FORBES: Thai Union Frozen Is The Big Kahuna Of Tunaff

Source: Forbes

Thailand has long boasted a seafood superpower. Now second-generation leader Thiraphong Chansiri has made Thai Union Frozen truly global.


Thai Union President Thiraphong Chansiri

Last year, when the world’s largest tuna exporter announced it was buying 143-year-old John West and three other venerable European seafood brands in an $883 million deal, few Europeans had heard of Thai Union Frozen. “In fact, very few Thai people would know our company,” says Thai Union President Thiraphong Chansiri. “It’s our culture, our personality. We never paid much attention to the press.” For years it was primarily a contract producer for international brands, and it still draws more than 90% of its revenue from overseas, so it was enough to be respected by investors, analysts and heavyweight customers in the U.S. and Japan, he says.

That’s changed under the 46-year-old Thiraphong, the eldest son of a cofounder and the face of a company that never needed a face before. Thai Union has wholly owned the U.S.’ third most popular tuna brand, Chicken of the Sea, since 2000. Now, with the purchase of John West, France’s Hyacinthe Parmentier and Petit Navire brands and Italy’s Mareblu, the Thai company devotes 67% of its production to its own brands and ships only a third to other companies. So it must raise its public profile as it expands product lines, enters new markets and seeks to attract the top Thai graduates and Western managers, company executives say.

Thiraphong took over as president when he was 30, gradually taking on more responsibility from his father, Kraisorn Chansiri. The 77-year-old patriarch is now the Thai Union chairman, playing the role of advisor and strategist while also focusing on financial matters. Under the son, the company has tripled its revenue, to an expected $3.1 billion this year, and now has an almost even balance of sales in Europe (34%) and the U.S. (36%). It accounts for 21% of the world’s tuna production. “We can now claim to be the only global tuna company, and can claim a global production base,” says Thiraphong.

But challenges abound. The government plans to start raising the minimum wage by 40% on Apr. 1, though the company says labor costs in Thailand make up only 10% of its expenses. Raw tuna prices are volatile: Skipjack, the species most common in U.S. products, went from $1,500 a metric ton in July to $2,000 in September. Then there’s the enormous debt Thai Union has racked up. It could take five or six years to pay it down, says Chief Financial Officer Simon Chan Tin-King, Thiraphong’s cousin. The company owes 1.65 baht to creditors for every baht it has from investors. The target is to push the debt/equity ratio back to 1 in three years, using its strong cash flow. It was 0.6 before the European purchase. Chan notes that the four brands owe the debt; if they default, Thai Union isn’t legally responsible for the money.

For investors it’s been stormy seas. From the third to the fourth quarter last year net profits fell by more than half. But for this year analysts expect a $136 million profit, 50% more than last year, on a 36% jump in revenue. The stock has gyrated similarly. It sank to almost 40 baht a share in March but has crawled back since then, handily beating the Stock Exchange of Thailand index and recently hitting 53 baht, nearly where it was a year earlier. “It’s a good time to buy [the stock],” says Jitima Ratnatam, vice president for research at Kasikorn Securities, who is expecting a positive surprise when third-quarter earnings are released this month. “It has an upside of 20%.”

Thai Union might even benefit from the floods that have been devastating parts of northern and central Thailand since August, she notes, because Thais have been stocking up on canned food in anticipation of the calamity. Last month the floods inundated industrial estates north of Bangkok, shutting down hundreds of factories. But Thai Union probably is one of the few major exporters that won’t be affected much because its two Thai plants are on the coast. Nor does it have to worry about flooded roads causing long delays.

Then there’s the work in progress of integrating the four European brands--called MW (for Marine World) Brands--into the rest of the company. That means centralizing procurement processes, assimilating 5,000 added employees and extracting cost savings. At MW tuna-processing plants in the Seychelles and Ghana, Thai managers are working to improve productivity. With five boats from MW, the company now has nine tuna-fishing vessels that can supply the Ghana plant. “We have set a revenue target of $4 billion by 2015,” says Thiraphong, implying revenue growth of one-third. He is clear on how he will meet this goal: “Europe is like a greenfield for us.”

Indeed, in the next few years Thai Union plans to extend John West seafoods--the top seller of canned tuna, mackerel and sardines in the British Isles--to Scandinavia, Poland and Russia. The former French colonies in northern and western Africa are natural new markets for H. Parmentier, France’s number one mackerel and sardine brand, and Petit Navire, France’s number one tuna brand.

Then, Thai Union expects to have the brands expand into shrimp, crabmeat and other frozen seafood. That would replicate its success with Chicken of the Sea Frozen Food in the U.S. After that the final high-margin frontier in both Europe and the U.S. is branded pet food.