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Published on July 24, 2007

Charoen Pokphand Foods (CPF) has revised both its business strategy and currency management by focusing more on the pound sterling instead of relying solely on the US dollar, in a bid to reduce risks from the baht's volatility.

CPF is among a number of Thai businesses adopting new currency strategies, in the light of the persistent appreciation of the baht against the greenback.

So far this year, the currency has strengthened by about 10 per cent per dollar, well above the 5-6 per cent of other regional currencies, hence putting pressure on Thailand's export competitiveness.

The Cabinet is today expected to approve a series of measures to reign in the baht, while state enterprises are gearing up to refinance their foreign loans.

PTT plans to refinance $1.5 billion in debt and cancel its planned foreign currency-denominated bonds after the Finance Ministry last week announced a policy for state enterprises to refinance foreign debts worth more than US$3 billion (Bt100 billion) combined. The ministry's move aims to increase demand for dollars and reduce pressure on the baht. In addition, Energy Minister Piyasvasti Amranand said yesterday that he would soon discuss with PTT and the Electricity Generating Authority of Thailand (Egat) - both state enterprises under the ministry - their plans to handle foreign debts.

Piyasvasti also ordered Egat to change its power-purchase contracts with independent power producers, in order to reduce dependence on the dollar. The policy will also apply to new contracts.

"During this period of the fluctuating baht, we have changed our focus to trading more in pounds sterling, which accounts for 30 per cent of our export revenue now, with the remainder still fixed on the US dollar," CPF president and CEO Adirek Sripratak said yesterday.

He said the British currency had so far depreciated only 3 per cent against the baht since early this year.

Adirek added that CPF had shouldered exchange losses of 3-4 per cent since the baht had begun to strengthen. As a result, its average export price per unit has dropped from $220 to $115. However, the company has successfully increased export quantity to offset the currency loss.

"The volatile exchange rate and domestic price-drop problems of both chicken and pork caused us report a loss of Bt1.1 billion in the first quarter this year, but we believe we will return a profit in the second quarter through the end of the year," he said.

Adirek said the company had invited financial experts from Bangkok Bank, Kasikornbank and Citibank to brief its staff on the financial market on a weekly basis. In addition, a financial team has also been set up to closely monitor exchange rates to provide information and suggestions to management.

Aside from the new currency focus, CPF is also concentrating on four business management strategies to cope with the unpredictable baht and other risk factors. A plan has drawn up to reap benefits from the strengthening currency.

Firstly, the company will focus more on expanding business abroad as the stronger baht will lower costs. It has stepped forward with an investment plan this year totalling Bt4 billion, of which 50 per cent is focused on offshore investment.

Overseas investment during the time of a firmer baht will encourage the company's competitiveness.

Second, the stronger baht will create advantages for the company by accelerating the import of raw materials, oil and machinery.

Third, CPF is negotiating with its trading partners to adjust the export price by 4-5 per cent to compensate for exchange losses.

"We had to bargain with our buyers. While we really wanted to increase the price by 10 per cent, they agreed on 4-5 per cent," he said.

Finally, the baht's strength has prompted the company to concentrate more on forward-currency and swap arrangements in order to reduce exchange losses.

"The baht factor has hit the company's business, but we are able to absorb it thanks to our offshore investments and our new business strategy to reduce production costs and focus more on brand-building," Adirek added.

Since the strengthening of the baht began late last year, the company has shifted to focus more on the domestic market which accounts for 65 per cent of its targeted revenue of Bt140 billion this year.

"Agro-industrial exporters who rely 100 per cent on local content and the export market will suffer completely from the volatile baht," he said.

Moreover, the rising domestic price of chicken and pork will stem the company's losses and enable it to show a profit in the second half.

Adirek urged the government to plan measures to ensure the survival of exporters whose competitiveness is not strong.

The strong baht will benefit the Kingdom's imports and the government should take advantage of this to support these exporters, he said. However, the Bank of Thailand's proposal to the Cabinet today to stabilise the baht will alleviate the impact of the strong currency for a while.

Achara Pongvutitham

The Nation

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