Thai Union Frozen Products Plc (TUF), the world’s second largest canned tuna producer said that rise in cost of raw material and a stronger baht are likely to hurt its revenue growth for the second half.
“Traditionally the second half of the year has always been slower than the first half and we expect this to continue during this year as well,†Simon Chan, pictured right, director of finance at Thai Union Frozen told Business Day in a telephone interview. He said that sales during the third quarter, which ended on Tuesday, was lower than those seen during the first or the second quarter as fish (tuna) prices shot up to a high of $890 per metric tonne from an average of $750 in the second quarter and a low of just over $400 during the course of this year. “Normally we budget for $700-800 per metric tonne for the tuna prices but during the third quarter the prices were beyond our expectations. As a result, we may not see the same level of revenue as the first or the second quarters,†he added.
Thai Union Frozen had reported a net profit of 1.46 billion baht, a 154 percent jump from the same period last year, and the company has said that it hopes to see an organic growth of over 10 percent and acquisitions could help push it further in the near future.
Simon added that the lowered profits during the second half of the year could mean a lower dividend payout, although the payout ratio would remain at 70 percent of the net profits. “For the year, we are are looking at a conservative net profit of about 2.39 billion baht, a 54 percent increase from the last year,†Thiraphong Chansiri, president of TUF said.
Last year the company had recorded a net profit of 1.55 billion baht and the higher contribution during 2003 would likely come from its “Chicken of Seas†(COS) brand in the US.
TUF had acquired COS, one of the leading tuna brands in the US in 2001 and earlier this year TUF also acquired “Empress†brand for $24.5 million. COS controls about 18 percent of the US retail tuna market, while Empress is the leading tuna provider in the wholesale market. As part of its expansion plans, TUF, Simon said had acquired two companies in China, which will perform market test in order to see demand in one of the world's fastest growing economies. “We were always asked what we were doing in China and therefore we decided to invest in the Chinese market by buying up these two companies,†Simon said.
TUF recently announced to the Stock Exchange of Thailand (SET) that its board had approved the acquisition of two companies with a combined investment of $450,000. TUF's unit Thai Union Manufacturing will acquire 250,000 shares of Cindena Resources, or 50 percent of its paid-up capital, for $250,000. Cindena Resources, a holding company based in the British Virgin Islands, will help distribute TUF’s seafood products in China. The acquisition would be completed by next month.
Thai Union Manufacturing will also acquire all of COSI Trading (Shanghai) for $200,000, which will help the Thai company “gain insight into the seafood market in China,“ the company said. Simon said that this company will act as a marketing research firm and not a production company. Adding that the huge Chinese market needs to be studied carefully before entering the market. Cindena on the other hand would be used as a market testing company and TUF hopes to be able to launch a new brand of tuna for the Chinese market in the near future.
“We have not decided on the brand or the market size we want to capture as we ourselves don’t know how big the market in China is,†he said. “These companies will help us learn more about the Chinese market and the possible demand that exists in this market.“ He said that the expansion in China would not mean that the plans for the expansion into other countries, especially European Union and Japan, would be shelved. “We have our sight in these two markets after a successful bid at the American market and would continue to explore all possibilities,†Simon said. He added that the stronger baht would likely create an impact on the earnings of the company as nearly all of the company’s revenues are derived in dollar, while its production base is mostly in Thailand.
Meanwhile, TUF said another unit; Thai Union Feedmill has acquired 99.99 percent of the total 500,000 shares of Thai Marine Development Products, a local shrimp breeding and farming company, for almost five million baht. The move is to help increase the company's shrimp feed manufacturing and cold storage capacity, and improve the company’s research and development of new shrimp breeds and shrimp feed. Frozen shrimp and shrimp feed account for 15 percent of TUF’s total sales.
In the first half of 2003, TUF recorded total sales of 19.20 billion baht, up 15 percent on year.
Source: Business Day