company with annual revenue of USD 2.45 billion, operating over 750 stores globally through own-operations and franchisees.

  3. One-time US legal accrual

    During the second quarter of 2019, Thai Union’s subsidiary, Chicken of the Sea, settled with a large majority of plaintiffs. The financial exposure has been substantially higher than originally anticipated. As a result, Thai Union recorded a net additional accrual including related tax credit of THB 1,402 million. The Company believes that the financial impact of this litigation is now provided for by Chicken of the Sea. Chicken of the Sea remains Thai Union’s key strategic focus in the North American seafood market.

  4. Currency fluctuations

    Thai Union has approximately 88 percent of sales occurring in foreign currencies, mostly in US Dollar, Euro and to some degree in British Pound. With Thai Baht significantly appreciated against European currencies during 2019, the Company recorded a decline of 5.3 percent in the annual revenue in 2019. However, excluding the currency impact, annual revenue only declined by 1.4 percent compared to a year ago. Through a prudent currency hedging management, the Company was also able to capitalize on the Thai Baht appreciation, which resulted in significant foreign exchange (FX) gains of THB 543 million during the year.

  5. Strong cash flow and perpetual debenture issuance reduced balance sheet leverage.

    The solid cash flow of THB 7.1 billion was supported by core business profitability improvement, efficient working capital management and falling key raw material prices. As a result of strong cash flow, Thai Union repaid over THB 3.2 billion of debt during the year. As of end-2019, net debt-to-equity declined to 1.07 times, down from 1.40 times as of end-2018, mainly due to the perpetual debenture issuance of THB 6 billion which accounted as part of shareholders’ equity. The Company has achieved the debt target range of 1.0 - 1.1 times, thus offer the Company a greater financial strength and financial flexibility with its future management and investment plans.

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AMBIENT SEAFOOD BUSINESS

The ambient seafood business recorded sales of THB 55.2 billion, down 11.3 percent from THB 62.3 billion a year ago. In the year under review, average sales prices declined 4.8 percent as a result of low tuna price and volume sales declined to 335,924 tons, a 6.5 percent decrease 2018. This was largely due to price recovery in some branded products and lower export sales from Thailand due to a strong Baht. However, the gross profit margin of ambient seafood significantly improved from a year ago to 19.4 percent in 2019 thanks to improved profitability across the European ambient business.

On average, the skipjack price (WPO/Bangkok landing) during the year decreased 20.9 percent to USD 1,209 per metric ton from USD 1,530 per metric ton a year ago.

FROZEN, CHILLED SEAFOOD AND RELATED BUSINESS

Thai Union’s frozen, chilled seafood and related business recorded sales of THB 52.4 billion, down 0.7 percent from THB 52.8 billion a year ago, mainly driven by falling shrimp raw material prices. However, thanks to strong sales initiatives, product innovations and market diversification, 2019 sales volume increased 12.8 percent to 277,886 tons.

The shrimp price declined from a year ago, with 2019 average domestic shrimp price (60 pieces per kilogram) at THB 149 per kilogram, down 5.1 percent from 2018 levels. In 2019 the gross margin of frozen and chilled seafood and related business was 10.2 percent, up from 9.1 percent during 2018. As a significant Thai Baht appreciation against US Dollar during 2019 put pressure on the local export business’ profitability, the Company’s efforts to diversify sales into domestic and other overseas markets outside 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 2019, due to higher production volume and price adjustment.

PETCARE, VALUE-ADDED AND OTHER BUSINESSES

PetCare, value-added and others business recorded sales of THB 18.6 billion, up 2.2 percent from the previous year, on the back of sales volumes increasing 3.2 percent over the same period. Moreover, the gross margin of PetCare, value-added and other businesses in 2019 improved to 22 percent, up from 20 percent during 2018 due to new product launches and product innovation initiatives.



FINANCING AND INVESTMENT

During 2019, we have carried out a few important investments as follows:

  1. Thai Union issued THB 6 billion subordinated perpetual debentures and THB 6 billion senior debentures offerings.

    Thai Union Group’s issuance of subordinated perpetual debentures and senior debenture met expectations, with investors fully subscribed into both debentures for a total value of THB 12 billion. The debenture issuance was to refinance bonds due in 2019 so that the Company’s total debt did not change. As a result of the issuance and continued debt repayment, end-2019 net debt to equity ratio reached 1.07 times, down from 1.40 times at the end of 2018. Thai Union will use the funds to strengthen its financial structure and build a long-term financial foundation.

  2. Thai Union increased its stake in Thammachart Seafood Retail to 65 percent.

    Thai Unionacquired an additional 39.9 percent share in Thammachart Seafood, a Thai domestic seafood retail business, increasing its shareholding from the 25.1 percent acquired in 2018. Following this transaction, Thai Union now holds a 65 percent stake in Thammachart Seafood.

  3. Thai Union joined hands with National Innovation Agency (NIA), Mahidol University’s Science Faculty and WeWork Labs to partner in the SPACE-F program.

    Aiming to build a sustainable ecosystem to nurture FoodTech startups in Thailand, SPACE-F is the first global FoodTech startup incubator and accelerator in Thailand and will provide innovative services and support to empower the next generation of innovation in FoodTech. There are two tracks to the program: an Incubator track for initial stage startups; and an Accelerator track for growth-stage startups for both Thai and non-Thai startups.

Future Prospect and Action Plan

In 2020 and beyond, 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 sustainably-sourced nutrition to our customers globally, creating sustainable value for our stakeholders and driven by three key pillars. These pillars are:

  1. Strengthening our core business: Thai Union is focused on strengthening its core business to achieve sustainable, profitable growth. This includes:
    • Sustainable and stable growth
    • Continued investment in productivity enhancement
    • Turnaround or rationalization of loss-making businesses
  2. Building new value-enhancing businesses: We are expanding into new, attractive, value- enhancing areas to diversify and shift our portfolio and we are :
    • Investing into new and more profitable businesses
    • Focusing on growing our PetCare and Feed businesses
    • Exploring high-value M&A and investment in strategic areas
  3. Leading the industry on sustainability: We are committed to “Healthy Living, Healthy Oceans” and will continue to lead the industry on sustainability. We will:
    • Expand our SeaChange® sustainability program to fight Climate Change
    • Redouble our efforts to achieve globally-responsible operations and strong corporate governance

In 2020 and beyond, our total planned capital investment will be THB 4.9 billion as we continue to improve and streamline our existing operations in order to achieve stable long-term growth as well as carrying out capital expenditure related to new business divisions. Of note, our key investment items will be machinery and equipment, construction and improvements on buildings as well as investments into the new shrimp feed business in Indonesia. Due to the ongoing expansion of our existing business, general financial health should improve further as positive cash flows increase.

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COMPARATIVE FINANCIAL RATIOS

Ratios 2017 2018* 2019
Liquidity Ratios      
Current Ratio (Times) 1.71 1.34 1.66
Quick Ratio (Times) 0.47 0.39 0.55
Leverage Ratios      
Gearing Ratio (Times) 2.04 2.10 1.74
Debt to Equity (Times)** 1.40 1.44 1.16
Net Debt to Equity (Times)** 1.38 1.40 1.07
Time Interest Earned (Times) 4.13 3.96 4.06
Efficiency Activity Ratios      
Total Assets Turnover (Times) 0.94 0.92 0.89
Inventory Turnover (Times) 2.79 2.81 2.82
Accounts Receivable Turnover (Times) 9.37 9.56 9.56
Accounts Payable Turnover (Times) 9.21 8.54 8.49
Inventory Days (Days) 129 128 128
Account Receivable Days (Days) 38 38 38
Account Payable Days (Days) 39 42 42
Profitability Ratios      
Gross Profit Margin (%) 14.3 14.2 15.9
EBITDA margin (%) 8.6 8.3 9.5
Net Profit Margin (%) 4.4 3.9 4.1
Return on Average Equity (%) 13.7 11.9 11.5
Return on Assets (%)*** 6.1 5.6 5.9
Return on Capital Employed (%) 9.2 7.7 8.2
Per Share Data      
Earnings Per Share (Thai Baht) 1.26 1.09 1.09
Dividend per Share (Thai Baht) 0.66 0.40 0.47
Book Value per Share (Thai Baht) 9.28 8.95 10.15
* The Group has adopted TAS 32, TFRS 7, 9, 15 and 16 from 1 January 2019 under the modified retrospective approach. Under this adoption, the comparative information of end-2018 has been restated and shown as at 1 January 2019.
** Debt = Interest bearing debt only
*** Pre-tax ROA = EBIT/Average total assets

FINANCIAL ANALYSIS

An Overview

Due to the volatile operating environments of both raw material prices and currencies, 2019 sales in Thai Baht terms declined 5.3 percent from the previous year. Excluding foreign currency impact, Thai Union delivered annual sales in US Dollar terms of USD 4.1 billion, a decrease of 1.2 percent from 2018 sales, due mostly to falling key raw material prices. However, overall sales volumes still increased 2.7 percent year-over-year mainly from frozen and chilled seafood and PetCare business growth.

Raw material prices were generally lower during 2019 when compared to 2018. In 2019 the average tuna raw material price was USD 1,209 per ton, down 20.9 percent compared to the previous year. The average domestic shrimp price also declined from 2018 average price levels. However, Thai Union managed to recover business profitability toward a more normalized level through ongoing business discussions with customers, product price recovery, production cost optimization and market diversification.

Domestic shrimp production remained at close-to-2018 levels with Thailand’s total output estimated at 300,000 tons, due to a lower domestic shrimp price and increased global supply from growing global shrimp production. Thai Union’s frozen and chilled seafood and related business continued to grow in term of volume sales, due to a focus on the domestic market, export market diversification and greater focus on higher margin value-added products.

Thai Union recorded a 2019 normalized net profit of THB 5.2 billion, up 0.5 percent from the normalized net profit during 2018. This strong profitability improvement was offset by a challenging sales environment. Through prudent cost control, SG&A expenses slightly increased on absolute basis, resulting in a 2019 normalized operating profit up 20.8 percent from the previous year. Normalized net profit excluded one-time legal-related net expenses in the U.S. In addition, Thai Union delivered a solid free cash flow of THB 7.1 billion which enabled the Company to continue delivering a high dividend payout ratio of 59 percent of reported net profit during the year.

Based on the financial statement, 2019 reported net profit was at THB 3.8 billion, which accounted for a one-time non-operating US legal-related settlement of THB 1,402 million during the second quarter of 2019. The reported profit improved 17.2 percent from 2018.

Sales

Thai Union reported 2019 sales of THB 126.3 billion (down 5.3 percent year-over-year), due to Thai Baht appreciation against all key trading currencies throughout the year. In US Dollar term, Thai Union’s 2019 sales were at USD 4.1 billion, down 1.2 percent year-over-year due to falling key raw material prices. However, overall sales volumes increased 2.7 percent year-over-year mainly from frozen and chilled seafood and PetCare business growth.

Ambient seafood sales contributed 44 percent during 2019, a decline of 47 percent in the previous year, due to both THB appreciation against key trading currencies and a lower tuna price. Thai Union’s frozen and chilled seafood and related business sales contribution increased to 41 percent, up from 39 percent in 2018, driven by shrimp and salmon volume growth. PetCare, value-added and others business segment contributed 15 percent of total sales, up from 14 percent in 2018.

The U.S. market remains Thai Union’s largest market with sales contribution of 40 percent of total sales, up from 38 percent during 2018. This was mainly due to growing frozen business sales despite USD depreciation against THB in 2019. Sales contribution from the European markets was at 28 percent, down from 31 percent in 2018, mainly as a result of the depreciation of EUR and GBP against THB during 2019. Thai market sales contribution improved to 12 percent, up from 11 percent a year ago, as the Company launched new products into our home market. However, Japanese market contributions were 5 percent, a slight decline from the previous year.

In 2019 our branded and private label sales mix remained stable at 41 percent and 59 percent, respectively. Our 2019 total branded sales decreased 4.9 percent year-over-year, as the majority of our branded sales are contributed from the U.S. and Europe, and are affected by Thai Baht appreciation against their respective currencies, despite branded volume sales continuing to grow 3.1 percent year-on-year. In the period under review, private label sales were down 5.5 percent year-over-year mainly due to a decline in key raw material prices amid sales volume growth of 1.1 percent year-on-year.

Gross Profit

Gross profit in 2019 passed the THB 20 billion mark for the first time at THB 20,110 million (THB 20.1bn), up 6.4 percent year-over-year, resulting from lower key material prices despite FX volatility.

The ambient seafood business showed a gross margin improvement to 19.4 percent in 2019, compared to 16.9 percent a year ago. This strong profitability improvement was driven through efficiency enhancements in all our underlying businesses and new product launches. Product prices recovered in European markets, which prompted some volume decline from UK and France markets, alongside some improved margins for branded products.

The year saw a gross margin of our frozen and chilled seafood and related business of 10.2 percent, up from 9.1 percent during 2018. This was mainly attributable to a shift in portfolio to higher margin products, market diversification, solid growth in Thai Union Feedmill, and gross margin recovery in the salmon and lobster businesses.

The gross margin of PetCare, value-added and others business improved to 21.6 percent in 2019, on the back of sales value and volume increase of 2.2 percent and 3.2 percent year-on-year, respectively.

Selling and Administrative Expense (SG&A)

Our normalized SG&A to sales ratio during 2019 was at 11.5 percent, up from 10.7 percent a year ago. The increase in ratio was partly attributable to an increase in labor provision during the second quarter of 2019 and sales decline as a result of Thai Baht appreciation.

Operating Profit

The 2019 operating profit of THB 5.6 billion, up 20.8 percent year-over-year, was driven by both overall operation improvement and prudent cost saving initiatives. EBITDA in 2019 reached a record THB 12.0 billion, driven by improved profitability and contribution from affiliates.

Other Income (including share of income from investment in associates)

During 2019, other income was at THB 1.6 billion, down from THB 2.0 billion in 2018. This was largely due to both an absence of the insurance claim that occurred during 2018 and a revaluation of investment in France. Interest income received from the Red Lobster investment in convertible preferred units was unchanged from the same period last year.

FX Gain/Loss

Normalized FX gains declined 44 percent year-over-year to THB 543 million during the year, partly as a result of hedged accounting practices adopted during early 2019.

Finance Cost

Finance cost in 2019 was at THB 2.1 billion, up 1.5 percent year-over-year. The increase was mainly driven by an increase in effective interest rate to 3.27 percent, from 3.04 percent during 2018.

Corporate Income Tax

In the year to 31 December 2019 normalized income tax expense increased to THB 614 million, from THB 189 million accrued in 2018. This increase was mainly contributable to an improved underlying operational performance during the period. 2019 effective tax rate was at 9.8 percent, versus 3.2 percent in 2018.

Net profit

Excluding the net impact of the accrual for U.S. legal settlement of THB 1.4 billion, 2019 normalized net profit was at THB 5.2 billion, up 0.5 percent year-over-year, mostly due to the profitability improvement amid challenging sales environment. 2019 normalized net profit margin was 4.1 percent, compared to 3.9 percent in 2018. The reported net profit in 2019 was THB 3.8 billion, up 17.2 percent year-over-year.

Assets

Total assets at the end of 2019 amounted to THB 141.9 billion, representing a decrease of THB 342 million from restated figure of THB 142.3 billion as of end-2018.

  • Net trade receivables were THB 12.5 billion, down 9.7 percent or THB 1.3 billion from THB 13.9 billion in 2018. Accounts receivable turnover remained stable at to 9.56 times from 2018 level despite lower average accounts receivable. Accounts receivable days as of 2019 remained at 38 days, the same as 2018 levels o 38 days as the Company continued to demonstrate the consistency on its collection efficiency.
  • Despite a sales decline, inventory days during 2019 remained stable at 128 days, resulting from consistent inventory management efficiency. Net inventories in 2019 fell by 3.9 percent from 2018-end THB 36.9 billion, partly due to a decrease in raw material price and partly attributable to an efficient working capital management.
  • Asset turnover rate slightly decreased to 0.89 times in 2019 from 0.92 times in 2018 due to a sales decline of 5.3 percent in 2019 compared to the previous year.
  • The current ratio in 2019 was at 1.66 times which improved from 1.34 times in 2018, mainly from short-term debt repayment and debt refinancing during 2019.
  • Property plant and equipment totalled THB 25.9 billion, decreased from THB 26.3 billion in 2018 partly due to less capital expenditure in 2019 compared to a year ago.
Liabilities

Total liabilities in 2019 amounted to THB 90.1 billion, representing a decrease of THB 6.2 billion from THB 96.3 billion in 2018.

  • Trade payables were THB 11.8 billion, down 10.0 percent from THB 13.2 billion in 2018. Trade payable days remained stable at 42 days, thanks to efficient management of trade terms with suppliers as well as focus on supply chain finance programs to improve overall payable efficiency. The accounts payable turnover rate was at 8.49 times compared with 8.54 times a year ago.
  • Bank overdrafts and short-term loans decreased by 16.3 percent to THB 11.3 billion from THB 13.5 billion in 2018 due to debt repayment during 2019.
  • Long term loans increased by 4.4 percent to THB 44.6 billion from THB 42.8 billion also due to more debenture issuance during 2019.
  • Interest-bearing debts were THB 59.9 billion, down 9.2 percent from THB 65.9 billion a year ago. The proportion of long-term debts (including the current portion) was at 81 percent of the total interesting-bearing debts. The majority of debts reduction was from an issuance of THB 6.0 billion perpetual debentures during the fourth quarter of 2019.
Shareholders’ Equity
  • Equity attributable to shareholders of the Company in 2019 amounted to THB 48.4 billion, representing an increase of THB 5.7 billion from THB 42.7 billion in 2018 as the Company issued perpetual debentures accounted as part of shareholders’ equity.
  • Total liabilities to equity ratio in 2019 significantly decreased to 1.74 times, from 2.10 times in 2018 mainly due to an issuance of the aforementioned perpetual debentures. Also, lower account payables from lower raw material price was part of declining total liabilities.
  • As a result of the perpetual debentures issuance and continued debt payment, the Company’s net debt-to-equity ratio decreased to 1.07 times at end-2019, down from 1.40 times a year ago. The Company has achieved the debt target range of 1.0-1.1 times, thus offering the Company greater financial strength and financial flexibility with its future management and investment plans.
  • Return on average capital employed in 2019 was at 8.2 percent, up from 7.7 percent in 2018, mainly attributable to an improved profitability as seen from increasing EBIT of 3.9 percent in 2019 compared to a year ago.
Cash Flows

In 2019, net cash receipts from operating activities were at THB 11,755 million. Positive cash flow was driven mostly by profitable operation (EBITDA: THB 12,033 million). Moreover, efficient working capital management has also eased the pressure on inventory. Despite weak sales, 2019 inventory value has declined by 3.9 percent.

Net cash payments for investing activities were at THB 4.5 billion (from THB 3.4 billion during 2018), mainly from regular capital expenditure during 2019.

Thai Union recorded net cash payment for financing activities of THB 4.0 billion during 2019, largely from dividend payment during the period and usual debt repayment from a strong operating cash flow generation.

Net increase in cash and cash equivalents, including exchange losses on cash and cash equivalent, were at THB 3.1 billion resulting with the end-2019 cash and cash equivalent balance of THB 4.7 billion (excluding impact from the use of Bank Overdraft).

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