Bangkok--30 Aug--TRIS Rating
TRIS Rating Co., Ltd. has assigned the company rating of “A+”with “stable” outlook to Thai Union Frozen Products PLC (TUF). The rating reflects TUF’s strong market position as one of the world’s leading tuna processors, solid valuable “Chicken of the Sea” canned tuna brand, and the management team’s proven track record in the seafood export business. The rating also takes into consideration TUF’s conservative business expansion policy, as well as its product and geographic diversity. These factors are partially offset by the maturity of the canned tuna industry in the US, high exposure to tuna price fluctuations, threats from manufacturers in low-cost countries, and the implementation of import trade barriers by major trading countries.
The “stable” outlook reflects TRIS Rating’s view that TUF will continue to maintain its competitive strength through economies of scale and production efficiency, expand business operations in a conservative manner, and improve its financial profile in the intermediate term.
TRIS Rating reported that TUF’s major product portfolio includes canned tuna, frozen shrimp, and other seafood products, as well as pet food and shrimp feed. Over the last 10 years, TUF has steadily built up its market position in the global tuna industry. The company’s business profile has been enhanced after becoming the sole owner of the “Chicken of the Sea” brand in 2001. As a result, revenue in 2001 increased sharply to Bt35,324 million from Bt19,120 million in 2000. In 2005, TUF’s canned tuna production capacity was 280,000 tonnes per annum, making it one of the top tuna processors in the world.
This enables the company to benefit from economies of scale in raw material procurement and production.
In addition, the company’s competitive position has been strengthened by its efforts to vertically integrate through the acquisitions of packaging and distribution networks. The company recently entered the shrimp breeding and hatchery businesses, which will also enhance its ability to control and improve shrimp quality. Given the strength of the “Chicken of the Sea” canned tuna brand in the US, TUF plans to use the brand as a platform to introduce new premium tuna and other value-added seafood products. Although the company’s historical performance has been quite stable, various uncontrollable
factors, including foreign exchange rates, climate change, and trade policies implemented by foreign government, stand as threats to its operating performance.
TRIS Rating said that, for the first half of 2006, TUF’s total sales were Bt26,906 million, up by 7.2% from the same period last year, driven by strong export growth. However, net profit dropped by 20.1% to Bt776 million, tempered by an increase in fuel costs, the appreciation of Thai baht, and higher interest expenses. Cash flow protection, as measured by the ratio of funds from operations (FFO) as a percentage of total debt, was 35.2% in 2005, up from 31.9% in 2004. The ratio is considered
adequate, although it has been relatively volatile over the past few years as outstanding debt increased sharply after major acquisitions and declined afterward when the company utilized internal cash to repay the debt. The ratio of operating income before depreciation and amortization to sales had remained in the range of 6%-9% during 2000-2005, but slightly dropped to 5.4% in the first six months of 2006. The company’s total debt to capitalization ratio as of 30 June 2006 was 42.4%, down slightly from 42.7% as of year-end 2005. The ratio is expected to stabilize at the current level, supported by
FFO, a reduced dividend payout, and conservative business expansion strategies.