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Published on March 5, 2008

When the Bank of Thailand last week announced the removal of capital controls, which were designed to brake the baht's rise, how would corporations bring production costs down to keep margins as high as possible amid the currency volatility?

Overall market conditions are also not favourable with fierce competition, lower consumer spending and higher costs from rising fuel prices.

Here are some case studies:

Delta Electronics (Thailand)

Director Anusorn Muttaraid said the company had made a point to be fully protected against currency volatility.

"I believe that the currency will still fluctuate and I can't estimate the short-term situation. All of Delta's electronics components are exported, so the company has to fully hedge throughout the year in order to make sure that we will not be at risk," he said.

Delta's profits shot up 60 per cent to Bt3.1 billion last year from Bt1.9 billion the year before, despite sales dropping 22.5 per cent from Bt43 billion to Bt33 billion. This was mainly due to baht appreciation and the adjustment of its strategy to focus more on Delta Energy System products, which carry higher profit margins. The operating profit margin soared from 5.2 per cent to 8.5 per cent last year.

The company also recorded a gain on foreign exchange of Bt274 million last year.

Thai Union Frozen Products

The country's largest processor and exporter of canned food and frozen seafood is focusing this year on expanding sales to non-US markets with strong currencies such as the European Union and Australia, while continuing to increase production capacity regionally.

The company will launch more products to improve margins and expand market share, as well as take advantage of its investment in its fishing fleet to benefit from free-trade pacts and the temporary fish shortage.

The move has been planned over the past few years since the baht became unsteady. Last year, TUF posted a 12-per-cent increase in sales in US dollar terms, but only 0.9 per cent in baht terms as a result of the unit strengthening by 8.8 per cent against the greenback.

"By doing this, the company is confident of marking a 12-per-cent increase of sales in dollars and 6 per cent in baht to US$1.8 billion, or Bt58.86 billion," president Thirapong Chansiri said.

Prantalay Marketing

Anurat Khokasai, chief operating officer of the subsidiary of Thai Union Frozen Products, said Prantalay  adopted a strategy to defend itself against the baht. The company had swallowed a few exchange losses since the baht began rising last year. However, it has bought forex contracts for at least six months forward.

The firm tried to diversify its income's currencies, depending on each market. However, US dollars still account for 90 per cent of exports.

Sales were Bt1.04 billion last year and are expected to rise 20 per cent from export and domestic sales this year.

The company has formed a financial team to monitor the baht and provide data and recommendations to management. It has also invited financial experts from  commercial banks to brief its staff on the financial market on a weekly basis.

Capital Rice

Deputy MD Wanlop Pichpongsa said the country's largest rice exporter had hedged its forex position for at least six months ahead to protect it from currency losses. It also monitors exchange rates every minute. Besides, the firm will not hold purchase orders now, but immediately buy forward contracts to ensure every minute of the baht's rise will not create  losses.

It has tried to diversify trading from the US dollar to the euro and other currencies, but most importers still favour quotes in dollars.

Capital Rice last year exported 1.8 million tonnes of the grain, which was mostly traded under the US dollar.

 

VPP Progressive

The leading exporter of green coffee beans and ground coffee has opted to employ a lean-supply-chain logistics solution to bring down production costs amid stiff  competition and the stronger baht. "We target to bring down overall cost by at least 10 per cent, while pushing up sales by at least 15 per cent after the software program goes on line, expected in six months from March," managing director Veradech Somboonvechakarn said.

The company has also reduced its costs by pressuring coffee farmers.

Business Reporters

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