Annual Review

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).