Five-prong strategy backs CPF drive to emerge as a major global player

Acquisition of CPP in Hong Kong a move towards better synergy and more competitive costs

Charoen Pokphand Foods' five key directions are taking it towards its goal to become first in the world in both feed-meal and integrated shrimp production as well as the leading food brand from upstream through downstream in the Asia-Pacific region.

Those key directions are: the goal to feed more than 3 billion people, become the leading corporate in the Asia-Pacific region, become the world's biggest or second-biggest producer of feed meal, become the world's biggest integrated shrimp-farm operator, and boost the company's market capitalisation and earnings to shareholders.

On January 18, CPF will hold a shareholders' meeting to seek support for the US$2.174-billion (Bt68.9-billion) acquisition of CP Pokphand Co (CPP), a listed company on the Hong Kong stock exchange. Through CPP, the company will be able to manage more feed meal in China and shrimp farms in Vietnam. This move is part of the company's strategy to revise its business structure towards more synergy and competitive costs.

If the acquisition is approved, CPF will double its total sales to Bt300 billion this year and see average annual growth of 15-20 per cent in 14 countries. CPF will also strengthen its food-processing, feed-meal and farming businesses.

Adirek Sripratak, president and chief executive officer of CPF, said it currently did business in Thailand and 12 other countries with a total population of 1.5 billion. Besides the planned move into China and Vietnam, the company is also making aggressive efforts to access countries with fast-growing economies such as Russia, India and the Philippines. It also targets high-potential economies in South Asia including Pakistan and Bangladesh by focusing on feed meal for livestock and aquaculture animals.

"The approval from the shareholders will immediately [allow us to] double our sales this year, and sales are expected to grow by an average of 15-20 per cent through the next five years. Our revenue ratio between the domestic market and export will also change from 70:30 currently to 40:60" within the next five years, Adirek said.

The acquisition would also increase the company's annual investment to Bt12 billion from an average of Bt8 billion to Bt10 billion currently. The new investment will focus on China and Vietnam. China's gross domestic product has grown by an average of 10 per cent annually for more 10 years with a 1.4-billion population, while Vietnam enjoys 6-7 per cent GDP growth with 88 million people.

Successful business expansion will allow Thailand to become a development centre for food products. The company also foresees establishing itself in China in the future. CPF plans to pave the way for Thailand to become a trading centre and distribution hub of CP brand products. However, China and Vietnam also have great potential to develop as trading and distribution bases for export in the next 10 years depending on their competitiveness.

Adirek said each country had its own strength that the company would exploit to produce certain products to gain the highest competitive edge. For instance, while Thailand will be the manufacturing centre for shrimp products, Vietnam will be the centre for freshwater-fish products, as that country has the greatest potential to become the world's biggest producer within the next five years. Moreover, China will become a leading manufacturing base for livestock feed meal, though it will focus on the huge consumption in the domestic market rather than export.

"We are moving to achieve efficient production costs and strengthen our competitiveness both in the domestic market and export by sharing our resources," Adirek stressed.

CPF's feed meal will be distributed under a variety of brands while food production will come under the policy of a single CP brand.

CPF is setting up Asia as its manufacturing and marketing base for the region while business networks in the United States and the European Union will be its trading hubs for business expansion.

The company also foresees that its targeted market of 3 billion people is adopting a more urban lifestyle with a trend to consume more finished foods. At the same time, agricultural areas are being reduced because of the growing world population, which is predicted to reach 9 billion within 40 years. These factors will fuel growth in the food business despite global economic crises.

He said 2012 "will be a year of significant change of CPF's business model after the successful acquisition of CPP", noting that it would encourage the company to achieve upstream-to-downstream manufacturing from animal feed meal to livestock and aquaculture through finished foods, logistics and branded products.

He said the firm's business model in Thailand would be applied to its overseas ventures.

Adirek added that although the flood disaster shrank the company's sales in the fourth quarter of last year, the damage was short-term.