Thai Union Frozen Plc (TUF) the world’s second-largest tuna processor is completing the acquisition of a major European company. President Thiraphong Chansiri discusses the company’s strategy and outlook.
“The fall of the euro over the past year gave us a 20% discount on our acquisition costs in baht terms,†says Mr. Thiraphong.
BUSINESS:
Please explain TUF’s business model.
Fifteen years ago, TUF was already one of the leading contract seafood processors in Thailand but today also owns leading canned seafood brands in the US (Chicken of the Sea), Southeast Asia (Sealect) and China (Century). It is about to complete the acquisition of MWBrands, which owns leading shelf-stable seafood brands in Europe - John West, Petit Navire, Hyacinthe Parmentier and Mareblu. Despite our Thailand base, we are a global seafood company by any standard. Our production facilities are in Thailand, Vietnam, Indonesia and the US, and we'll have more through MWBrands, which owns facilities in the Seychelles, Ghana, Portugal and France. With these plants, we'll be able to source raw materials from all major fishing grounds.
How will the acquisition of MWBrands affect TUF and its business structure?
Before the acquisition, our revenue share from the US was 50%, Europe 11-13% and Japan 10%, with the rest of the world for the balance. Europe, collectively, is the largest market for canned seafood in the world. However, it has been a weak spot for us due to various trade barriers on imports. After the acquisition, a third of our revenue will come from the US, another third from Europe and the remainder from the rest of the world. MWBrands will be a platform for our future growth in Europe, Russia and parts of northern Africa.
How important are brands to TUF’s business?
We believe in the power of brands but are also the world’s largest contract canned tuna manufacturer, so our strategy is to grow both our brand and our private label business, especially with supermarket brands exhibiting significant growth.
Does TUF control the entire supply chain, from sourcing to distribution?
We are involved in all parts of our supply chain through either partnership or direct ownership.
Where does TUF see the most growth potential for its products today, and how is the company progressing towards those markets?
The growth strategy for TUF is straightforward - new products, new markets and new business, including M&As.
INDUSTRY:
What differentiates TUF from its competitors?
Brands represent reputation, quality and consistency, so consumer knows what to expect, and TUF, as a brand owner/supplier, must deliver on this. Supermarkets carry thousands of items and do not have the time or resources for any specific one. So it is up to the supplier, like us, to provide variety, initiatives and new ideas.
With increasing volatility in agricultural prices, how is TUF able to manage operations effectively?
We buy our raw materials four to six weeks ahead and sell four to six weeks ahead.
How will TUF mitigate foreign governments implementing tariffs on imports? Tariffs and FTAs are issues for the whole industry. The US, though the largest market for Thailand, still applies a fairly high duty on imported canned tuna at 12.5%, while the EU has the highest rate at 24%. Japan’s, thanks to the FTA with Thailand, will disappear in a few years. We must learn to operate efficiently in this environment. With the acquisition of MWBrands, the high EU import duty ironically becomes a positive for us. FINANCIAL PERFORMANCE: Given that half of TUF’s sales are generated from the US, how does TUF manage the strengthening baht? Our US subsidiaries produce and distribute within their market; their revenues and costs are thus mainly in dollars. Their risks related to a strengthening baht are indeed limited. But there will be a limited impact from the translation effect to the Thai parent company. The strong baht is indeed positive to our investment in Europe. The fall of the euro over the past year gave us a 20% discount on our acquisition costs in baht terms.
MISCELLANEOUS:
What do you feel are the biggest risks facing your business today?
The most farfetched risk is that the world runs out of fish. Realistically, the risks we face are mostly the volatility of raw material prices, foreign exchange rate movements and human resources. Today, our challenge is to improve our people and organization for the new acquisition when we will have to manage operations spanning three continents. Where do you see TUF five years from now?
We’re driven by targets. I initially set a US$3-billion sales goal by 2012, but with this acquisition we’ll be ahead of plan. Our next target is to achieve $4 billion by 2015. There remain areas for growth despite our strong global presence. For instance, the Middle East presents good potential for our tuna products, while Africa is equally interesting, given our fast-growing sardine business.
