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Published on July 4, 2007

Looking back over the past 10 years, executive vice president Sarasin Viraphol said divesting stakes in money-making businesses and reshaping its business strategies were key to saving the group.

Like most Thai companies, Thailand's biggest agro-industrial conglomerate was plunged into huge debt, and as soon as the crisis broke, top priority was given to solving debt problems.

"Management reached a consensus to sell all non-core businesses and whatever others generated high profits," Sarasin said. Chairman Dhanin Chearavanont concurred at the time, saying, "We've got to do it to survive. We can buy it back later when we're strong enough and if the business still shows growth opportunities."

Business interests sold by CP during the economic crisis fetched more than US$100 million, and the decisive action put the group back in business.

Over the year of the crisis, CP executives agreed to a salary cut to help the group survive. Salary increases for employees were suspended for two years. But among the business treasures it was forced to divest was an 85-per-cent stake in Lotus Supercentre, sold to UK-based retail giant Tesco for more than Bt10 billion.

But the group clung to other properties. Despite repeated offers to buy, the group held onto its 60-per-cent stake in CP Seven Eleven.

TelecomAsia (now True), the group's telecommunication business arm, had to convert debt into equity to cut foreign-exchange losses. The telecom business's total debts under restructuring amounted to Bt61.79 billion, but True was never part of CP's big sell-off.

The group maintained its majority holding, and today it is the only telecom company without a foreign partner, so it remains a favourite among possible acquirers.

Due to its aggressive approach to recovery, it took four or five years for the CP Group to complete debt-restructuring and earn a class-A credit rating. The outcome has been more than positive. The group's sales revenues has risen from US$11 billion before the crisis to between $13 billion and $14 billion (Bt448 billion and Bt483 billion) per annum now.

Sarasin said the performance record was also attributable to the group's extensive reviews of its business strategies.

For its survival, the CP Group decided to suspend all of its major foreign investments, particularly in the US, China, Japan and South Korea. At the time, it was interested in entering the integrated-circuit business with partners from Japan and South Korea. Chinese operators had also approached the group to form a computer-chip-making joint venture.

"Without the crisis, the CP Group would have become a front-end, back-end and silicon-fibre manufacturer. But we had to drop the deals to refocus on our core business and cut out all uncontrolled business," Sarasin said.

During the crisis, CP revised plans for its nine business groups: agro-industrial goods, seeds, fertiliser and plant protection, international trading, crop integration, pets, marketing and distribution (covering the retail business and including 7-Eleven convenience stores), petrochemicals, real estate and land development and telecommunications.

It was decided the group's three core businesses were food, telecommunications and services, with 7-Eleven falling into the last category. Arising from the structural and strategic changes was a renewed Charoen Pokphand Foods (CPF), which suffered Bt3.6 billion in foreign-exchange losses during the crisis - its biggest loss in nearly 30 years of operation. CPF was merged with three listed companies of the CP Group, and in 1999 it acquired six more companies.

In 2000, CPF shifted its focus from feed and farm operations to food manufacturing, in order to serve Thailand's "Kitchen of the World" promotion and add value to its products. CP-brand food products are now marketed around the world. Brand-building, consumer-food manufacturing, innovation, research and development and human-resource development are CPF's focuses in achieving sustainable business, says president Adirek Sripratak.

Sarasin said the scale of restructuring following the crisis was bigger than expected, and he believes much of the suffering was caused by management overconfidence. At its peak, the group attracted the best engineers, executives, technology and financial support from around the world, and this convinced the group it could conquer anything.

"Those factors led us to become a big hunter in the style of the Titanic. We remain proud of the best things we achieved, but we forgot we were operating a business in the globalised environment. When the ship hit the iceberg, we sank rapidly," he said.

These days, the CP Group is more careful about coping with tough international competition. To stay competitive, it explores more offshore investment opportunities and looks for new sources of raw materials, in line with Dhanin's view that resources are all over the world, waiting for those who can best exploit them.

Although the past 10 years has been painful, it has changed the CP Group for the better, Sarasin said. These days, the group concentrates more on risk management, and its outlook has changed from wanting to be the biggest in any industry to focusing more on returns on investment and shareholders' benefits.

Achara Pongvutitham

The Nation