Thai Union Frozen Products (TUF) Investor Presentation December 2010 www. thaiuniongroup. com
Disclaimer The information contained in our presentation is intended solely for your personal reference only. In addition, such information contains projections and forward-looking statements that reflect our current views with respect to future events and financial performance. These views are based on assumptions subject to various risks and certainties. No assurance is given that future events will occur, that projections will be achieved, or that the our assumptions are correct. Actual results may differ materially from those projected. -2 -
• Prudent Investment Policy from our Chairman “We will expand internationally on seafood business where we have experience and expertise on” “For investment decision, no matter what possibility of failure is, can we survive if the project fails” • Clear strategies from our President “We look at the business on the global scale. Our goal is always to diversify our risk, expand our investment overseas, balance our revenue from around the globe and try to have additional production facilities outside Thailand. We have a global strategy, not just a Thailand strategy”
TUF In A Snapshot • The largest Asian (ex-Japan) seafood processor in sales value. Sales (2009): approximately US$ 2 billion • The world’s largest tuna packer in terms of production volume and sales, but will also be the most integrated global player after acquiring MW Brands • A top five shrimp processor and exporter in Thailand • Global workforce: 30, 000 (c. 4, 000 from MW Brands) • • Owner of: – MW Brands – Top shelf-stable seafood manufacturer in Europe with market leading brands in UK, France, Italy, Ireland Netherlands, namely John West, Petit Navire, H. Parmentier and Mareblu – Chicken of the Sea Brand – the 3 rd largest canned tuna brand in the US – Empress International – a leading US seafood importer and distributor – Chicken of the Sea Frozen Foods – a fast-growing seafood distributor under the Chicken of the Sea brand • Strategic shareholders: - Mitsubishi (Japan’s largest trading house) - Hagoromo (Japan’s largest canned tuna brand) • Market Cap. : US$ 1. 65 billion – 956. 3 m shares – foreign limit 45. 0% Select key customers: Walmart, Costco, Sysco, Mitsubishi, Darden Restaurants, US Food Service, IMA, Nestle, Hagoromo, Safeway, Kroger, C & S Wholesale, Dollar General, US Government and others. -4 -
30+ Years Of Seafood Processing Experience • Business growth through organic expansion and acquisitions (vertical integration) • Never has a single quarterly loss and never miss a single dividend payment 2006: 1977: 1992: n Group founded under Thai Union Manufacturing by current Chairman Kraisorn Chansiri n Strategic partnership formed with key overseas customers, Mitsubishi Corp and Hagoromo Foods Corp 1988 1977 2003: 1992 1998: 1997: n Group purchased 50% of Chicken of the Sea International (“COSI”) n Acquired 90% of Songkla Canning’s shares through share swap 1994 1988: 1994: n Thai Union Frozen Products PCL established n Thai Union Frozen Products PCL. listed on the Stock Exchange of Thailand 1997 n Acquired a 100% stake in Empress International Ltd. to improve seafood distribution capabilities in the U. S. 2001: n Purchased the remaining 50% stake of Chicken of the Sea International 1998 2001 2003 2008: 2010: §Invested with a §Acquired a 51% stake §Acquired 100% of few US seafood veterans to set up Chicken of the Sea Frozen Foods to market frozen seafood under the Chicken of the Sea brand 2005 2006 of Vietnam-based seafood processor Yueh Chyang Canned Food which produced canned shellfish and tuna and Invested in a 14. 99 stake of Indiabased shrimp feed and shrimp producer Avanti Feeds 2007 2008 2009 2010 2006: 2005 n Invested in a 50% stake of China’s Century (Shanghai) Trading Co. , Ltd. which owns the “Century” brand, the No. 1 canned tuna brand in China by sales value -5 - 2007: 2009: §Acquired a tuna §Closed down 76. 5% stake of Indonesian tuna packer PT Jui Fa International Food fishing fleet consisting of 4 purseseiners and 1 scout boat to catch fish in the Indian Ocean American Samoa tuna processing plant and moved to a new facility in Lyons, Georgia state of USA Paris-based MW Brands, an integrated canned seafood manufacturer in Europe. The firm owns well-known brands: John West, Petit Naivre, Mareblu and H. Parmentier with leading market positions in UK, France, Italy, Ireland Netherlands.
9 M 10 Sales Breakdown By Product & Market By Product By Market S. America 1% Sales: US$ 1, 581 m -6 -
9 M 10 Sales Own Brands vs. OEM & Sales from Thai Operations Alone (OEM + Domestic Sales) Own Brand vs. Contract Manufacturing Overseas Subs. 39% (own brands) Contract Manufacturing for Export (OEM) 49% Domestic Sales 12% (own brands) Sales: US$ 873 m Sales: US$ 1, 581 m -7 -
Integrated Supply Chain - Tuna • Thailand is the world’s largest exporter of canned tuna • TUF is the world’s largest tuna processor by volume that allows competitive raw material sourcing and economies of scale (efficient cost control and value maximization by selling differentiated products to geographically and culturally diverse markets) Tuna Catching Marketing & Distribution Processing & (Third-party to Canning suppliers & Retailers and own fishing Endfleet) Consumers Can & Label Production (Thai Union Frozen, Thai Union Manufacturing, Songkla Canning, Samoa Packing, PT Jui Fai International Food, Yueh Chyang Canned Food) (Asian Pacific Can & Thai Union Graphic) -8 -
Integrated Supply Chain - Shrimp • Thailand is the world’s largest shrimp exporting country • TUF is a top shrimp processor and exporter in Thailand, especially for the US market • End-to-end integration allows product traceability, food safety and total control of product quality Brood Stock Breeding & Hatchery traceability trail (Thai Union Hatchery) Processing & Exporting Farming Feed Production & Distribution (partner farms in Thailand) (Thai Union Frozen & Thai Union Seafood) (Thai Union Feedmill) -9 - Marketing & Distribution to wholesalers, food-service outlets, and endconsumers
Volatile Tuna Prices Skipjack tuna raw material prices (WPO) USD / MT What drive the tuna raw material price? § Catching situation / Weather (e. g. sea surface temperature, global warming) § Price of fuel § Number of fishing boats (purseseiners) § Market speculation § Seasonality 2008 Average: US$ 1, 585 / metric ton 2009 Average: US$ 1, 141 / metric ton § Packers’ demand § Fishing technologies -10 - TUF strategy • Operating own fishing vessels to enhance bargaining power • Consistent and sizeable buying • Cost-plus pricing • Global sourcing intelligence • Lean buffer stock and non-speculative inventory management
Persistently High Shrimp Prices Domestic shrimp raw material prices What drive the shrimp raw material prices? § Shrimp size THB / KG White Shrimp (60 pcs / kg) § Domestic & overseas supply situation § Strength of Thai Baht § Disease outbreaks § Packers’ demand § Market speculation 2008 Average: Bt 109 / Kg § Seasonality 2009 Average: Bt 107 / Kg -11 - TUF strategy • Integrate the supply chain to achieve traceability and reliable quality control • Source directly from select farms which practice good management and food safety standards • Cost-plus pricing and consistent buying
Thai Baht Strength – A Manageable Challenge -About 88% of the group’s revenues and 62% of the group’s costs are in US$ in 9 M 10. COSI plant relocation and rising shrimp sales increased our Thai baht exposure within the current cost structure, but partly offset by higher domestic sales -Given the cost structure of our Thailand operations, weaker Thai baht would normally benefit us. But active FX hedging, cost management and price adjustments helped keep our operating margins relatively stable even when Thai baht strengthened in the first 9 months of 2010 -12 -
Acquisition of MW Brands Completed • TUF has acquired 100% of MWB for a total consideration of Euro 680 mm in cash from Trilantic Capital Partners on October 29, 2010. • The transaction was financed by: 1. 2. Euro 180 mm (loans to TUF by Thai banks) 3. Euro 60 mm (Euro Convertible Debenture to Standard Chartered Private Equity) 4. • Euro 340 mm (loans to the target by European banks) Euro 100 mm (a rights issue of 44. 2 mm new shares at a ratio of 1 new share per 20 existing shares and a private placement of 29 mm new shares to institutional investors) CIMB Securities (Thailand), the Independent Financial Advisor, employs various valuation methodologies i. e. comparables and DCF and opines that the optimal price of the acquisition is Euro 702. 3 mm – Euro 875. 5 mm -13 -
MW Brands: “Ocean to Plate” Vertically Integrated Business • Fleet management: 5 fishing vessels in dominant fishing ground • Long-term supply contracts with ships from EU Sustainable sourcing and procurement • Processing facilities near major fishing grounds in Ghana and the Seychelles and at the heart of Production facilities and processes distribution center in France and Portugal Distribution and logistic networks • Distribution throughout Europe, the world’s largest ambient seafood market Marketing and sales organization • Products are marketed through leading iconic brands Brand Portfolio France United Kingdom Italy Ireland Netherlands 773 534 910 39 66 #1 #1 #3 #1 #1 29% 33% 4% 70% 34% Ambient seafood sector size (Euro mm) Key brands Market position Market share Source: Nielsen and IRI – MAT February 2010 -14 -
MW Brands – Secured Supply and Production Facilities Secure fish supply through long-term supply contracts and fleet ownership Production facilities Long-term supply contracts Est Paulet, France Pioneer Food Company, Ghana • Long-term supply • 5 renewed fishing vessels contracts with French and Spanish fleets in Seychelles covering over 80% of IOT needs • Provides flexibility to handle tuna migratory habits • Ensures stability of fish supply Own fishing fleet owned in Ghana covering over 60% of PFC needs • Ensures low cost supply • Allows licensed access to Various Seafood Products (salads, seafood spreads. . . ) Canned tune and frozen tuna loins Indian Ocean Tuna, Seychelles European Seafood Investment Portugal Canned Sardines & Mackerel prime Gulf of Guinea fishing grounds Canned Tuna • The Company owns and manages, through its subsidiary, five tuna fishing purse seines in Ghana • The combination of owned fishing vessels in Ghana and long-term supply agreements with ships from EU member countries entitles MWB to EU import duty exemption under the Cotonou Partnership Agreement -15 -
MW Brands: Financial Highlights MWB Sales Breakdown By country • In 2006 Trilantic acquired MWB through a carved out of various entities from the US food producer HJ Heinz at 8. 9 x EV/EBITDA • MWB’s financial performance over the past four years reflects the implementation of a number of structural and strategic business changes that have focused on profitability rather than NSV By product For Fiscal Year Ended 31 March 2010 Export 6% Other fish 4% Netherlands 3% Mackerel 5% Ireland 4% Sardines 8% Italy 7% Pre-Acquisition Post-Acquisition Salmon 10% France 43% Tuna 63% UK 37% Value-added Tuna 10% Combined tuna products 73% • The negative sales volume growth is the result of a strategic decision to discontinue loss-making and low gross margin products in the private label and foodservice channels • The improved margin in 2010 was due to the strong brand equity especially in France. Financial Summary Fiscal year ended 31 March 2007 2008 2009 2010 2007 -10 CAGR Total Sales Volume (‘ 000 Tons) 117. 7 121. 3 110. 8 114. 3 (1. 0)% Net Sales Value (Euro mm) 447. 0 490. 9 443. 6 448. 2 0. 1% 56. 8 60. 1 67. 6 82. 5 13. 3% 12. 7% 12. 3% 15. 2% 18. 5% 48. 4 49. 5 51. 2 70. 0 10. 8% 10. 1% 11. 5% 15. 6% EBITDA (Euro mm) Margin (%) EBIT (Euro mm) Margin (%) -16 - 13. 1%
MW Brands – Low Cost Producer Unique strategic set-up delivers low cost production • MWB’s production and processing facilities are located within easy access to Strategic Location with High Barrier to Entry two of the world’s best tuna fishing grounds, Seychelles (Western Indian Ocean) and Ghana (Atlantic Ocean). This enables MWB to access low cost tuna supply and flexibility to interchange production volumes between the two plants Low Cost Producer Status with Duty Free Access to EU Market • MWB’s strategic locations not only provide optimal access to tuna but also Sustainable Low Tax Structure § MWB benefits from a low corporate tax rate of 0% in Seychelles and 4% in Proximity to End Markets § Low logistic cost from production facilities to end markets in the UK and enable MWB to benefit from low labor costs and zero import duty into EU market for ACP countries. TUF is currently paying 24% import duty to EU market Ghana Continental Europe -17 -
MW Brands - Summary of IFA Valuation • CIMB Securities (Thailand), the Independent Financial Advisor, employs various valuation methodologies i. e. comparables and DCF and opines that the optimal price of the acquisition is Euro 702. 3 mm – Euro 875. 5 mm • Trilantic acquired MWB in 2006 at EV/EBITDA multiple of 8. 9 x • Precedent transactions of merger and acquisition in seafood company from 1999 -2010 has an average EV/EBITDA multiple of 9. 9 x • DCF was calculated by using Weighted Average Cost of Capital (WACC) of 8. 6%, with sensitivity on terminal growth rate Acquisition price Euro 680 mm 796 991 0% 2% DCF (Post-Synergy) 702 0% DCF (Pre-Synergy) 731 2% 700 731 Forward EV/EBITDA 8. 3 x 8. 6 x 637 724 7. 7 x 8. 7 x Historical EV/EBITDA 663 674 9. 7 x 9. 9 x Forward PER 517 695 6. 6 x 8. 7 x Historical PER 382 404 Historical P/BV 1. 1 x Optimal Range Euro 702 - 876 mm 1. 3 x 559 Book Value of Total Assets 300 500 400 -18 - 600 700 Enterprise Value (Euro mm) 800 900 1, 000
Rationale For the Transaction Accretive value to shareholders by unlocking significant value from becoming globally integrated seafood firm • Create a global seafood player of scale as well as a truly global tuna company • Access to Europe, the world’s largest ambient seafood market where MWB has leading positions in major Strengthen Market Positioning countries, with continual cooperation from MWB’s strong management team • Combined pro-forma sales of TUF and MWB of Euro 2. 1 bn (USD 2. 7 bn)1 with strong presence in 3 major continents namely USA, Europe, and Asia at well-balanced portion of one-third in each market. Currently, TUF’s sales contribution in USA, Europe, and Asia is approximately 50%, 13%, and 14%, respectively. Sales in Europe are mostly private label; thus, no cannibalization in European market • Combined branded products’ sales of TUF and MWB will account for approximately 61% with owned portfolio Branded Products of leading brands in UK, France, and Italy. Currently, TUF’s branded products contributes approximately 50% of sales 2 • MWB’s iconic brands i. e. Petit Navire, John West, Mareblu, Hyacinthe Parmentier have established goodwill in European market in many past decades § Unlock significant revenue and cost synergies – Optimize fleet vessel fishing grounds and procurement: MWB’s production facilities are located in Ghana Seafood Integration and Seychelles, one of the major fish grounds. Once TUF transfers 4 vessels to Ghana, the fleets, totaling 9 vessels, will increase the capacity and efficiency of the overall fish catching. Average raw material cost will decrease due to the contribution of low fish cost sourcing by its own fleets in Ghana and long-term contract with French and Spanish fleets in Seychelles – Capitalize on the high complementarity of TUF and MWB production facilities – Share production know-how and commercial best practices § Full integration of different production facilities and leveraging the know-how for the development of valueadded products i. e. fish meal, fish oil, and fish extract. TUF plans to grow NSV of MWB with sustainable EBITDA margin by new products development i. e. frozen seafood, pet food, and leverage brand value to more European countries § No import duty for Europe operations since the production facilities of MWB locate in ACP countries Notes: (1) Pro-forma combined sales for 12 months ended 31 Dec 2009: exchange rates of THB/EUR of 41. 9055 and THB/USD of 32. 3950 (2) Based on the TUF’s last twelve month (LTM) figure and the MWB’s FY ended 31 Mar 2010 -19 -
Global Sourcing, Global Production and Global Markets Truly Global and Vertically Integrated • After the acquisition, TUF will become a truly global seafood player that have processing facilities and market distributions in major continents all over the world • Reduced reliance on the US market sales through market diversification • Combining fleet of 9 vessels and production facility in 8 strategic locations • Production facilities are located closely to fishing grounds; hence, achieving lower cost of production Europe France Portugal Georgia, USA Thailand Vietnam Ghana Seychelles Indonesia TUF Production Bases TUF Markets TUF Fishing Grounds MWB Production Bases MWB Markets MWB Fishing Grounds -20 -
Combined TUF - MW Brands Position TUF Fleet 4 Vessels Canned Tuna Production (net weight) 228, 525 tons per year (as of FY 2009) MWB Combined Remark 9 Vessels 5 Vessels 103, 200 tons per year After TUF transfer 4 vessels to join MWB’s fleet in Ghana, the combined tuna catching is expected to cover all needs for Ghana’s plant 331, 725 tons per year Combined production will account for approx. 21% of the global canned tuna production 2 Sales Value 1 THB 67. 7 bn THB 18. 8 bn 3 THB 86. 5 bn Combined sales will account for 12. 2% of the total ambient seafood market share of approx. THB 712 bn 3 (Euro 17 bn 4) Share of Tuna Sales 42. 2% 73. 0% 48. 9% Tuna products will account for almost half of the total sales Sales Breakdown by Market 1 48% USA 12% Europe 40% Asia and Others 100% Europe 38% USA 31% Europe 31% Asia and Others Well-balanced sales from three major markets 61% Own Brand 39% OEM Rank no. 1 in France and UK, the leading European markets (Petit Navire/H. Parmentier and John West) Rank no. 3 in Italy (Mareblu) Rank no. 3 in the USA (Chicken of the Sea)5 Sales Breakdown by Type 1 50% Own Brand 50% OEM Notes: (1) Based on the TUF’s last twelve month (LTM) figure and the MWB’s FY ended 31 Mar 2010 (2) Source: Fishstat Plus (F. A. O. ) 2007 (3) Converted to THB at the rate of THB 41. 9055 per Euro 1 100% Own Brand -21 - (4) Source: Euromonitor 2009 (5) Source: Nielsen and IRI – MAT February 2010
Acquisition Structure Acquisition Debt Financing 1. Long-term loan from Thai Banks 1 • Tranche A: 6 -year amortizing, THB 6, 000 mm • Tranche B: 8 -year amortizing, THB 9, 000 mm 2. Long-term loan from European 2 Banks of Euro 340 mm • Thai Banks 1 European Banks Up to THB 15, 000 mm Tranche 2: 7 -year bullet, Euro 200 mm Euro 340 mm (equal to THB 14, 248 mm) 2 Tranche 1: 6 -year amortizing, Euro 140 mm • Foreign Domestic of THB 15, 0000 mm Up to THB 15, 000 mm Plan to take out by CD and Equity Financing (newly issued shares from RO/PP) Bid Co. THB 29, 248 mm (equal to Euro 680 mm) TUF acquires MWB with cash, fully financed by debt locally and internationally Euro 680 mm 4 • • Debt financing cost is approximately 6 -7% to acquire high cashflow company with EBITDA margin of 18% • Debt financing of Euro 680 mm Well-planned LBO by mitigate TUF’s risk with ring-fence, THB 14, 248 mm (~50%) of acquisition debt at MWB level TUF proposes to increase its capital to 1, 000 million shares from 883 million shares by issuing new common shares of 117 million shares as follows: – – • Reserved RO shares of not exceeding 44. 2 million shares to reward the existing shareholders – Equity issue of 117 million new shares Reserved 42. 8 million shares for the conversion of convertible debentures 1 and the adjustment of right of such convertible debentures to private placement investors 2 Reserved PP shares of approximately 29. 8 million shares to expand shareholders base i. e. institutional investors and/or high-net worth investors Repayment of existing financials debts of Euro 296 mm 3 The remaining to pay to Trilantic Capital Partners (“Seller”) of Euro 384 mm 3 The proceeds from RO and PP shares sold will lower debt level of TUF Notes: (1) CD of EUR 60 mm, 4 years maturity from issue date, 5% p. a. cash coupon annually (with an overall yield of 8% p. a. unless converted into common shares) and exercise price of THB 46 per share (2) TUF plans to issue convertible debentures after filing necessary documentations to the SEC. The proceeds of convertible debentures will be lower debt level of TUF -22 - Note: (3) Financial debts and equity as of 31 March 2010 (Latest fiscal year) (4) Assuming the EBITDA (net of CAPEX) to be generated by the target at not lower than Euro 80 mm per year (after synergies), the payback period for this transaction should be close to 8 -9 years
Pro-former Financial Highlights LTM as of 31 March 2010 FY ended 31 March 2010 TUF MWB Pro-forma 1 Sales 67. 7 bn 18. 8 bn 86. 4 bn EBITDA 6. 3 bn 3. 5 bn 9. 8 bn EBITDA Margin 9. 3% 18. 5% 11. 3% Asset 37. 2 bn 23. 4 bn 60. 7 bn (Unit: THB) Existing New 3 Existing 2 New 3 Debt 11. 8 bn 15. 1 bn - 14. 2 bn 41. 1 bn Interest Expense 567 mm 906 mm – 1. 1 bn 4 - 852 – 994 mm 4 2. 3 – 2. 7 bn Interest Coverage Ratio 11. 1 x 5. 7 x – 7. 0 x - 3. 5 x – 4. 1 x 3. 6 x – 4. 3 x Notes: (1) Pro-forma analysis as of 31 March 2010 for illustrative purpose only; exchange rate THB/EUR of 41. 9055 based on Bank of Thailand’s average selling rate as of 23 July 2010 (2) MWB acquired on debt-free, cash-free basis (3) Acquisition debt of Euro 360 mm and Euro 340 mm at TUF and MWB, respectively; TUF portion includes Euro 20 mm of estimated transaction fees and expenses (4) Estimated, based on 6 -7% interest rate for new debt -23 -
Illustrative Pro-forma Leverage As of 31 March 2010 TUF (Unit: THB) Existing Debt (A) 11. 8 bn MWB - 2 Pro-forma 1 11. 8 bn + New Debt 3 (B) 15. 1 bn 14. 2 bn 29. 3 bn Total Debt (A) + (B) 26. 9 bn 14. 2 bn 41. 1 bn LTM EBITDA (C) 6. 3 bn 3. 5 bn 9. 8 bn Debt / LTM EBITDA (A) + (B) / (C) 4. 34 x 4. 11 x 4. 25 x Notes: (1)Pro-forma analysis as of 31 March 2010 for illustrative purpose only; exchange rate THB/EUR of 41. 9055 based on Bank of Thailand’s average selling rate as of 23 July 2010 (2)MWB acquired on debt-free, cash-free basis (3)Acquisition debt of Euro 360 mm and Euro 340 mm at TUF and MWB, respectively; TUF portion includes Euro 20 mm of estimated transaction fees and expenses -24 -
Risk Management • Foreign Exchange Risk Management Cash Flow Risk (Transaction Risk) Balance Sheet Risk (Translation Risk) US Operation - Rev. and expenses in USD - Asset, liabilities, equity, profit and loss in USD Europe Operation - Rev. and expenses are mainly in EUR - UK: rev. in GBP, exp. In USD/EUR/GBP - Ghana: rev. in USD, exp. in USD/GHC - Consolidated in EUR so that there is translation risk at this level - But, translation risk should be diversified Thailand - 95% rev. in USD, but 50% expenses in USD - Consol. from US and Europe into THB - Therefore, we have to manage 45% gap - Translation risk should be better setoff due to opposite direction of USD and EUR
Risk Management • Foreign Exchange Risk Management Cash Flow Risk (Transaction Risk) Balance Sheet Risk (Translation Risk) Hedging Products - Forward Contracts - Currency Options - Natural Hedge (matching) - FX Swap - Cross Currency Swap Interest Rate Risk Management - We have only exposure on increasing interest rate risk on money borrowed Hedging products can be Cross Currency Swap, Interest Rate Options i. e. Cap, Collar.
Risk Management • Other Risks Business Risks i. e. trade barriers, competition - CSR, sustainable development, compliance, ISO - M&A horizontally to diversify risk and benefits from presences in many countries. Production Risks - Cost plus strategy - Synergy and Security from high volume purchasing Administrative and Management Risks - Clear guidance and policy - Annual business planning and tracking by boards. Internal Audit. Committee - Strengthening our people thru HR development program. Happy work life.
Investment Risk Management • Prudent Investment Policy from our Chairman “We will expand internationally on seafood business where we have experience and expertise on” “For investment decision, no matter what possibility of failure is, can we survive if the project fails” • Clear strategies from our President “We look at the business on the global scale. Our goal is always to diversify our risk, expand our investment overseas, balance our revenue from around the globe and try to have additional production facilities outside Thailand. We have a global strategy, not just a Thailand strategy”
Outlook for 2011 1. Expect dollar sales to grow 30% thanks to consolidation of MW Brands in spite of the continual negative impact from strong Thai baht. Therefore, sales of all items should grow, particularly tuna 2. Average group operating profitability should improve given MW Brands’ typically higher margins while overall financial gearing will increase due to the acquisition financing of MW Brands 3. Expect positive EPS growth despite a small dilution effect from the right issue and private placement of new shares in October, 2010 4. Increase in pet food sales in the US through the new investment US Pet Solutions 5. Semi-annual dividend payment will continue but will be capped at Bt 1. 2 billion per year to meet the debt covenant until the debt-to. EBITDA ratio returns to the pre-acquisition level (3 -4 years from now) -29 -
Strategy For 2011 1. Integrate MW Brands into Thai Union Group in terms of corporate and financial reporting, procurement and production. 2. Optimize MW Brands operations through coordination and technical assistance from TUF 3. Transfer Thai Union fishing vessels to Ghana to enhance MW Brands’ fishing operations 4. Launch more value-added products (higher margin) by the Thailand-based Culinary & R&D Center in order to serve custom requirements and expand to new market segments 5. Actively manage financial (FX and interest rate) risks and scrutinize cash flows and debt covenants -30 -
4 -Year (2009 -2012) Sales Target of US$ 3 billion Will Almost Be Met By 2011 Thanks To MWB Acquisition So, A New Target…. US$ 4, 000 billion in 2015 -31 -
Highlights • 9 M 10 performance was considered respectable given the presence of negative factors, namely stronger Thai baht, highly volatile tuna raw material prices and persistently high shrimp raw material prices. These negative factors disrupted sales and exerted pressure on margins • Expect annual sales growth rate of 10% for 2010 (thanks to consolidation of MW Brands since November) while the financial position remains strong in terms of net profit, EBITDA and operating cash flows. Despite a challenging year so far, we remain positive that 2010 will be a comparable one to the record year of 2009 • US operations contributed positively to the bottom line of the group so far after the COSI’s plant relocation and Empress & COSFF restructuring • MW Brands (the deal was completed on October 29, 2010) is an once-in-lifetime opportunity that is highly complementary to TUF’s existing business despite the added debt burden -32 -
9 M 10: Sustainable Performance Btm, 9 M 10 9 M 09 Yo. Y Sales 50, 859 51, 793 -1. 8% 1, 581 1, 495 +5. 8% 7, 092 7, 664 -7. 5% %sales 14. 7% 14. 1% Shutdown & Start-up Exp. for Plant Relocation 94. 9 398. 0 %sales 0. 2% 0. 8% 2, 788 3, 156 5. 5% 6. 1% Add: FX Gain (Loss) 679 331 +51. 4% Add: Other Incomes 453 293 +54. 6% 3, 920 3, 780 +3. 7% 393 459 -14. 4 3. 527 3, 321 +6. 2% Less: Tax / (Tax Credit) 560 323 +73. 4% Less: Minority Interests 446 372 +19. 9% 2, 521 2, 626 -4. 0% %sales 5. 0% 5. 1% Avg. Bt / USD 32. 17 34. 64 Sales in US dollar term Gross Profit Operating Profit %sales EBIT Less: Financial Expenses Net Profit (Bef. Taxes & MI) Net Profit -33 - -11. 7% App. 7. 1%
Margins Sustained Despite Rising Thai Baht 3 Q 10 Bt m Sales 3 Q 10 US$ m 2 Q 10 Bt m 2 Q 10 US$ m 1 Q 10 Bt m 1 Q 10 US$ m 4 Q 09 Bt m 4 Q 09 US$ m 3 Q 09 Bt m 3 Q 09 US$ m 2 Q 09 Bt m 2 Q 09 US$ m 17, 438 554 17, 092 529 16, 329 498 17, 202 517 16, 931 500 17, 195 497 EBITDA 1, 515 48 1, 628 50 1, 581 48 1, 371 41 1, 660 49 1, 642 47 Depr. /A m 282 9 279 9 278 8 276 8 273 8 267 8 Int. Exp. 119 4 118 4 120 4 133 4 138 4 Corp. Tax 134 4 203 6 224 7 108 3 109 3 118 3 Net Profit 817 26 873 27 831 25 718 22 1, 018 30 954 28 EPS (Bt) 0. 92 0. 99 0. 94 0. 81 1. 15 1. 08 GP (%) 12. 5 15. 6 13. 7 16. 2 OP (%) 4. 2 6. 8 5. 5 5. 7 6. 7 7. 3 NP (%) 4. 7 5. 1 4. 2 6. 0 5. 6 31. 45 32. 33 32. 82 33. 28 33. 88 34. 62 Bt / US$ -34 -
Stable ROA and ROE 3 Q 10 9 M 10 2009 2008 A/R Turnover (days) 34 34 36 36 Inventory Turnover (days) 98 101 108 105 Gearing Ratio* 1. 0 x 1. 5 x D/E Ratio** 0. 7 x 1. 1 x ROAE (annualized) 19. 2% 20. 2% 21. 8% 16. 0% ROAA (EBIT/ Avg. Total Assets) (annualized) 13. 0% 14. 0% 12. 8% 8. 9% Note: ROA = EBIT / Avg. Total Assets *Gearing ratio = Total Liab. / Total Equity **D/E ratio = Interest-bearing debts / Total Equity -35 -
Solid Financial Position in 9 M 10 • Higher EBITDA In Spite of Slightly Lower Net Profit - Financial Position Stayed Strong Net profit (Bt 2, 521 m) was slightly lower than the same period a year ago but EBITDA (Bt 4, 723 m) was higher, thanks to higher other incomes and FX gains during the first 9 months this year. Financial position remained solid. Average margins were at about the same level from a year ago. In addition, operating and free cash flows were positive while D/E ratio stabilized between 0. 6 x - 0. 7 x since the end of 2009 and Debt-to-EBITDA inched up slightly from 2. 07 to 2. 20 x (before the completion of the MW Brands acquisition). • Debt Amount Unchanged Short Term Proportion Increased As of September 30, 2010 (pre -closing), interest-bearing debts rose temporarily to Bt 13, 859 m from Bt 12, 169 m at the end of Q 2’ 10, partly due to the interim dividend payment and a lower level of accounts payable. The value of inventories and accounts receivables were fairly stable from Q 2’ 10. Currently, 89% of our interest-bearing debts (local and abroad), amounting to Bt 10, 800 m, were short term, up from 58% at the end of Q 1’ 10, essentially owing to a large portion of Thai baht bond issue worth Bt 1, 500 m and Bt 3, 200 m coming due in November 2010 and May, 2011. By the end of Q 3’ 10, around 78% of our total debts were in Thai baht. The average effective interest rate for the group was 3. 66% for Q 3’ 10. -36 -
Thank You www. thaiuniongroup. com Mr. Wai Yat Paco Lee Financial Controller / Investor Relations Officer paco_lee@thaiunion. co. th
Appendices: 1. Historical share price movement & dividend payment 2. Historical profitability & financial position 3. Costs & Benefits of the Samoa Plant Relocation Project 4. US top 10 most popular seafood 5. Global seafood export breakdown 6. Major tuna fishing grounds and key tuna species 7. TUF’s ACC 3 -Star Certification 8. Tuna fish sustainability 9. Import tariff rates for Thai tuna and shrimp in major markets 10. Tuna Fast Facts 11. Potential Sources of Growth 12. Where Thailand Stands In World Seafood Industry -38 -
Appendix 1 a: TUF Share Price Movement (till 24/11/10) -39 -
Appendix 2 a: Historical Profitability 2009 Bt m Sales 2009 US$ m 2008 Bt m 2008 US$ m 2007 Bt m 2007 US$ m 2006 Bt m 2006 US$ m 2005 Bt m 2005 US$ m 68, 994 2, 013 69, 048 2, 070 55, 507 1, 612 55, 039 1, 457 53, 644 1, 330 EBITDA 5, 926 173 4, 265 128 3, 829 111 3, 927 104 3, 775 94 Depr. +Amor. 1, 076 31 1, 000 30 979 28 853 23 820 20 Fin. Exp. 602 18 635 19 580 17 608 16 361 9 Corp. Tax 431 13 107 3 263 7 133 4 282 7 Net Profit 3, 343 98 2, 201 66 1, 823 53 1, 901 50 2, 082 52 GP. (%) 15. 1% 12. 7% 13. 7% 15. 3% 15. 5% OP (%) 6. 0% 4. 1% 4. 2% 4. 7% 4. 8% EBIT (%) 7. 1% 4. 8% 5. 1% 5. 5% NP. (%) 4. 9% 3. 2% 3. 3% 3. 5% 3. 9% Bt / US$ 34. 28 33. 36 34. 43 37. 77 40. 32 -40 -
Appendix 2 b: Historical Financial Position -Lower interest-bearing debts thanks to a lower Inventory balance (down by Bt 966 m and Bt 2, 826 m from 3 Q 09 and a year ago respectively) -EBITDA hit a new high at Bt 5, 926 m thanks to expanded margins. A lower inventory level further sent operating cash flows (Bt 8, 578 m) and free cash flows (Bt 6, 672 m) to record levels despite capital expenditure worth Bt 1, 988 m 2009 2008 2007 2006 2005 A/R Turnover (days) 36 36 38 36 34 Inventory Turnover (days) 108 105 93 90 Gearing Ratio* 1. 0 x 1. 5 x 1. 3 x 1. 0 x 1. 1 x D/E Ratio** 0. 7 x 1. 1 x 1. 0 x 0. 7 x 0. 8 x ROAE 21. 8% 16. 0% 14. 2% 15. 8% 18. 5% ROAA (EBIT/ Avg. Total Assets) 12. 8% 8. 9% 9. 4% 11. 2% 11. 6% Note: ROA = EBIT / Avg. Total Assets *Gearing ratio = Total Liabilities / Total Equity -41 - **D/E ratio = Interest-bearing debts / Total Equity
Appendix 3 a: Samoan Plant Ceased Operations • Background: • American Samoa has been home to COSI’s processing plant (Samoa Packing) since 1954 • There were 2, 041 workers employed by Samoa Packing to carry out the full conversion process (from fish to cans) • Mandated increasing minimum wages imposed by the federal government (in order to be in par with that of the mainland) added costs in a time of economic uncertainty that was indeed in an urgent need for cost savings • Increasing costs and occasional inefficiencies led to management’s reassessment of the true strategic value of the Samoan plant -42 -
Appendix 3 b: Strategic Reasons For Relocation 1. Escalating costs in American Samoa due to: • Increasing minimum wage • Occasional inefficiencies and difficulties in efficient inventory control 2. Need to enhance customer service by locating the plant onshore (near the market) 3. Further integration with Thai plants to take advantage of the opportunities for cost-savings and better inventory management given a more coordinated supply chain 4. Tuna loins for all oil and white meat products in the new facility will be supplied by TUF’s Thai plants while other existing tuna products, such as chunk light in spring water, will be completely packed by Thai plants. -43 -
Appendix 3 c: Details of the New Plant Location: Lyons, Georgia Area: 220, 000 sq. feet Expected number of employees: 220 employees, up to 330 in the future Planned capacity: 100 loin tons per day Expected annual output: 4 million cases Products: tuna-in-oil and white meat products -44 -
Appendix 4: Top 10 US Seafood Consumption by Species in 2009 Species Pounds per Person per Year 1 Shrimp 4. 10 2 Canned Tuna 2. 50 3 Salmon 2. 04 4 Pollock 1. 45 5 Tilapia 1. 21 6 Catfish 0. 85 7 Crab 0. 59 8 Cod 0. 42 9 Clams 0. 41 10 Pangasius 0. 36 Source: H. M. Johnson & Associate for US National Fisheries Institute Seafood consumption in the US was 15. 80 pounds per capita in 2009 where fresh & frozen (11. 8 pounds) + canned (3. 7 pounds) + cured (0. 3 pounds) Most of the seafood consumed in the U. S. was not caught in U. S. waters. About 84 percent of the seafood consumed in the U. S. is imported, a dramatic increase from the 66 percent just a decade ago. Farmed seafood, or aquaculture, comprises almost half of the imported seafood. The US is the third largest consumer of seafood behind China and Japan in terms of volume -45 -
Appendix 5: Global Seafood Export Value in 2008 (US$94. 5 billion) Source: FISHDAB - Globefish -46 -
Appendix 6: Major Fishing Grounds and Key Tuna Species 2008 World Tuna Catches: 4, 228, 000 metric tons Note: Species mainly for canned tuna: Skipjack, Yellowfin and Albacore Source: FISHDAB - Globefish Species mainly for sashimi tuna: Bluefin and Bigeye -47 -
Appendix 7: ACC 3 -Star Certification - TUF is Thailand’s first shrimp producer to achieve Aquaculture Certification Council (ACC)’s three-star certification which ensures that its shrimp business unit’s operations meet a stringent set of social, environmental, and food safety standards, from hatchery, to farms, to processing plants – three types of facility which are represented by the three stars - ACC is an independent and non-governmental US body to certify and promote best aquaculture practices - For a facility to be certified, it needs to comply with Best Aquaculture Practices (BAP) standards on community rights, compliance with all relevant regulations, worker safety and employee relations, effluent management, responsible use of chemicals and fuels, and responsible management of waste. Shrimp farms also cannot be located in mangrove or other ecologically sensitive areas -48 -
Appendix 8 a: Tuna Fish Sustainability Currently, four Regional Fisheries Management Organizations (RFMOs) manage global tuna resources: 1. IATTC Inter-American Tropical Tuna Commission (1949) 2. ICCAT International Commission for the Conservation of Atlantic Tuna (1969) 3. IOTC Indian Ocean Tuna Commission (1996) 4. WCPFC Western and Central Pacific Fisheries Commission (2004) Current challenges related to RFMO’s: - Building consensus amongst members - Effectively limiting capacity or limiting fishing - Ensuring effective compliance with fishery regulations - Taking effective action for violating fisheries regulations - Improving the science and information / new technology -49 -
Appendix 8 b: TUF co-founding ISSF • Development of ISSF - International Seafood Sustainability Foundation (www. iss-foundation. org) – 65% of the world tuna business have agreed to implement the NEW ORGANIZATION to manage this critical issue. – TOP 3 U. S. A Tuna Companies – TOP 3 European Tuna Companies – TOP 2 Asian Tuna Producers – Most Important Worldwide Tuna Brokers / Boat Owners – Environmental Organizations – Recognized Tuna Scientist • ISSF board is composed of: – Members representing the foundation (NGO) – Tuna Scientists – Environmental non-governmental organizations (ENGO) – Opinion Leaders -50 -
Appendix 8 c: ISSF’s Survey of Tuna Stock Green - Overfishing is not occurring and the fishery is not overfished. Yellow - There are one or more issues with the fishery but effective management practices are in place to ensure the sustainable management of the stocks. Red - Overfishing is occurring and the fishery is overfished. However, a management regime is in place that is addressing the issues. Black - Overfishing is occurring and the fishery is overfished: Management actions to bring the fishery back into a sustainable state are not being taken and members will cease to purchase until appropriate actions are taken -51 -
Appendix 9: Import tariffs for Thai Tuna and Shrimp Products In Developed Markets Canned tuna US Frozen shrimp - 0. 5 cent per pound of frozen tuna loin - 0% on all frozen products, except for the - 6% for canned tuna in brine with a quota. Once the case of anti-dumping (AD) tariffs quota (determined annually as a percentage of - Due to the AD duty, Thai shrimp in domestic production) is filled, any additional general is subject to 2. 61% tariff imports will be subject to 12. 5% duty - 5%, when canned with fish meat - 35% on canned tuna in oil EU - 24% for canned tuna and tune loins but certain - 12% on frozen shrimp African, Caribbean and Pacific (ACP) countries - 20% on canned shrimp and Andean countries (e. g. Ecuador, - Due to the GSP privilege, Thailand, Colombia) enjoy 0% due to preferential Indonesia, India, Malaysia and agreements with the EU Pakistan pay only 4. 8% for frozen - 20. 5% for canned tuna as long as Thai exporters shrimp and 7% for canned shrimp fulfilling the rule of origin requirement in GSP Japan - 9. 6% for canned tuna. The Japan – Thailand - 0% due to JTEPA with effect since Nov Economic Partnership Agreement (JTEPA), 2007 since Nov 2007, allows this rate to drop to zero percent within 5 years as long as fish used are caught by ASEAN boats or members of Indian Ocean Tuna Commission (IOTC). -52 -
Appendix 10: Tuna Fast Facts • Tuna never stop moving, they are always in motion and a typical tuna may eat 5 percent of its own weight in food in one day • Unlike most fish, which are cold-blooded, tuna are able to maintain their temperature several degrees warmer than the water in which they find themselves. Albacore is the only species that can be labeled as "white meat tuna" in the U. S • In recent years, the world’s tuna catch breaks down into approximately: skipjack at 60%; yellowfin at 25%; bigeye at 9%; albacore at 4% and bluefin at 1%. Yellowfin, skipjack, and bigeye tunas spawn widely throughout tropical waters • The majority of US canned tuna is skipjack. Skipjack accounts for the largest share of tuna caught and eaten by people around the world • Main fishing methods: 61% purse seine; 13. 9% longline; 10. 9% pole and line; 1. 2% troll; and 12. 4% others • Stock status by species (based on ISSF survey http: //www. iss-foundation. org/tunareport ): – Skipjack: stocks are overall a very healthy species of tuna with a majority of stocks being sustainably fished (mainly canning) – Yellow fin: stocks are overall at or nearing the maximum level of fishing and need to be monitored (canning & sashimi) – Albacore: stocks are overall healthy with some likely being fished at or near maximum level (canning) – Bigeye: stocks are overall at or nearing the maximum level of fishing and need to be monitored with the exception being EPO bigeye which needs immediate conservation measures put in place by IATTC (mainly for sashimi) – Blue fin: stocks are overly exploited and require immediate conservation measures (mainly for sashimi) -53 -
Appendix 11: Potential Sources of Growth Near term • Economic recession forcing consumers to trade down to low price / highly affordable staple items, such as canned tuna and shrimp • New products through new packaging designs/ technologies which provide consumers with convenience and ease of use, e. g. tuna / salmon pouches, ready-to-eat tuna / salmon steak pouches, peel-to-open tuna / salmon cups, ready-to-eat frozen meals, etc. • M&A opportunities upon consolidation of the world tuna and shrimp industries • Outsourcing/ contract manufacturing for private labels and existing retail brands • Healthy eating trend of seafood upon more scientific proof of its importance in daily diet • Removal of trade barriers through GSP privileges, Free Trade Agreements or WTO Long term • New markets: China and Indian markets, as well as the Middle East, Africa and Eastern Europe, where consumption of tuna is still low at the moment, but should grow in the future • Higher demand for inexpensive nutritious food (protein) to feed the growing world population as a result of the increasing individual life span -54 -
Appendix 12 a: Where TUF stands Nearly 40% of Thailand’s Canned Tuna Exports World Production of Canned Tuna 2006 (Vol: 1, 667, 300 tons) Source: FISHDAB - Globefish World Exports of Canned Tuna 2006 (Vol: 1, 078, 000 tons) *Est. World Consumption of Canned Tuna 2006 (Vol: 1, 733, 600 tons) World Imports of Canned Tuna 2006 (Vol: 1, 144, 000 tons) *World consumption is estimated by Production + Imports – Exports -55 -
Appendix 12 b: Where TUF Stands A Top 5 Shrimp Exporter in Thailand Source: FISHDAB - Globefish World Shrimp Production 2006 (Vol: 6, 624, 400 tons) World Shrimp Exports 2006 (Vol: 2, 394, 200 tons) Est. World Shrimp Cultivation 2006 (Vol: 2, 718, 400 tons) World Shrimp Imports 2006 (Vol: 2, 275, 000 tons) -56 -
William B. Darden Supplier Award 2 years (2009 & 2010) in a row • In the past 15 years, TUF has won 10 awards in different categories, but it is definitely an achievement of winning this top honor back to back. • Again, only 11 out of over 1, 500 global suppliers won the award this year and among this handful of winners, only two are seafood suppliers. • The Bill Darden Distinguished Supplier of the Year Award is the highest level of honor awarded to the suppliers of the restaurant company. It is also one of the most prestigious awards for suppliers in the US food service industry. • Based in Orlando, USA, Darden Restaurants is the world’s largest full-service restaurant company that owns and operates more 1, 700 restaurants, including Red Lobster, Olive Garden, Long. Horn Steakhouse, The Capital Grille, Bahama Breeze, and Seasons 52. It employs 180, 000 people and generates US$ 7 billion in annual sales. -57 -
Awards and Recognitions By The Financial Community Best Managed Company Awards ü Securities Analysts Association of Thailand Poll 2009 Most Favorite Company, Most Favorite CEO, Most Favorite CFO and Most Favorite IR in the Food and Agro sector ü Boston Consulting Group’s Biannual BCG 100 Global Challengers Survey 2006 & 2008 One of the only 2 Thai companies selected in the survey ü Asiamoney Magazine’s Annual Best Managed Companies Poll 2005 -2006 Consecutively voted as Overall Best Managed Thai Mid-Cap Company 1998 -2006 Consecutively voted as one of Overall Best Managed Thai Companies ü Finance. Asia Magazine’s Annual Best Managed Companies’ Poll 2010 Best Managed Thai Mid-Cap, One of the Overall Best Managed Thai Companies, One of the Best Corporate Governance, One of the Best Investor Relations, One of the Most Committed to a Strong Dividend Policy 2009 One of Thailand’s Overall Best Managed Companies; One of the Best Mid-Cap; One of the Best Corporate Governance; One of the Most Committed To A Strong Dividend Policy 2006 One of Thailand’s Best Managed Companies in the category of Best Corporate Governance and Most Committed to Strong Dividend Policy 2002 -2004 One of Thailand’s Overall Best Managed Companies -58 -
Awards and Recognitions By The Financial Community Best Managed Company Awards ü Euromoney Magazine’s Annual Best Asian Companies Poll 2010 One of the top 3 Best Asian Companies in the Food, Drink and Tobacco category Corporate Governance Awards ü Securities Exchange Commission of Thailand 2002 -2003 Disclosure Award 2003 Popular Award ü Stock Exchange of Thailand 2004 Best Performance Award – Agribusiness Sector -59 -
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