CPF profits up 43% despite pandemic

Prasit Boondouangprasert

Charoen Pokphand Foods Plc is confident that it will weather the coronavirus pandemic with robust financial performance.

Prasit Boondoungprasert,CEO, told audiences at the “CEO Talk EP2 – CPF supply chain system” that CPF earned a 6.1 billion baht net profit in Q1, 2020, up 43% y-o-y. Offshore business contributed 68% of the total revenue, with sales up 12% over the same period. The domestic market, which accounts for 32% of total sales, grew by 6%.

Despite reports that consumers have cut back on spending, Covid-19 has not dented CPF’s sales and profitability, he added.

CPF recognized early the ramifications of the coronavirus and put its operations on highest alert at the onset of the outbreak. It continues to work closely with Thailand’s Ministry of Public Health to protect its workers at food processing plants and farms.

All CPF’s offshore production units are implementing social responsibility policies and are collaborating with the public health ministries of their respective countries. CPF is also providing food to support medical personnel in 200 hospitals across Thailand.

Mr Prasit assured the audience that there is plenty of food to meet domestic demand and that CPF is capable of promptly replenishing supplies. In addition, the company is working in tandem with the Ministry of Commerce and the government to keep prices in check.

Top priority is given to employee safety. CPF provides its employees with a safe working environment with low risk of coronavirus infection and their earnings have not been affected.

Proactive solutions ensure uninterrupted operations. Meetings with suppliers appraise threats and plan mitigation strategies to maintain a steadily flowing supply chain. The meetings cover the financial strengths of its partners and how CPF can assist them in surviving the crisis, he added.

CPF’s main objective during the coronavirus outbreak has been to assure that the food supply to the entire country is maintained. Therefore, production sites cannot tolerate any risk of Covid-19, because even just one line worker who comes to work infected could endanger the country’s food supply.

The company has established a Covid-19 management centre in charge of communicating with and educating employees on hygienic controls, procurement, external agency coordination and employee welfare.

It oversees and evaluates how all 26 business units comply with the company’s guidelines and the effectiveness of their implementation.

The management centre evaluates reports received from various business units. Given the volatile situation, measures could be changed overnight to fit the circumstances.

The centre follows up and provides updates in case employees become infected or are suspected of having Covid-19. For the duration of the pandemic, visits to production facilities and warehouses will be highly restricted.

Farm visits by external parties such as auditors or customers are strictly prohibited. Social distancing is enforced on buses delivering workers to production facilities and farms. Vehicles must be disinfected. Passengers are required to wash hands and wear masks. Employees have their temperature checked before entering offices or work stations.

One analyst forecast that CPF will be able to sustain its strong outstanding performance in Q2, 2020.

The easing of lockdowns has bolstered prices for chicken and pork. Also, declining prices for soybean meal and corn are a lucky break for the company, the analyst added.

Given changes in lifestyle and the demographic structure in Thailand, CPF continues to seek out new and fast-growing markets worldwide.

Offshore operations

Apart from Thailand, the company has operations in 17 countries and exports products to 30 countries , serving more than three billion consumers around the world. In Asia, the China operation produces poultry, swine, aquaculture species and animal feed. In North America, it is actively working on distribution of ready-to-eat meals and broiler integration.

In Vietnam and Cambodia, African swine fever has wiped out more than six million head or at least 20% of the total hog population. Hog prices in Vietnam in Q1 averaged 102 baht/kg, up 65% y-o-y. In Cambodia during the same period, hogs averaged 90 baht/kg.

Resumption of hog farming in Vietnam has been a struggle due to repeated ASF outbreaks that have delayed repopulation. Also, many farmers have failed to raise funds to restock their animals. Tight supplies will continue. Hog prices in Q2 are forecast at around 73,000 VND/kg, up 100% y-o-y.

A source close to the industry said pork imports to Vietnam have soared and could surpass 2019’s total by up to 300%. In Q1, imports were already at 70% of 2019’s total, which stood at 67,131 tonnes.

With 25% of the country’s hogs lost, farm gate prices in Q2 may hit 115-120 baht/kg – the highest in 20 years.

Recently, Vietnam culled 4,000 hogs near Hanoi as ASF flared up again. ASF has spread to communes in Hanoi and at least 19 provinces in the north of Vietnam.

In less than six months after the disease was first reported to be present in the country in 2019, some six million head or 20% of total hog population was killed.

CPF’s Vietnam operation contributes 15% of its total earnings.

North America

The company has started to realize revenue from its new subsidiary HyLife Foods in Canada. HyLife recently bought the assets of ProVista Group, which produces one million hogs/year. ProVista is based in Manitoba, near HyLife’s headquarters. Canada is currently the world’s 3rd largest pork producer. HyLife’s markets are primarily China and Japan.

HyLife also acquired a 75% share of Minnesota-based Prime Pork LLC which is currently processing around 1.2 million head/year. The deal boosts HyLife’s capacity in farming and processing operations by 60% to 3.2 million head/year. Also, the deal opens up new opportunities to export pork to international markets from Canada and the United States, both countries that are free of foot and mouth disease.

CPF’s growth strategies

Thailand’s top agro-industrial player has been in business for 42 years. It works hard to tap new opportunities both offshore and domestically to grow its business, either by organic growth or through mergers and acquisitions.

Beginning in 1978 as Charoen Pokphand Feed Co Ltd, it was renamed in 1995 to Charoen Pokphand Foods Plc to reposition its brand from a farm and feed business to food and reflect its strategy of becoming the “Kitchen of the World.” New business opportunities offshore have helped the company avoid boom and bust cycles as well as non-tariff barriers.

At a time when most agro-industrial players were focusing on domestic markets, backward integration and toll manufacturing for food companies, CPF pioneered vertical integration encompassing feed, farming and food that is highly palatable, traceable and nutritious.

It owns and operates strategic distribution channels via Thailand’s largest convenience stores, as well as wholesale network Makro and major retailer Tesco Lotus.

CPF focuses on value generation. Offshore operations play a key role in keeping the company more competitive in distribution and sourcing.

All offshore units share the “Kitchen of the world” vision in delivering high quality products and services, while at the same time taking into consideration the local environment, economy and social impacts which could impinge on stakeholders.

In Asia, CPF has operations in poultry, swine and aquaculture in Thailand, China, Vietnam, India, and Malaysia, along with livestock and feed businesses in Cambodia, Laos and Taiwan. It markets ready-to-eat meals in Sri Lanka, and operates livestock and aquaculture farms and feed mills in the Philippines.

In the Americas, it operates a hog integration in Canada. In the US, it runs food businesses and hog integration. In Brazil, the company has shrimp farms and shrimp primary processing operations.

In Europe, it operates feed, poultry and swine integration farms in Russia, and has integrated broiler operations in Turkey and Poland. Distribution and sourcing offices along with a ready-to-eat meals facility are established in Belgium. It has food businesses in the United Kingdom, and hatcheries and a chicken processing plant in Poland.

Feed

CPF is ranked as one of the largest feed producers, supplying over 30 million tonnes/year. In 2018, its feed business generated 229,539 million baht, or 42% of annual turnover.

Farming

CPF’s farm businesses contributed 222,407 million baht in 2018, or 41% of the company’s turnover. The company ranked as the world’s largest shrimp producer with production bases in Thailand, India, China, Vietnam and Brazil. It is ranked as the world’s 4th largest hog producer with 1.15 million sows, and was the 6th largest broiler producer in 2019.

Food

Ready-to-eat meals and food generated 89.9 billion baht, or 17% of total revenue in 2019. In 2017, the FAO ranked CPF as the world’s 4th largest food supplier. The success of its food business hinges on food safety, rigorous standards and good labor practices. On the marketing side, it emphasizes convenience, distribution channels and easy product access. It invests in food R&D to meet evolving consumer demand and to prevent disruptions in the food industry. Its R&D team designs food products to keep people healthy and enjoy longer lives.

CPF’s main focus is value creation, and using innovation as a driver to deliver new products, streamline business operations and maximize return on assets.

Digital technologies are seeping into all aspects of its operations as CPF strengthens and makes its supply chain more transparent in a bid to promptly respond to customer needs and cope with unforeseeable changes.

CPF has been listed on the Dow Jones Sustainability Emerging Markets Index for the past five years consecutively, and has been a member of the FTSE4Good Emerging Index for three years in a row. Both listings are an indication of company performance on environmental, social and governance aspects favored by financial investors.

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