Thai Union Group 2Q operational net income at THB 1.4bn with improving gross margin, as market environments continue to challenge

• 2Q18 sales of THB 34.1 billion, down 2 percent from a year earlier, and 2Q18 gross profit of THB 4,709 million, up 40.2 percent quarter- over-quarter
• Gross margin improved to 13.8 percent in 2Q18 from prior quarter's historic low of 11.3 percent
• Thai baht appreciation and stronger volatility in raw material costs continue to challenge margins
• Strong operational cash flow of THB 3.8bn enables interim dividend of THB 0.25/share

Caption: A student reading the nutrition label on a can of SEALECT tuna during a Thai Union nutritional workshop conducted at Wat Srisudtharam School in Samut Sakhon. Photo credit: Wichaw Apiluxpoovadol/Thai Union

6 August 2018, BANGKOK – Thai Union Group PCL reported a 2 percent year-on-year decline in 2018 second quarter sales to THB 34.1 billion, mainly due to the impact of strong Thai baht and declining tuna sales. Net profit margin improved to 4 percent from 2.9 percent in the first quarter. Excluding foreign exchange impact, sales would have held stable at with a 0.1 percent decline.

Gross profit improved significantly from prior quarter to THB 4,709 million, while the gross profit margin was 13.8 percent compared to 11.3 percent in 1Q18. Inventories of higher-priced raw materials, particularly in the shrimp business, along with Thai baht appreciation, contributed to ongoing gross market volatility.

Thai Union's ambient seafood sales in 2Q18 were THB 16,363 million, down 1.6 percent year-on-year, and sales contribution from the frozen and chilled seafood business fell 2.6 percent year-on-year to THB 13,324 million. PetCare and value-added product sales fell 1.2 percent to THB 4,450 million over the same period last year, while the Thai Baht appreciate 7 percent year-on-year.

In the first half of 2018, North America contributed 38 percent of total sales, followed by Europe at 32 percent, the Thai domestic market at 10 percent, and other markets at 20 percent.

Tougher market competition in North America, together with US dollar depreciation, saw the sales of ambient, frozen and chilled seafood, particularly shrimp and lobster, decline in value while volume of the frozen and chilled business grew 3 percent in this key region.

However, Thailand, China and the Middle East continued to grow, with sales contributions improving due to the launch of new products and strong marketing and sales efforts.

Selling, general and administration (SG&A) to sales ratio increased to 10.4 percent in 2Q18, compared to 9.5 percent in the same period last year. This change is mainly due to negative one-off costs that occurred in the second quarter, and legal costs related to North America settlements.

Strong working capital management and the improved operational EBITDA in 2Q18 contributed to a good operational cash flow performance of THB 7.5bn for the first half of 2018. Together with dividend payments in April of THB 2.4bn, investments in Russia and Thailand, continued productivity focused Capex, Thai Union kept net debt to equity ratio stable at 1.41 times in second quarter compared to 1.38 times at the end of 2017.

"Despite continued pressures from volatile raw material costs and challenging market environments, we increased our gross margin and net profit showed improvement," said Thiraphong Chansiri, CEO of Thai Union.

"Thai Union will continue to work harder to weather the industry's volatility as we focus on continued business and product innovation, while growing our geographic diversity," Chansiri added.

In 2Q18, Thai Unions subsidiary Chicken of the Sea reached a settlement with Walmart in the ongoing antitrust litigation in the US, and the company is in advanced negotiations in various other litigation discussions. As a result, Chicken of the Sea recorded a USD 44m one time accrual to reflect potential risks.

Thai Union completed its 45 percent acquisition of TUMD Luxembourg S.a.r.l (TUMD). TUMD wholly owns three Russian companies: Dalpromryba Limited Liability Company; Torgovo-Promyshlenny Kompleks "Dalpromryba" Limited Liability Company; and Maguro Limited Liability Company. These companies are collectively known as the DPR Group (DPR).

DPR is a retail focused fish and seafood business, and it is Russia's number one canned tuna producer. Thai Union opted to make the investment in DPR because its manufacturing and distribution platform offers significant opportunities for further growth and development. DPR, which has sales of around US$45m, operates in both frozen and ambient segments, and owns brands such as Maguro, Captain of

Tastes and Rybar. Thai Union expects to gradually increase shareholding to 80 percent over the next 3 years.

Thai Union reached an agreement in June to acquire a 25.1 percent stake in Thammachart Seafood Retail Co., Ltd. (TSR) for approximately THB 37 million. TSR, which currently generates sales in excess of THB 660 million, provides professional management services to Thai retailers for their seafood counters, handling fresh and frozen product at 158 locations in Thailand. This includes two food and beverage concepts at eight locations, The Dock Seafood Bar and The Lobster Lab, as well as management of the Ocean Bar.

Thai Union's investment in innovation, through its Global Innovation Incubator (Gii), is delivering positive results. Thai Union's market-leading international brand Chicken of the Sea has started to roll out INFUSIONS—a new tasty and healthy way to spice up on-the-go meals with the first transparent, resealable, ready-to-eat tuna cup in the U.S. market. In the UK, John West also launched its No-Drain Fridge Pot, a fridge-friendly, transparent, peel-able and resealable pot to make it easier for consumers to include fish in their diets.

Thai Union's premium Yellowfin Tuna Slices and tuna sausage—the latter a healthier alternative to traditional sausage products—continued to be rolled out in new markets.

Yellowfin Tuna Slices are the world's first pre-sliced, pre-seasoned tuna made from whole yellowfin tuna loins developed to give deli customers a healthier, convenient alternative to traditional luncheon meats. It is currently being introduced in South Korea and Thailand, following an earlier rollout across U.S. food service channels through Chicken of the Sea brand, and the start of commercialization in Europe and the Middle East.

Thai Union continued to implement actions and activities in line with its SeaChange® sustainability strategy in 2Q18.

The company released in June its annual Sustainability Report publicly detailing the company's performance in 2017 against key performance indicators and targets in line with SeaChange®. The report demonstrates how Thai Union's strategic approach to sustainability is transforming the way the seafood industry operates worldwide.

Also, in June, Thai Union and WWF-UK released an annual progress report on their European partnership. Since 2014, Thai Union and WWF have been working together in Europe to deliver the commitments in the WWF 'Seafood Charter', which focuses on improving the sustainability of seafood supply chains. This work is supported globally through SeaChange® and Thai Union's tuna commitment. The company has pledged to source 100 percent of its branded tuna from fisheries that are Marine Stewardship Council certified or engaged in fishery improvement projects (FIPs) and is investing $90 million into this work. The full report can be downloaded here.

This followed Thai Union's publication in May of its first annual Tuna Commitment Progress Report. To promote transparency, Thai Union announced it would provide a progress report annually for its tuna commitment when it was introduced in December 2016. For the entire Tuna Commitment Progress Report, click here to download.

Thai Union also announced in May it has made substantial, positive progress on its commitment to implement measures that tackle illegal fishing and overfishing, as well as improve the livelihoods of hundreds of thousands of workers throughout its supply chains, as outlined in the company's landmark agreement with Greenpeace. The agreement between Thai Union and Greenpeace was originally announced in July 2017. Thai Union committed to build upon SeaChange®, including efforts to support best practice fisheries, improve other fisheries, reduce illegal and unethical practices in its global supply chains, and bring more responsibly-caught tuna to key markets.

Additionally, Thai Union completed with the support of several of its customers, its first industry collaborative third-party audit, conducted by global safety consulting and certification company UL, on some Thai commercial fishing vessels supplying the company's business. The third-party audit included 240 vessels in its sample size and helped identify potential labor and human rights abuses, as well as how to improve performance of the Thai fleet by creating a targeted action plan based on its results.

"As one of the largest seafood companies in the world, Thai Union is working hard to drive strong, positive change throughout many parts of the seafood industry. Furthermore, SeaChange® is contributing to broader societal change by helping the world meet the UN Sustainable Development Goals," said Chansiri. "Moving forward, Thai Union will continue to work to meet the nutritional needs of the global population in a manner that aims to ensure the seas are sustainable now and for future generations."

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ABOUT THAI UNION PCL

Thai Union Group PCL is the world's seafood leader bringing high quality, healthy, tasty and innovative seafood products to customers across the world for more than 40 years.

Today, Thai Union is regarded as the world's largest producer of shelf-stable tuna products with annual sales exceeding THB 135 billion (US$ 4.030 billion) and a global workforce of over 49,000 people who are dedicated to pioneering sustainable, innovative seafood products.

The company's global brand portfolio includes market-leading international brands such as Chicken of the Sea, John West, Petit Navire, Parmentier, Mareblu, King Oscar, and Rügen Fisch and Thai-leading brands SEALECT, Fisho, Qfresh, Monori, Bellotta and Marvo.

As a company committed to innovation and globally responsible behavior, Thai Union is proud to be a member of the United Nations Global Compact, and a founding member of the International Seafood Sustainability Foundation (ISSF). In 2015, Thai Union introduced its SeaChange® sustainability strategy. Thai Union's on-going work on sustainability issues was recognized by its inclusion in the Dow Jones Sustainability Index Emerging Markets (DJSI) in 2014. In 2017, Thai Union was named to the DJSI for the fourth consecutive year. Thai Union is also part of the FTSE4Good Emerging Index.

MEDIA CONTACTS
Whitney Small
Head of Group Corporate Communications
M: +66.63.225.1045
E: Whitney.Small@thaiunion.com

Apiradee Poopirom
Consumer Marketing Communications Lead
M: +66.81.802.6933
E: Apiradee.Poopirom@thaiunion.com