June 28, 2013

Charoen Pokphand Foods cuts investment budget by a third

As its foreign farms were performing below expectations, Charoen Pokphand Foods said it would slash its five-year investment budget by a third to around US$1.6 billion and pare back revenue targets.


The plans, which include a renewed focus on cutting debt, represent a less aggressive stance from CP Foods, one of several major Thai firms that has bought up overseas assets in the past few years, emboldened by record stock prices and armed with cheap loans.


"We probably invested too fast in the past," president and chief executive Adirek Sripratak said. "Now, we have to scale down and do not need to be that aggressive."


CP Foods which is controlled by billionaire Dhanin Chearavanont, will also cut its revenue growth target to an average of 10% over the next five years from its earlier goal of 10% to 15%.


The company, which is the world's biggest shrimp farmer and a top maker of animal feed, has expanded into China, Vietnam, India, the Philippines, Turkey and Russia.


Its loss-making chicken operations in Turkey have underperformed expectations in particular. "The performance of our foreign operations is not in line with what we had expected. We should have made higher profits, but an increase in raw materials prices and a downturn in the farm industry affected our operations," Adirek said.


Higher raw materials prices, lower meat prices and weakness in its foreign operations have resulted in slumping profits.


CP Foods' shares have fallen 43% in the past 12 months, making them second worst performer among Thai big cap companies. Recent acquisitions and other expansions in its business have pushed up its net debt to equity ratio to 1.2 times, and the company now plans to cut debt by selling off some noncore assets and unused plots of land, he said.


Of its THB50 billion (US$1.6 billion) investment budget, 60% will be spent on foreign operations, which are expected to log average revenue growth of 10% to 15% over the next five years, compared to 5% to 10% % for domestic markets.