Thai Union Sales, Profit Fall in Tough Market Environment

Bangkok-headquartered Thai Union Group PCL has reported a 5.5 percent year-on-year decline in 2018 first quarter sales to THB 29.7 billion, mainly due to the impact of declining tuna sales and a strengthening Thai baht. Net profit was THB 869 million, down 39.3 percent from the same period last year.

Gross profit declined 26.2 percent from a year earlier to THB 3.36 billion, while the gross profit margin was 11.3 percent compared to 14.5 percent during last year’s first quarter. Inventories of higher-priced raw materials, particularly in the tuna business, along with Thai baht appreciation, contributed to the weaker margin.

Ambient product sales in Q1 2018 were THB 14.1 billion, down 1.6 percent year-on-year, and sales contribution from the chilled and frozen seafood business fell 8.9 percent year-on-year to THB 11.52 billion. PetCare and value-added product sales declined 8.2 percent to THB 4.08 billion over the same period last year.

frozen shrimpFrozen shrimp is the leading product in Thai Union’s chilled and frozen category, which accounts for over 40 percent of sales. Lobster and crab round out the Top 3 product list.The chilled and frozen business category is mainly composed of seafood items that are normally sold directly to restaurants, hotels, and food catering units as ingredients for further processing (cooking) at kitchens where they are prepared for final consumption. However, these items are also sold through retail channels to consumers. Since aqua feed (for shrimp and fish) is part of the supply chain of the shrimp business, it is also included in this category as related business.

In 2016, sales of this category amounted to THB 55.8 billion, representing 42 percent of the group’s total. Shrimp is the most important species in this category, followed by lobster and crab. Sales generated by Thai Union brands (including industrial or non-consumer brands) accounted for about 33 percent of this category, with the balance from private label orders.

North America Top Market

In the first quarter of 2018, North America contributed 40 percent of total sales, followed by Europe at 32 percent, the Thai domestic market at 12 percent, and other markets at 16 percent.

Tougher market competition in North America, together with US dollar depreciation, saw the sales of ambient, frozen and chilled seafood – particularly shrimp and lobster – decline in both value and volume in this key region.

However, Thailand, China and the Middle East continued to grow, with sales contributions improving due to the launch of new products and increased marketing and sales activities.

SG&A (selling, general and administration) to sales ratio improved at 11.23 percent in the first quarter, compared to 11.79 percent in the same period last year. Despite weaker profitability, the company’s strong cash flow prompted debt repayment and improved its net debt-to-equity ratio to 1.35 times in the first quarter of 2018, compared to 1.38 times at the end of 2017.

“Despite pressures from high raw material inventory costs and challenging market environments, our net profit was supported by other incomes and prudent foreign exchange management,” said CEO Thiraphong Chansiri. “We will continue to work harder to weather the industry’s volatility. Currently, the pressure from rising raw material prices is beginning to relax as tuna product prices show signs of a more moderate increase.”

Expansion in Russia

Thai Union has continued its focus on expansion with an agreement to acquire 45 percent of TUMD Luxembourg S.a.r.l (TUMD). TUMD wholly owns three Russian companies: Dalpromryba Limited Liability Company; Torgovo-Promyshlenny Kompleks “Dalpromryba” Limited Liability Company; and Maguro Limited Liability Company. These enterprises are collectively known as the DPR Group (DPR).

DPR is a retail-oriented fish and seafood business, and it is Russia’s number one canned tuna producer. Thai Union opted to make the investment in DPR because its manufacturing and distribution platform offers significant opportunities for further growth and development. DPR, which generates annual sales of around US $45 million, operates in both frozen and ambient segments. Among it brands are Maguro, Captain of Tastes and Rybar.

Thai Union’s 45 percent shareholding of TUMD will be acquired with a combination of new and vendor shares for approximately US $16 million. Through a series of options, its shareholding is expected to first increase to 51 percent, and then gradually to 80 percent over the next three years. The transaction is subject to shareholders agreement approval by the Russian Federal Anti-Monopoly Service.

Russia has a large and growing economy with a relatively low consumption of tuna, which is steadily rising. It is expected that sales of tuna, and other seafood, will continue to increase given improving living standards and general health awareness. Working together with Thai Union, DPR will look to further strengthen its position in the market, with a plan to double sales to US $100 million within the next five years.

With this acquisition, Thai Union will have critical coverage of almost all key European seafood markets, driving exposure to fast growing emerging markets.

New Product Development

tuna slicesYellowfin Tuna Slices, currently available in black pepper and Cajun flavors, are convenient for making sandwiches. The product is distributed to foodservice operators in two-pound packages containing 32 one-ounce slices, with five packages to a case.Thai Union’s investment in innovation is delivering positive results with its new Yellowfin Tuna Slices and Tuna Sausage – the latter a healthier alternative to traditional sausage products. The two products were successfully innovated at the company’s Global Innovation Incubator (Gii).

Frozen Yellowfin Tuna Slices are the world’s first pre-sliced, pre-seasoned tuna made from whole yellowfin tuna loins developed to give deli customers a healthier, convenient alternative to traditional luncheon meats. The slices are vacuum-packed to allow for easy freezing, thawing and serving.

In March, the new offering won the 2018 Seafood Excellence Award in the Best New Foodservice Product category at the Seafood Expo North America in Boston. In April, Yellowfin Tuna Slices debuted in Europe at the Seafood Expo Global in Brussels, where the product was also a finalist for the Seafood Excellence Global Awards.

Yellowfin Tuna Slices are currently being rolled out across US foodservice channels under Thai Union’s Chicken of the Sea brand. Additionally, commercialized of the frozen has begun in Europe and the Middle East.