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Annual Review

Overview

Thai Union posted sales of THB 132.4 billion in 2020, an increase of 4.9 percent compared to the previous year. The Thai Baht’s depreciation against key trading currencies supported Thai Union’s topline during 2020. In U.S. Dollar terms, Thai Union’s 2020 sales were USD 4.2 billion, an increase of 4.0 percent from 2019. Furthermore, overall sales volume increased 5.6 percent year-over-year thanks mainly to solid performances from the ambient seafood and PetCare businesses.

Gross profit in 2020 passed the THB 23 billion mark for the first time at THB 23,418 million, up 16.4 percent year-over-year, resulting from aforementioned strong sales performance and margin improvement.

For the first time, Thai Union recorded a net profit above THB 6 billion at THB 6,246 million, up 64 percent year-over-year. Excluding U.S. antitrust litigation fees of THB 1.4 billion in 2019, the Company’s 2020 net profit still delivered growth of 20 percent year-over-year on a normalized basis.

Thai Union’s free cash flow during 2020 was at THB 10.4 billion, thanks to strong EBITDA generation, capital expenditure reduction and tight control on working capital. The Company’s net interest-bearing debt fell THB 3.1 billion to THB 52.1 billion due partly to continued debt repayment. Measures to reduce debt lowered our net debt-to-equity to 0.94 times at the end of 2020, down from 1.07 times at the end of 2019.

In 2020, the ambient seafood business saw a significant increase in sales from the previous year, while its gross profit margin improved to 21.1 percent, up from 19.4 percent in 2019, as a result of profitability improvement in the U.S. and European ambient seafood businesses. The frozen, chilled and related seafood business saw sales decline 5.4 percent from the previous year, affected by lower sales volume. We continued our strong growth focus on PetCare and value-added items, as seen in this segment’s revenue growth of 7.7 percent year-over-year.

The ambient seafood business remained the largest sales contributor for Thai Union with 47 percent of total sales in 2020, up from 44 percent a year ago, thanks to both the Thai Baht’s depreciation against key trading currencies and a strong demand for ambient seafood products in Western countries. The frozen, chilled seafood and related business accounted for 38 percent of total sales. PetCare, value-added and others business segment contributed 15 percent of total sales, slightly up from 14.8 percent in 2019.

During 2020, the U.S. market remained the Company’s largest market, contributing 42 percent of revenue. Thai Union’s European market contributed 29 percent of total sales. The contribution enhancement from the U.S. and Europe was mainly due to growth in the ambient seafood and PetCare businesses. In Thailand, domestic sales accounted for 10 percent. 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 14 percent of Thai Union’s sales.

The following are key factors which contributed to the Company’s 2020 performance:

  1. Strong Demand for Ambient Seafood and PetCare Products during Lockdown

    The coronavirus global pandemic led to significantly higher demand for ambient seafood products last year, mostly in the U.S. and European countries, as people cooked more at home in response to the closure of restaurants for extended periods and lengthy lockdowns in many cities. Thai Union’s 2020 ambient seafood sales improved 13.6 percent from a year ago, on the back of volume sales growth of 16.9 percent. Additionally, PetCare and value-added sales increased 7.7 percent year-over-year which was partly attributable to people spending more on their pets during lockdown.

  2. Strategic Investment in Red Lobster Contribution Challenged

    In 2016, Thai Union made a USD 575 million strategic investment in Red Lobster, 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. During 2020, the investment contributed a net loss of THB 408 million to the Company’s net income, mostly due to the impact of lockdown restrictions that limited the number of operating dining halls and reduced capacity at the restaurants.

  3. Currency Fluctuations

    Thai Union has approximately 90 percent of sales occurring in foreign currencies, mostly in U.S. Dollar, Euro and to some degree in British Pound. With the Thai Baht significantly depreciating against all key trading currencies during 2020, the Company recorded an increase of 4.9 percent in annual revenue in 2020. However, excluding the currency impact, annual revenue would still have risen by 3.8 percent compared to a year earlier.

  4. Strong Cash Flow Reduced Balance Sheet Leverage

    The solid cash flow of THB 10.4 billion was supported by core business profitability improvement, capital expenditure reduction and efficient working capital management. As a result of strong cash flow, Thai Union repaid over THB 3 billion of debt during the year. As of end-2020, net debt-to-equity declined to 0.94 times, down from 1.07 times as of end-2019. The Company has so far achieved a debt target range of 1.0 - 1.1 times, providing the Company with greater financial strength and financial flexibility with its future management and investment plans.

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AMBIENT SEAFOOD BUSINESS

The ambient seafood business category recorded sales of THB 62.7 billion, up 13.6 percent from THB 55.2 billion in 2019. In the year under review, volume sales increased to 392,563 tons, an increase of 16.9 percent from the previous year. This was largely due to strong demand for canned seafood products in response to COVID-19 as consumers cooked more at home, adhered to social distancing and dealt with city lockdowns. Consequently, the gross profit margin of the ambient seafood business category improved significantly from a year earlier to 21.1 percent in 2020, thanks to improved profitability across the U.S. and European ambient business.

On average, the skipjack price (WPO/Bangkok landing) during the year increased 14.6 percent to USD 1,385 per metric ton from USD 1,209 per metric ton in 2019.

FROZEN, CHILLED SEAFOOD AND RELATED BUSINESS

The frozen and chilled seafood and related business category recorded sales of THB 49.6 billion, down 5.4 percent from THB 52.4 billion a year ago, mainly due to falling shrimp raw material prices and the ongoing pandemic situation which was challenging for the food service industry throughout the year. Therefore, the 2020 sales volume decreased 5.4 percent to 262,924 tons.

The shrimp price declined from a year earlier, with the 2020 average domestic shrimp price (60 pieces per kilogram) at THB 148 per kilogram, down 0.7 percent from 2019 levels. In 2020, the gross margin of frozen and chilled seafood and related business category was 9.7 percent, down from 10.2 percent during 2019.

PETCARE, VALUE-ADDED AND OTHER BUSINESSES

The PetCare, value-added and others business category recorded sales of THB 20.1 billion, up 7.7 percent from the previous year, on the back of sales volumes increasing 2.8 percent over the same period. Moreover, the gross margin of the PetCare, value-added and other business category in 2020 improved significantly to 26.7 percent, up from 21.6 percent during 2019, which is attributable to people spending more on their pets during lockdown periods and a keen focus on higher margin products.



FINANCING AND INVESTMENT

During 2020, we carried out a few important investments as follows:

  1. Thai Union Made Four New Food-Tech Investments through Its Corporate Venture Fund

    At Thai Union, we are building an ecosystem to nurture food-tech startups and to drive innovation in food industry. We continued to engage in SPACE-F, the first global food-tech startup incubator and accelerator in Thailand, with Batch II startups. In 2020, Thai Union announced four new investments in the food-tech space through its recently created venture fund, which focuses on alternative protein, functional nutrition and value chain technology startups, with an initial commitment of USD 30 million.

    The Company invested into Alchemy Foodtech, a Singapore-based diabetes food-tech innovation Company; Manna Foods, an insect-tech and e-commerce Company in the U.S; HydroNeo, an aquaculture technology Company based in Germany and Thailand; and VisVires New Protein, a Singapore-based food-tech investment fund.

  2. Thai Union Entered into a Joint Venture with ThaiBev

    Thai Union Ingredients (TUI) and Thai Beverage (ThaiBev) established Food and Beverage United, which will focus on developing functional nutrition food and beverages in Thailand. Thai Union holds a 49 percent stake in the joint venture.

  3. Thai Union Increased Its Stake in Russian Joint Venture to 90 Percent

    Thai Union increased its holdings in its Russian joint-venture, TUMD Luxembourg S.a.r.l., from the 45 percent acquired in 2018 to 90 percent in 2020. TUMD acts as the joint venture vehicle for Thai Union investments in three Russian companies, which are leading canned tuna processors.

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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.

With our global business portfolio, we will focus on continued performance improvement as part of our 2025 targets, driving towards an EBITDA of USD 450 - 550 million. We are committed to innovation as a key differentiator and we put sustainability at the heart of our operations and all of our decisions.

As part of our guidance for 2021, Thai Union will focus on sales growth of 3 - 5 percent from a year earlier. We aim to maintain the gross profit margin level at approximately 17 percent. The SG&A to sales ratio will be at approximately 11 - 12 percent. Additionally, we do not expect any material change in the effective interest rate from 2020.

In 2021 and beyond, our total planned capital investment will be ~THB 6 billion as we focus on carrying out capital expenditure related to new business divisions and continue to improve and streamline our existing operations in order to achieve sustainable, profitable growth.

Our key investment items during the year will be a culinary plant for ready-to-eat products and a protein hydrolysate and collagen peptide plant in Thailand, as well as a cold storage facility for our production plant in Ghana. Additionally, we will continue to invest in machinery and equipment, construction and improvements on buildings. Due to the ongoing expansion of our existing business, the Company’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.

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COMPARATIVE FINANCIAL RATIOS

Ratios 2018 2019 2020
Liquidity Ratios      
Current Ratio (Times) 1.34 1.66 1.37
Quick Ratio (Times) 0.39 0.55 0.45
Leverage Ratios      
Gearing Ratio (Times) 2.10 1.74 1.59
Debt to Equity (Times)** 1.44 1.16 1.05
Net Debt to Equity (Times)** 1.40 1.07 0.94
Time Interest Earned (Times) 3.96 4.06 5.22
Efficiency Activity Ratios      
Total Assets Turnover (Times) 0.92 0.89 0.92
Inventory Turnover (Times) 2.81 2.82 2.89
Accounts Receivable Turnover (Times) 9.56 9.56 11.11
Accounts Payable Turnover (Times) 8.54 8.49 9.64
Inventory Days (Days) 128 128 125
Account Receivable Days (Days) 38 38 32
Account Payable Days (Days) 42 42 37
Profitability Ratios      
Gross Profit Margin (%) 14.2 15.9 17.7
EBITDA margin (%) 8.3 9.5 9.8
Net Profit Margin (%) 3.9 4.1 4.7
Return on Average Equity (%) 11.9 9.0 14.1
Return on Assets (%)*** 5.6 4.6 6.3
Return on Capital Employed (%) 7.7 6.5 9.2
Per Share Data      
Earnings Per Share (Thai Baht) 1.09 0.80 1.26
Dividend per Share (Thai Baht) 0.40 0.47 0.72
Book Value per Share (Thai Baht) 8.95 8.90 9.69
* Debt = Interest bearing debt only
** Pre-tax ROA = EBIT/Average total assets

FINANCIAL ANALYSIS

Sales

Thai Union reported 2020 sales of THB 132.4 billion (up 4.9 percent year-over-year), thanks to strong core business operations and the Thai Baht’s depreciation against all key trading currencies throughout the year. In U.S. Dollar terms, Thai Union’s 2020 sales were at USD 4.2 billion, up 4.0 percent year-over-year. Furthermore, overall sales volumes increased 5.6 percent year-over-year mainly from ambient seafood and PetCare business growth.

Ambient seafood sales contributed 47 percent during 2020, an increase of 13.6 percent from the previous year, as a result of both the Thai Baht’s depreciation against key trading currencies and a strong demand for ambient seafood products in Western countries. Thai Union’s frozen and chilled seafood and related business sales contribution decreased to 38 percent, down from 42 percent in 2019, due to a decline in shrimp and salmon sales volume. PetCare, value-added and others business segment contributed 15 percent of total sales, slightly up from 14.8 percent in 2019.

The U.S. market remains Thai Union’s largest market with sales contribution of 42 percent of total sales, up from 40 percent during 2019. This was mainly due to growing ambient seafood and PetCare business sales as well as U.S. Dollar appreciation against the Thai Baht in 2020. The sales contribution from European markets was at 29 percent, up from 28 percent in 2019, mainly as a result of strong ambient seafood sales and the appreciation of the Euro and British Pound against the Thai Baht during 2020. The contribution of Thai market sales declined to 10 percent, down from 12 percent a year earlier, impacted by lower tourism activities. However, Japanese market contributions were 5 percent, a slight decline from the previous year.

In 2020, our branded sales slightly outgrew the private label business, with sales mix at 42 percent and 58 percent, respectively. Our 2020 total branded sales increased 7.4 percent year-over-year, as the majority of our branded sales are contributed from the U.S. and Europe, and were driven by the Thai Baht’s depreciation against their respective currencies, while branded volume sales continued to grow 5.6 percent year-on-year. In the period under review, private label sales were up 3.1 percent year-over-year, mainly thanks to the favorable key raw material prices and sales volume growth of 5.6 percent year-on-year.

Gross Profit

Gross profit in 2020 passed the THB 23 billion mark for the first time at THB 23,418 million, up 16.4 percent year-over-year, resulting from aforementioned strong sales performance and margin improvement.

The ambient seafood business showed a gross margin improvement to 21.1 percent in 2020, compared to 19.4 percent a year earlier. The margin enhancement was mainly attributed to strong sales and a favorable mix in the ambient business, resulting in a higher overall gross margin compared to the previous year.

The year saw the gross margin of our frozen and chilled seafood and related business at 9.7 percent, down from 10.2 percent during 2019. This was mainly due to the ongoing COVID-19 pandemic situation which presented challenges to the food service industry. However, despite the global.

pandemic, there was no major impact and facilities continued their operations during the year, thanks to stringent hygiene measures applied in all of the Company’s operations.

The gross margin of PetCare, value-added and others business improved to 26.7 percent in 2020, on the back of sales value and volume increases of 7.7 percent and 2.8 percent year-on-year, respectively.

Selling and Administrative Expense (SG&A)

Our SG&A to sales ratio during 2020 was at 11.8 percent, down from 12.9 percent a year ago. The decrease in ratio was partly attributable to the U.S. antitrust litigation fees of THB 1.9 billion recorded during the second quarter of 2019. Excluding such fees, the SG&A to sales ratio in 2019 would represent 11.4 percent.

Operating Profit

The 2020 record operating profit of THB 7.8 billion, up 103 percent year-over-year, was driven by both overall operational improvements and prudent cost saving initiatives. EBITDA in 2020 reached a record THB 12.9 billion, driven by improved profitability.

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

During 2020, other income was at THB 1.6 billion, an increase of 3.5 percent from a year ago. Interest income received from the Red Lobster investment in convertible preferred units was unchanged from the same period a year earlier.

FX Gain/Loss

FX gains significantly declined 81 percent year-over-year to THB 90 million, as a result of lower FX volatility.Finance CostsFinance costs in 2020 were THB 1.7 billion, down 16.1 percent year-over-year. The decrease was mainly thanks to the issuance of the perpetual bond during 4Q19 which resulted in a decrease in the effective interest rate to 2.91 percent, from 3.27 percent during 2019.

Corporate Income Tax

During 2020, income tax expenses increased to THB 724 million, from THB 158 million accrued in 2019. This increase was mainly contributable to an improved underlying operational performance during the period. The 2020 effective tax rate was at 9.9 percent, versus 3.6 percent in 2019.

Net profit

Thai Union reported its first ever annual net profit above THB 6 billion at THB 6,246 million, up 64 percent year-over-year, mainly thanks to the strong business operations during the year. Excluding the U.S. antitrust litigation fees in 2019, the Company’s 2020 net profit still delivered growth of 20 percent year-over-year on a normalized basis. The 2020 net profit margin was 4.7 percent, compared to 3.0 percent in 2019.

Assets

Total assets at the end of 2020 amounted to THB 144.6 billion, an increase of 1.9 percent from THB 141.9 billion as of end-2019.

  • Net trade receivables were THB 11.3 billion, down 9.7 percent or THB 1.2 billion from THB 12.5 billion in 2019. Accounts receivable turnover was up to 11.11 times from 2019 levels due to decreased average accounts receivable and improved sales. Accounts receivable days as of 2020 declined to 32 days, lower than 38 days in 2019 as the Company continued to demonstrate improvements on its collection efficiency.
  • Despite a sales increase, inventory days during 2020 decreased to 125 days, from 128 days in 2019, resulting from improved inventory management efficiency from higher product demand. Net inventories in 2020 were up 4.5 percent from end-2019 to THB 38.5 billion, partly due to rising raw material prices.
  • The asset turnover rate increased slightly to 0.92 times in 2020 from 0.89 times in 2019 thanks to improved sales of 4.9 percent in 2020 compared to the previous year.
  • The current ratio in 2020 was at 1.37 times, which declined from 1.66 times in 2019, mainly from a larger amount of current portion of long-term loans at end-2020.
  • Property plant and equipment totalled THB 26.7 billion, an increase from THB 25.9 billion in 2019 due to normal capital expenditure activities during 2020.
Liabilities

Total liabilities in 2020 amounted to THB 88.8 billion, representing a decrease of THB 1.3 billion from THB 90.1 billion in 2019.

  • Trade payables were THB 10.8 billion, down 9.1 percent from THB 11.8 billion in 2019. Trade payable days were down to 37 days, thanks to the Company’s continued focus on supply chain finance programs to improve overall payable efficiency. The accounts payable turnover rate was at 9.64 times compared with 8.49 times a year earlier.
  • Bank overdrafts and short-term loans increased by 19.4 percent to THB 13.5 billion from THB 11.3 billion in 2019.
  • Long term loans decreased by 17.4 percent to THB 36.9 billion from THB 44.6 billion, also thanks to continued debt repayments from record high EBITDA and capital expenditure bring brought under control during 2020, as well as part of Company’s long-term debt being shifted to the current portion of long-term debt as they would be due.
  • Interest-bearing debts were THB 58.4 billion, down 2.5 percent from THB 59.9 billion a year earlier.
  • The proportion of long-term debts (including the current portion) was at 77 percent of the total interesting-bearing debts.
Shareholders’ Equity
  • Equity attributable to shareholders of the Company in 2020 amounted to THB 52.2 billion, representing an increase of THB 3.7 billion from THB 48.4 billion in 2019 as the Company recorded higher retained earnings during the year.
  • Total liabilities to equity ratio in 2020 decreased to 1.59 times, from 1.74 times in 2019, mainly thanks to higher profitability and continued regular debt repayment.
  • With a significant improvement in reported net profit and strong cash performance, Thai Union was able to conduct a THB 1.5 billion share repurchase program, repay THB 3 billion of debt, and still be able to achieve a respectable net debt-to-equity ratio of 0.94 times in 2020, down from 1.07 times a year ago.
  • Return on average capital employed in 2020 was at 9.2 percent, a significant increase from 6.5 percent in 2019, mainly thanks to strong profitability as seen from improving EBIT of 38.9 percent year-over-year, while there was a net impact of the accrual for U.S. antitrust litigation fees of THB 1.4 billion during 2019.
Cash Flows

In 2020, net cash receipts from operating activities were at THB 13,432 million. Positive cash flow was driven mostly by profitable operations (EBITDA: THB 12,959 million). Inventory days during 2020 dropped to 125 days, from 128 days a year ago, thanks to higher sales that outpaced higher inventory, resulting in better.

inventory management efficiency.

Net cash payments for investing activities were at THB 3,736 million which is well on track with the revised capital expenditure plan of THB 3.7 billion (from THB 4.9 billion planned at the beginning of the year).

Thai Union recorded a net cash payment for financing activities of THB 8,203 million during 2020, largely from regular debt repayments during the year, including interest paid on perpetual debentures and lower cash received from investments in affiliates.

A net increase in cash and cash equivalents, including exchange losses on cash and cash equivalents, was at

THB 1,597 million, resulting in an end-2020 cash and cash equivalent balance of THB 6,286 million (including the impact from the use of a Bank Overdraft).

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