TRIS Rating Affirms Company and Issue Ratings of “CPF” at “A+”with “Positive” Outlook from “Stable”

TRIS Rating Co., Ltd. has affirmed the company and issue ratings of Charoen Pokphand Foods PLC (CPF) at “A+”, with outlook revised to “positive” from “stable”. The ratings reflect CPF’s leading position in the Thai agribusiness and food industry, its product and market diversification, strong overseas expansion, increasing penetration in the packaged food segment with CP brand products, and reduced costs through operational improvements. The ratings also take into consideration the relatively low operating profit margins, volatile commodity prices, and exposure to disease outbreaks.

The “positive” outlook reflects the success in development of CPF’s business structure towards branded and value-added products and overseas expansion. The company is expected to maintain its leading position in the dynamic global food market. The diversified base of products and markets along with economies of scale are expected to help improve credit protection and generate more stable profits in the medium term.

TRIS Rating reported that CPF is the largest agribusiness and food company in Thailand and is the flagship company of the CP Group in Thailand. As of March 2010, Charoen Pokphand Group Co., Ltd. (CPG) and related companies held 41% of CPF’s shares. The company’s business is divided into two major categories, livestock and aquaculture, each of which comprises feed, farm, and food products. Fully-integrated operations help its products meet safety and traceability standards, which qualify the products for export to major importing countries, including the United States (US), Japan, and the countries of the European Union (EU).

In 2009, revenue from farm products contributed 43% of total sales, followed by animal feed (37%), and food products (20%). To reduce the commoditized nature of its products and stabilize cash flow, CPF continues to focus on building branded and value-added products and developing distributional channels for both the domestic and export markets. CPF aims to increase the contribution from food products to one-third of total sales within five years, while reducing the proportion of sales from the commodity-oriented farm products. In addition to product diversification, the company has increasingly expanded its operations to many countries. The contribution from overseas operations has continuously increased from 6% of total sales in 2003 to 19% in 2009. The rise largely came from chicken operations in Turkey.

CPF’s financial profile remains healthy. The total debt to capitalization ratio improved from 51.04% in 2008 to 43.77% in 2009. Sales grew by 5.6% to Bt165,063 million in 2009, while net profit increased sharply by 225.7% to Bt10,190 million. The rise in profit in 2009 came mainly from a recovery in the operations in Turkey and an improvement in the aquaculture businesses in both domestic and overseas markets. Better control of expenses by improving cash conversion cycle also supported the strong rebound in profitability. Although grain costs increased in early 2010, CPF already purchased forward agreements for most of its major raw materials to lock in prices until October 2010. The focus on value-added products should alleviate the fluctuations in commodity prices and sustain profit margins, said TRIS Rating. -- End

Company Rating: Affirmed at A+ Issue Ratings: CPF106A: Bt2,000 million senior debentures due 2010 Affirmed at A+ CPF10OA: Bt3,500 million senior debentures due 2010 Affirmed at A+ CPF117A: Bt3,800 million senior debentures due 2011 Affirmed at A+ CPF118A: Bt3,000 million senior debentures due 2011 Affirmed at A+ CPF12OA: Bt2,500 million senior debentures due 2012 Affirmed at A+ CPF138A: Bt3,000 million senior debentures due 2013 Affirmed at A+ CPF13NA: Bt2,200 million senior debentures due 2013 Affirmed at A+ CPF14NA: Bt3,200 million senior debentures due 2014 Affirmed at A+ CPF15NA: Bt3,000 million senior debentures due 2015 Affirmed at A+ Rating Outlook: Positive from Stable Copyright 2010, TRIS Rating Co., Ltd. All rights reserved. Any unauthorized use, disclosure, copying, republication, further transmission, dissemination, redistribution or storing for subsequent use for any purpose, in whole or in part, in any form or manner or by any means whatsoever, by any person, of the credit rating reports or information is prohibited. The credit rating is not a statement of fact or a recommendation to buy, sell or hold any debt instruments. It is an expression of opinion regarding credit risks for that instrument or particular company. The opinion expressed in the credit rating does not represent investment or other advice and should therefore not be construed as such. Any rating and information contained in any report written or published by TRIS Rating has been prepared without taking into account any recipient’s particular financial needs, circumstances, knowledge and objectives. Therefore, a recipient should assess the appropriateness of such information before making an investment decision based on this information. Information used for the rating has been obtained by TRIS Rating from the company and other sources believed to be reliable. Therefore, TRIS Rating does not guarantee the accuracy, adequacy, or completeness of any such information and will accept no liability for any loss or damage arising from any inaccuracy, inadequacy or incompleteness. Also, TRIS Rating is not responsible for any errors or omissions, the result obtained from, or any actions taken in reliance upon such information.