September 13, 2007

 

Thailand's CPF plans to focus on value added products and overseas sales

 

 

Thailand's food processing giant Charoen Pokphand Foods Plc plans to focus on improving value-added content and expanding overseas sales to reduce the impact of the baht's appreciation on its exports, said Veeravat Kanchanadul, senior executive vice-president of the parent CP Group.

 

Instead of aiming to boost volumes of shrimp and chicken exports it is famous for, the company would focus on strengthening its brand image and improving margins, the company said.

 

About 15-20 percent of its exports are in the form of processed food, which offer attractive margins, he said.

 

Currently, CPF derives 85 percent of its revenue from domestic sales and 15 percent  from exports.

 

Veeravat said diversification of 30 percent of its transactions into Euros has helped the company offset the rise of the strong baht against the US dollar. Unlike the US dollar, which has been weakening against the baht, the euro has been stable for the past year.

 

CPF has factories in China, Turkey and most of Southeast Asia.

 

In response to higher global corn prices, CPF has promoted corn plantation among local farmers and in neighbouring countries, he added.

 

On the domestic front, production costs have been rising, bringing up the price of chicken meat in the second quarter, he said. A rise in prices may stifle demand. 

 

The fact that CPF imported a fifth of total production helped to reduce the impact of the baht's strength, he said. Veeravat said continued appreciation of the baht is expected in 2008, but slowing exports in the second half of this year could reduce upward pressure.

 

CPF projects 2007 sales revenue at 140 billion baht (US$4.36 billion ), up from about 127 billion baht (US$3.95 billion) in 2006. For the first six months, the company reported sales of 63.82 billion baht (US$ 1.99 billion), up 7.58 percent from 2006.

 

The company showed a net loss of 180.3 million baht in the first half compared with a profit of 1.6 billion a year earlier, due largely to a first-quarter loss of 1.1 billion baht on lower domestic meat prices, foreign-exchange losses and higher production costs.

 

Veeravat said it is not so much the baht's strength as its volatility that is raising concern. Businesses cannot offset an income loss from a 12 percent baht appreciation as has been the case over the past 12 months, he said.

 

He added that an interest rate cut by the US Federal Reserve to help ease the current mortgage credit crisis could cause the baht to appreciate further.