Charoen Pokphand: Thailand's Largest Agribusiness Conglomerate
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Case Code: BSTR109 Case Length: 18 Pages Period: 1921 - 2004 Pub Date: 2004 Teaching Note: Not Available |
Price: Rs.500 Organization: Charoen Pokphand Group Industry: Agriculture Countries : Thailand Themes: Business Environment |
Abstract Case Intro 1 Case Intro 2 Excerpts
Excerpts
Restructuring to Survive
Sale of Assets
One of the first steps in the restructuring plan was the decision to sell stakes in profitable group companies in Thailand, China and a few other countries. In line with this decision, in April 1998, CP sold 32 million shares in CPP at HK$ 1.08 per share. This was below the price ($1.52 per share) it had paid to buy 2.6 million shares of CPP in November 1997. In May 1998, CP sold its stake in Shanghai Ek Chor Motorcycle, one of its highly profitable businesses, for $12.8 million. Commenting on this, Sumet Jiaravanon, President, Shanghai Ek Chor Motorcycle, and Dhanin's brother, said, "Like many companies in Asia, CP Pokphand has been affected by the tighter financial conditions in the region. This disposal will provide a cash boost to the company, and we will continue to examine ways to improve liquidity further." CP also sold its stake in its brewery joint venture (with Heineken) and TA's stake in Apstar, a Chinese satellite operator. In Thailand, it sold 11% of its stake in its most profitable 7-Eleven convenience store business, closed many subsidiaries of TA including its paging division, software consultancy and equipment distributor; and sold off many petrol stations...
CP's Global Excursions - China & Beyond
In October 2000, CP announced plans to become the largest agri-business conglomerate in Asia. It planned to do this by consolidating its control over the various joint ventures the group had in the food business across Asia, (except those in China and Indonesia), in the next few years. For this purpose, it hired two consultancies, JF Thanakom and Tisco Finance. These two helped CP acquire full control of its food and agri-business joint ventures in Vietnam, Taiwan, Turkey, India and Malaysia. Commenting on the rationale behind the buy-back of stocks, Adirek Sripratak, Vice President, CPF said, "We have an ambition to develop ourselves to become regional company, with many networks in countries throughout the region." Meanwhile, in its chicken and shrimp products businesses, demand for Thai products had increased dramatically in the EU and in Asian countries after 2000. This increase was attributed to the outbreak of various animal diseases like avian flu and "mad cow"disease in those countries. This increase in demand led to high export revenues for CP - it was clearly the largest exporter of chicken and shrimp from Thailand. A weaker baht also helped strengthen the group's export competitiveness...
Inching its Way Out of the Crisis
By 2003, CP had successfully left behind its financial problems and was growing rapidly (See Exhibit II). Its businesses included agriculture, aquaculture, fast food, convenience stores, retailing, telecom, auto parts, international trading, petrochemicals, real estate, insurance, logistics and pet foods (See Exhibit III). The group had established itself as one of the largest animal feed and shrimp producers in the world, with annual sales of $13 billion. CP had operations across many countries in Asia, EU, North America, South America, Middle East and Africa (See Exhibit IV). The group comprised of over 250 companies and 1,00,000 employees. Due to its strong performance over the years, it had been ranked by the 'Far Eastern Economic Review' as the #1 company in Thailand from 1994 to 2003 (except in 1995 and 1999) in the magazine's annual list of the 200 best companies in Asia. In January 2003, CP outlined five strategies aimed at transforming the Group into a 'global Thai company.' These strategies were: developing a global trading network; creating its trademark; producing healthy and chemical-free food products; developing a logistics and distribution network that would enable it to offer low cost and high quality services; and investing in the latest technology to become a global technology leader...
Dhanin's Leadership Support
Early in his career, Dhanin had realized that with economic development in Thailand and other developing countries, meat consumption would also grow rapidly. This idea was based on the simple principle that economic development would lead to an increase in the income and living standards of people in these countries. This formed the basis for CP's entry into the animal-feed and chicken breeding businesses. Apart for being a visionary, Dhanin was also credited for his innovativeness. He was the pioneer of scientifically formulated feed (with advice from hired nutritionists from the US, where such practices yielded healthy birds) and modern chicken houses (enclosed and automated) in Thailand. These drastically reduced the growth time of chickens; a chick matured into a 4-pound broiler in 6-7 weeks, compared with the 3-4 months it previously took. What's more, CP could achieve this rapid rate of growth and weight gain for a chicken using just half of the feed quantity consumed earlier. This drastic increase in the yield helped CP become the largest producer of chicken in Asia and made Thailand, Asia's major food exporter...
CP in 2004 - Facing a Host of Challenges
Just as the group began to stabilize and reap the benefits of its restructuring initiatives, the avian flu catastrophe struck. In February 2004, CPF reported a 14% decline of baht 2.42 billion in the net profit (on revenues of baht 83.1 billion) for the year 2003. The company attributed the decline to the Thai government's new stringent food safety regulations (such as prohibiting the use of chemicals to redden pork) and the avian flu. CPF also cut its sales growth target for 2004 by 15%, as flu fears continued to hurt its sales in the domestic and international markets...
Exhibits
Exhibit I: CP - Worldwide Poultry Plants
Exhibit II: CP - Recovering from the Asian Financial Crisis
Exhibit III: CP - Group Business Portfolio
Exhibit IV: CP - Overseas Investments (Except China)
Exhibit V: CP (Chia Tai Group) - Investments in China
Exhibit VI: List of Awards and Citations Received by CP/Dhanin
Exhibit VII: TA's Financials Highlights
Exhibit VIII: CPF's Financial Higlights
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