February 26, 2014

 

In the last quarter of 2013, Thai Union Frozen Products reported a 62.9% on-year increase in fourth quarter earnings before interest and taxes (EBIT).

 

Thai Union Frozen (TUF) products, which is the largest tuna canner in the world and also one of the largest exporters of frozen shrimp, reported fourth quarter EBIT of THB1.66 billion (US$51.02 million), compared to THB1.02 billion (US$31 million) for the fourth quarter of 2012.

 

Thai Union's turnover for the quarter was THB30.78 billion (US$946 million), up 17% on-year. The company's shrimp business - which generated THB24.77 billion (US$761 million) in 2012, 23% of its annual sales of THB112.81 billion (US$3.66 billion) - has found measures to be profitable, despite losing money in the first half as early mortality syndrome (EMS) hit Thai farmed production.

 

Thai Union called 2013 the "year of the perfect storm" for the company, which caused strong drops in its profit for the year, despite record annual sales. The company's annual earnings before interests, taxes, depreciation and amortisation (EBITDA) dropped by a fifth (19.9%) on-year to THB7.88 billion (US$242 million).

TUF said it was losing money in shrimp during the first half, but the gross profit margin is back in the black since third quarter because of an increase in price adjustments, increased imports of raw materials to fill capacity, cost cutting and a productivity-boosting programme.

According to a report from Nalyne Viriyasathien, an analyst with DBS Vickers, Thai Union is importing 30% of its raw material needs from EMS-free countries, specifically India.
 

Driven by its strong client relationships and consistent quality and delivery, the company has also successfully negotiated with its buyers to hike prices to cover rising costs, Viriyasathien wrote.

 

The company expects to see a 20% improvement in Thailand's shrimp output in 2014, despite the EMS environment. The cooler than normal temperature in January 2014 could negatively affect the shrimp farming productivity and may delay the first harvest to June/July, the company said.

 

The company's tuna business made up THB53.36 billion (US$1.6 billion) of turnover in fourth quarter, 47% of the total. Raw material price volatility hit this part of the company over 2013, with the price of skipjack tuna diving from US$2,300-US$2,400 per tonne in April to US$1,580 per tonne at the end of the year.

 

Prices have since declined even more and are now at US$1,250-US$1,275 per tonne, which many see as the bottom of the market. The current low tuna raw material price environment should support retailers' promotion activities to stimulate consumption and entice higher sales volume of own label business, commented Thai Union.

 

Under the current low tuna raw material prices, the gross profit margin of its own label business should improve, when more orders come in, the company said.

 

Its branded business should also benefit from the current lowering cost of raw materials, said Thai Union.