SET-listed Thai Union Frozen Products Plc (TUF) is working to integrate several of its leading food manufacturer acquisitions even as the world's largest canned tuna producer faces several obstacles in the near future.
The company is upbeat about its outlook this year due to its focus on integration and synergy.
President and chief executive Thiraphong Chansiri wants to integrate the companies by having them cooperate with the company's Global Innovation and Incubation programme in Bangkok.
Last year it invented more than 2,000 seafood products to serve demand in all subsidiaries, helping to turn out more than 200 items on market shelves.
“Innovation is a key weapon for us to improve our competitiveness and be top-ranked in every market," said Elisabeth Fleuriot, chief executive of Paris-based MWBrands (MWB).
MWB is one of TUF's acquisitions that coordinates European and Nordic business.
The company oversees 12 TUF business units in France, Britain, Italy, Ireland, the Netherlands, Germany, the UAE, Belgium, Poland and Norway, nine production sites in Europe and a tuna purse-seiner fleet in Ghana.
It is the second-largest unit under the TUF umbrella.
As its various companies are market leaders, one way to improve synergy is to share products amongst each other to drive sales and expand the client base, she said.
Ms Fleuriot said the group goal is to improve financial performance, accelerate business growth, rebalance resources against the market portfolio, widen innovative product ranges and increase human, business and product resources.
Net sales revenue in 2014 for the MWB group was €846 million (31.4 billion baht).
"We're working hard to achieve the target Mr Thiraphong set for us of €1-1.2 billion in 2020, in line with the bigger business size. Integration will help us achieve that mission," Ms Fleuriot said.
Though it requires a lot of effort to fully integrate new businesses, the company is always on the lookout for new opportunities, Ms Fleuriot said.
She said the sluggish EU economy meant tougher competition but also the opportunity to acquire new businesses at a good price for the cash-rich TUF.
The criteria for acquisitions is they must complement existing business in terms of geography, operations and extending product ranges, Ms Fleuriot said.
She said the most serious challenges in the near future were fish prices and a volatile currency exchange, as the euro had slid to be on par with the US dollar.
"However these are both normal business challenges, especially fish prices, which is a constant challenge,” Ms Fleuriot said.
Rittirong Boonmechote, president of TUF's global shrimp business, said in Asia TUF planned to expand production capacity of shrimp products in India by investing US$10-20 million to serve rising global shrimp export demand.
The company projects shrimp exports worth 30 billion baht this year, up from 28 billion in 2014 during a prolonged global slowdown.
It set the ambitious target even though Thailand produced only 210,000 tonnes of shrimp last year, down from an annual average of 650,000 tonnes in the past, as a result of early-mortality syndrome (EMS).
Mr Rittirong reasoned shrimp output would see a solid recovery in this year's first quarter, rising 20-25% to between 250,000 and 270,000 tonnes, resulting in more raw materials for processed shrimp products for export.
Thailand has long been a global leader in processed shrimp exports.
TUF will collaborate with India's Avanti Feeds Ltd to invest in a joint venture for shrimp feed and frozen shrimp for the export market.
The parties are still working out a shareholding structure, as TUF wants a higher stake in the new investment slated to produce 15,000 tonnes a year, Mr Rittirong said.
He expects negotiations on shareholding and new production construction will be completed soon so that operations can commence next year.
“In India we already have a production base with plentiful materials, while we have the technology, people and clients ready in the US," Mr Rittirong said.
"Supply is falling short of demand, causing shrimp prices to double, which is a major indicator we should be able to beat our own target."
The Thai shrimp industry bottomed out last year in terms of production, but the country is still a major production site for Europe, he said.
China was the world leader last year with about 1 million tonnes, while India and Indonesia improved to 350,000 tonnes.
“Every country’s seafood output increased except Thailand,” Mr Rittirong said. “Thailand’s shrimp processing production capacity is 1 million tonnes, but we used only 15% of our capacity last year. And only 50,000 to 60,000 tonnes go to the domestic market. Our clients had to source from other suppliers to prevent shortages."
Perhaps TUF's greatest challenge will come from non-tariff barriers.
Thailand was placed on Tier 3 of the US State Department's "Trafficking in Persons" report for allegedly using slave labour in its fisheries coupled with what the report called lack of progress in dealing with human trafficking. The US is one of world's largest tuna consumers, and any penalties could have a severe impact on TUF.
The company is now awaiting a US court ruling on whether its US$1.5-billion deal to purchase North America's biggest seafood company, Bumble Bee, meets antitrust rules. TUF also owns the US's third-biggest tuna brand, Chicken of the Sea, which triggered the antitrust review.
TUF's latest hurdle is Thai fisheries were given a yellow card by the EU, a warning about failures to improve the country’s illegal fishing activities, which do not comply with the EU's illegal, unreported and unregulated (IUU) rules.
The EU gave the country six months to comply with its IUU rules before the next assessment, or a red card will be issued, banning all seafood product imports from Thai-flagged fisheries to the EU.
"If we fail to comply with the IUU rules, the damage will exceed 100 billion baht annually,” Mr Rittirong said.
The company said it had experience with this issue, as Ghana, one of its production bases, was also shown a yellow card by the EU.
The Ghanaian government worked hard along with TUF to solve the problem in addition to hiring lobbyists to negotiate with the EU until it agreed to lift the yellow card.
Thai seafood exports to the EU slipped from a value of 32 billion baht to 27 billion last year due to the removal of a Generalised System of Preferences tariff reduction and the EMS outbreak.
The combined US and EU markets account for more than half of Thai fisheries exports, Mr Rittirong said.
Mr Thiraphong has set a revenue target of US$8 billion for the entire group in 2019.
TUF shares closed last Thursday on the SET at 20.40 baht, unchanged, in trade worth 151 million baht.