High shrimp, tuna prices, strong baht sap Q1 results
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Return to normal trends expected in second half; dollar sales unaffected
Thai Union Frozen Products (TUF) said its first-quarter income in US dollars was about the same as in the same quarter of 2012, while sales in baht declined 3 per cent and net profit plunged by 54 per cent.
These results were influenced by historically high raw-material prices of tuna and shrimp and the strong baht, the company said. However, it believes the trends in the second half of the year will return to normal and the overall picture of the food industry, including TUF, will show some improvement.
Company president Thiraphong Chansiri said TUF’s US dollar sales amounted to $824 million (Bt24.5 billion), compared with the same period of last year when the revenue was $822 million.
The company posted income from baht-denominated sales of Bt24.4 billion, a decrease of 3 per cent from Bt25.3 billion in the first quarter of 2012, because of the 3.5-per-cent quarterly rise of the baht compared with the same period last year.
First-quarter net profit was Bt674 million, down 54 per cent from Bt1.46 billion in the same quarter of 2012.
In the first half of last year, the sales breakdown for the six main strategic product groups were tuna at 50 per cent, shrimp and related business 21 per cent, sardines and mackerel 6 per cent, salmon 5 per cent, pet food 8 per cent, and value-added and other products at 10 per cent.
Revenue contributions by market were the United States at 39 per cent, the European Union 29 per cent, domestic-market accounts 8 per cent, Japan 10 per cent, and other countries 14 per cent.
Thiraphong said that although the company continued to face challenges in the first three months of this year that it also grappled with in late 2012,
quarter-on-quarter net-profit growth was 10 per cent from Bt612 million in the final three months of last year.
The price of raw shrimp remains high and supplies inadequate because of early mortality syndrome, a disease that has seriously affected Thai shrimp production.
Meanwhile, the price of raw tuna remains volatile. It had declined sharply at the end of last year to $1,900 a tonne from $2,350 seen in September.
Then the price rose again early this year, reaching a new high of $2,325 in March.
TUF says such price volatility affects business in that it lowers customer confidence.
This causes a slowdown in purchase orders as the customers cannot accept rapidly changing prices, impacting gross profit margin in the first quarter.
Nonetheless, the firm reported that its overseas brands continued to perform well, especially Chicken of the Sea in the US, which regained profitability after low operating results last year due to intense price competition.
The pet-food business in the US also demonstrated good results compared with those in the last quarter of 2012.
MW Brands in Europe also maintained its profitability.
The overall picture for TUF is that its overseas business has changed towards a good direction, and the company believes that the volatility of raw-material prices will decrease in the second half of the year.
In relation to the strong baht, the company says it has worked carefully on risk management. Short-term measures have been implemented by using financial instruments such as hedging and fixed forward contracts, which have been able to cover some losses.
However, long-term measures require strict controls on costs and operational improvements to achieve higher efficiency.
The company believes it has to keep a close eye on the foreign-exchange situation by assessing its effect on business at all times.
It also believes that the government has monitored this issue closely and if the baht continues to surge, the government will launch measures to handle the matter.
TUF says its performance in the past reflected its strong capacity for operating business as a complete seafood producer, from upstream to downstream.
The production and marketing bases covering all regions enable the company to diversify business risks efficiently.
Consequently, TUF strongly believes that it can generate good growth consistently.
