Thai Union : Management Discussion and Analysis 2Q/2023

Thai Union Group PCL.

Management Discussion and Analysis for 2Q23 Results, ended June 30, 2023

2Q23 showed better momentum with sales and operating profit improving from the bottom Q1 with a healthier gross profit margin at 16.9%.

Revenue

Thai Union delivered 2Q23 quarterly sales at THB 34.1bn, decreasing by 12.6% YoY mainly from a high baseline last year, lower sales volume across all categories, and falling freight revenue as a result of normalizing freight costs. This was partially offset by sales growth of Ambient, especially in Europe and the domestic market.

Gross profit and margin

2Q23 quarterly gross profit was at THB 5.7bn, decreasing by 12.7% YoY, mainly from lower sale volumes of PetCare and Value-added, falling freight revenues, negative category mix, and higher cost of raw materials, especially Tuna (+24.4% YoY or +9.9% QoQ). Partially offset by a better margin from Ambient (one-off item from Rügen Fisch restructuring costs last year) & Frozen categories. Gross profit margin (GPM) was at 16.9%, equivalent to 2Q22.

Operating profit

2Q23 operating profit was at THB 1.8bn, increasing by

8.2% YoY, thanks to SG&A declining 19.7% YoY due to a significant freight cost improvement, impact from the Company's profit protection plan measures and no one-off item from Rügen Fisch's restructuring costs (THB 86mn in 2Q22). SG&A/sales ratio decreased to 11.7% in 2Q23 vs. 12.7% in 2Q22.

Net profit and margin

TU reported a 2Q23 net profit at THB 1.0bn, decreasing by 36.7% YoY, mainly impacted by unfavorable non- operating items such as a negative impact from FX loss, lower tax credit, and dilution effect on i-Tail net profit.

This was partially offset by Red Lobster's lower share of losses and higher other income. However, net profit improved from the bottom of Q1, due to a strong improvement in operating profit. Net profit margin (NPM) stands at 3.0%.

Cash flow and ND/E

2Q23 free cash flow (FCF) has improved massively and turned to a positive of THB 3.3bn, mainly from lower net working capital, thanks to operations in Europe and the U.S. TU's end-2Q23 net D/E ratio stands at 0.64x. TU announced a 1H23 interim dividend of THB 0.30 per share.

Stock Information

(Bloomberg/ Reuters)

(TU TB/ TU.BK)

Share price (04/08/2023)	THB 13.30
Historical closing price:
52-week high	THB 19.10
52-week low	THB 12.40
No. of shares:	4,771.8m
Par value:	THB 0.25
Market Cap.	THB 63.0bn
Avg. value trade/day (YTD)	THB 415.4mn
Major shareholders
(30/06/2023)
Chansiri Family	19.71%
Thai NVDR Co., LTD.	7.87%
Niruttinanon Family	6.93%
Mitsubishi UFJ Morgan Stanley	5.00%
Ms. Jarunee Chinwongworakul	4.75%
Social Security Office	2.59%

Business Overview

Thai Union Group PCL (TU) is one of the world's largest seafood players. TU owns leading brands in key markets and has a global sourcing, production and distributing network. TU's key products are Ambient seafood, Frozen and Chilled seafood and related business, PetCare, and Value-added. On the sustainability front, TU has shown strong commitments and is confident in its positive long-term contribution to socioeconomic development, conservation of natural resources and practice of ethical business conduct, supporting our goal of Healthy Living, Healthy Oceans.

Key financial figures

Unit: THB mn	2Q23	2Q22	1Q23
Sales	34,057	38,946	32,652
Gross profit	5,748	6,584	4,917
EBITDA	2,577	2,840	2,499
Net profit	1,029	1,624	1,022
EPS (THB)	0.21	0.33	0.20
GPM (%)	16.9%	16.9%	15.1%
NPM (%)	3.0%	4.2%	3.1%
ND/E (x)	0.64	1.09	0.57
ROCE (%)	6.2%	8.4%	6.3%
ND/EBITDA (x)	4.40	5.17	4.07

To be the world's most trusted seafood leader, caring for our resources	1
to nurture generations to come.

Thai Union Group PCL.

Management Discussion and Analysis for 2Q23 Results, ended June 30, 2023

Financial Statements Analysis:

Unit: THB mn	2Q23	2Q22	YoY	1Q23	QoQ
Sales	34,057	38,946	-12.6%	32,652	4.3%
COGS	(28,310)	(32,361)	-12.5%	(27,735)	2.1%
GP	5,748	6,584	-12.7%	4,917	16.9%
SG&A	(3,971)	(4,942)	-19.7%	(4,120)	-3.6%
FX gain (loss)	(250)	498	-150.2%	215	-216.5%
Other income	147	(66)	-322.4%	208	-29.5%
Share of profits from investments	(137)	(283)	51.7%	231	159.1%
in assoc. & JVs
EBIT	1,537	1,791	-14.2%	1,450	6.0%
Finance cost	(550)	(465)	-18.3%	(532)	-3.3%
EBT	987	1,326	-25.6%	917	7.6%
Tax	198	346	42.8%	242	18.2%
Net income	1,029	1,624	-36.7%	1,022	0.7%
EPS	0.21	0.33	-38.4%	0.20	0.8%
FX: USD/THB	34.48	34.40	0.2%	33.91	1.7%
GPM	16.9%	16.9%		15.1%
%SG&A/Sales	11.7%	12.7%		12.6%
NPM	3.0%	4.2%		3.1%

Sales

Thai Union recorded sales in 2Q23 at THB 34,057mn, declining by 12.6% YoY, mostly from Petcare (-42%YoY), Frozen and chilled seafood (-17%YoY), and value-addedand others (-16%YoY), partially offset by ambient seafood (+1% YoY).

• Ambient seafood business sales increased 1.3% YoY, thanks to higher selling prices and promotional activities, especially EU market, partially offset by lower freight revenue, and lower volume temporally impacted by high raw material prices and further price increases mainly in the U.S. and Asia.
• Frozen and chilled seafood business sales dropped by 17.3% YoY, from seafood market prices normalization and a drop in volume mostly due to the rightsizing of our Frozen business in the U.S. This is partially offset by some growth in the salmon and feed businesses.
• PetCare business sales dropped by 41.8% YoY after last year's exceptional performance, continued soft demand from inventory destocking for our customers, especially the U.S. and Europe, negative product mix, and lower freight prices.
• Value-addedand others business sales dropped by 16.0% YoY, due to continued soft demand across all categories and product mix. However, we have already seen signs of improvement from last quarter.

During 2Q23, the Thai Baht moved against key currencies as follows; USD/THB (+0.2% YoY), EUR/THB (+2.4% YoY), and GBP/THB (-0.2% YoY). The Thai Baht has been depreciating QoQ against all key currencies which supports the export industry.

Gross profit and gross profit margin (GPM)

2Q23 gross profit was THB 5,748mn, dropping by 12.7% YoY in absolute amount yet stable in GPM at 16.9%, and recovering QoQ mainly from:

• Ambient seafood: gross profit was THB 3.4bn and GPM was at 19.9%, improved mainly from positive selling price adjustment and favorable product mix. This was despite tuna prices rising higher than expected and lower sales volume.
• Frozen and chilled seafood: gross profit was THB 1.1bn and GPM improved impressively to 9.6%, thanks to favorable raw material prices, especially shrimp price which dropped to the lowest in 11 years in June at THB 120/kg, portfolio rationalization and inventory management.
• PetCare: gross profit was THB 641mn and GPM was at 20.2%, declined from an exceptional last year, mainly from lower volumes, higher raw material costs, product mix, and inventory provision.
• Value-addedand others: gross profit was THB 581mn and GPM dropped to 25.7% mainly due to negative product mix and lower volume, especially value- added products and packaging. This was partially offset by lower raw material prices.

	GPM (%)	Gross profit (THBmn)
	2Q23	2Q22	2Q23	2Q22	YoY
Overall	16.9%	16.9%	5,748	6,584	-12.7%
Ambient	19.9%	19.5%	3,418	3,294	3.8%
Frozen & chilled	9.6%	6.6%	1,108	918	20.7%
PetCare	20.2%	30.1%	641	1,637	-60.9%
Value-added & others	25.7%	27.3%	581	736	-21.0%

Selling and administrative expenses

2Q23 SG&A expenses of THB 3,971mn, decreased

19.7% YoY, thanks to significant freight cost improvement of THB -430mn (vs. 2Q22: THB +560mn) and logistic normalization. 2Q23 SG&A to sales ratio was at 11.7%, down from 12.7% in 2Q22.

FX Gain/Loss

Thai Union reported 2Q23 FX losses of THB 250mn (vs. FX gains of THB 498mn in 2Q22), mainly from lower realized FX gains of THB 88mn (vs. THB 664mn in 2Q22), over-hedging loss of THB 96mn and higher loss from financing activities.

Share of income from investment in associates 2Q23 share of loss was at THB 137mn (vs. THB 283mn share of loss in 2Q22). Most of the loss contribution came from:

Red Lobster's operations in 2Q23 were at THB 189mn share of loss (THB 94mn loss from operations and THB 95mn loss from lease accounting adjustment), thanks to price increase, lower COGS, and lower labor cost

To be the world's most trusted seafood leader, caring for our resources	2
to nurture generations to come.

Thai Union Group PCL.

Management Discussion and Analysis for 2Q23 Results, ended June 30, 2023

from our turnaround strategy. This greatly improved compared to THB 383mn loss contribution in 2Q22 (THB 281mn loss from operations and THB 102mn loss from lease accounting adjustment).

Red Lobster performance

	2Q22		3Q22		4Q22		1Q23		2Q23
Share of					-344
profit/loss from	-281		-339			121		-94
operations
Share of
profit/loss from	-102		-117		-112		-101		-95
lease accounting
adj.
Other income	-300		0		0		0		0
Interest expense	-112		-113		-115		-138		-138
Income tax	240		66		222		252		134
Net income	-554		-502		-348		134		-193

Hence, we revised Red Lobster's full year performance guidance for share of loss from operations of THB 600mn to share of loss from operations of THB 500mn. Moreover, Red Lobster achieved the required EBITDA performance for their H223, hence, the USD 65mn guarantee provided last year should be lifted by September 2023.

The Avanti business contributed a lower share of profit YoY.

Other income

2Q23 other income was at THB 147mn vs. THB -66mn in 2Q22, mostly increased from RL's preferred share fair value adjustment (RL's other income marked at THB -300mn in 2Q22 vs. THB 0mn in 2Q23).

Finance cost

2Q23 finance costs were at THB 550mn vs. THB 465mn in 2Q22, mainly due to interest rate increase as our average cost of debt has been increasing a bit from some float rate debt portion (~31% of total debt).

Income tax expense

2Q23 tax credit was at THB 198mn vs. tax credit of THB 346mn in 2Q22, mostly explained by the lower loss from Red Lobster's operations as mentioned above.

Net profit

2Q23 net profit was at THB 1,029mn, down 36.7% YoY, mainly impacted by lower gross profit and unfavorable items, (1) FX losses of THB 250mn (vs. FX gain of THB 498mn, (2) Tax credit of THB 198mn (vs. tax credit of THB 346mn), (3) Finance cost of THB 550mn (vs. finance cost of THB 465mn), and (4) i-Tail dilution impact of THB 289mn.

This was partially offset by an improvement in RL's preferred shares interest and operating profit. NPM was at 3.0% vs. 4.2% in 2Q22.

Financial position analysis:

As of June 30, 2023, Thai Union's total assets were at THB 182,343mn, stable from end-2022 at THB 182,569mn, mostly by lower trade and other receivables following lower sales and lower cash and cash equivalents, partially offset by higher short-term investments due to investment in the fixed deposit at bank of THB 1.0bn.

Total liabilities increased 4.8% to THB 99,003mn from THB 94,438mn at end 2022, mainly from higher short- term debt supporting net working capital, partially offset by a decrease in trade and other payables.

Total equity (including perpetual debentures of THB 6bn) was at THB 83,341mn, decreasing by 5.4% from end-2022 at THB 88,131mn, mostly from treasury share repurchase and dividend payment.

Cash Flow analysis:

In 1H23, net cash receipts for operating activities amount to THB 5,258mn. Free cash flow has improved massively and turned positive at THB 3,125mn, mainly from a decrease in net working capital in operations in Europe and the U.S.

Net cash payments for investing activities were at THB 4,283mn, increasing from THB 1,370mn in the same period of last year, mainly from payments for short-term investments and investments in debt instruments as mentioned above.

Thai Union recorded a net cash payment from financing activities of THB 3,047mn in 1H23, decreasing from THB 4,369mn in the same period of last year, due to cash repayments in 1Q22 for long-term loans from financial institutions and debenture issuance which reached maturity in January 2022 and lower net cash receipts from short-term loans from financial institutions. This was partially offset by cash payments for the repurchase of treasury shares.

Net decrease in cash and cash equivalents was at THB 2,072mn in 1H23, resulting in outstanding cash and cash equivalents of THB 9,938mn as of the end of this quarter (including the impact from the use of Bank Overdraft).

To be the world's most trusted seafood leader, caring for our resources	3
to nurture generations to come.

Thai Union Group PCL.

Management Discussion and Analysis for 2Q23 Results, ended June 30, 2023

Financial ratio highlights:

	2Q23	2Q22	1Q23
A/R Days	34	35	33
Inventory Days	155	139	145
Current ratio (x)	1.90	1.65	2.14
ROCE (%)	6.2%	8.4%	6.3%
ROE (%)	9.4%	13.8%	9.8%
ROA (%)	4.4%	5.5%	4.6%
ND/E (x)	0.64	1.09	0.57
ND/EBITDA (x)	4.40	5.17	4.07
Interest Coverage (x)	5.57	7.32	5.92
BV (Baht/share)	14.72	11.33	15.63

Remark:

Current ratio = Total current assets / total current liability ROCE = 12-month rolling EBIT / Average capital employed

Capital Employed = total assets - total current liabilities (incl. current portion of long-term debt)

ROE = 12-month rolling net profit / average total shareholders' equity

ROA = 12-month rolling EBIT / average total assets ND/E = Interest-bearing debt - cash & cash equivalents/

total shareholders' equity

Debt/EBITDA = Interest-bearing debt / 12-month rolling EBITDA Interest coverage = EBITDA / finance costs - 4Q trailing

BV = Total shareholders' equity / outstanding shares

2Q23 profitability ratios dropped YoY compared to the same period last year with ROCE at 6.2% (vs. 8.4% in 2Q22); ROE at 9.4% (vs. 13.8% in 2Q22); and ROA at 4.4% (vs. 5.5% in 2Q22), primarily due to an increase in equity and total assets, and a decrease in current liabilities from lower trade and other payables and short-term debt.

Receivable days in 2Q23 were 34 days, a slight decrease from 35 days in 2Q22. Inventory days in 2Q23 were up to 155 days, from 139 days in 2Q22, due to higher inventory, especially raw materials, ingredients, and packaging.

The current ratio at end-2Q23 was at 1.90x, increasing slightly from 1.65x in 2Q22, as a result of current liabilities decreasing (-7.7% YoY) while current assets increased (6.3% YoY).

Interest-bearing debt increased by THB 4.6bn from end-2022 (+7.7% from end-2022), due to an increase in short-term debt and the current portion of long-term loans. As a result, 2Q23 net debt-to-equity was at 0.64x, a slight increase from 0.54x at end-2022.

The net-debt to EBITDA ratio increased to 4.40x as end-2Q23, from 3.67x as of end-2022, largely from higher net debt, plus lower EBITDA.

The interest coverage ratio during 2Q23 was at 5.57x vs. 7.32x in 2Q22, largely from lower EBITDA (-9.2% YoY) and higher finance costs (+18.3% YoY).

Interest-bearing debt profile by currency:

EUR	JPY	EUR	JPY
1%	8%	1%	8%
	USD		USD
	15%		14%
	THB		THB
	76%		77%

December 2022

June 2023

As of end-2Q23,interest-bearing debt amounted to THB 64,996mn, mainly denominated in the local currency. THB debt accounted for 77%, USD at 14%, JPY at 8%, and EUR at 1%. The amount of interest- bearing debt increased from end-2022 mainly due to higher net working capital.

Overview by business category:

Total sales value

Unit: THB mn				-12.6% YoY
										+4.3% QoQ
38,946	32,652	34,057
7%
14%		7%	7%
36%		11%	9%
	36%	34%
43%		46%	50%
				2Q22			1Q23	2Q23
			Ambient seafood		Frozen, chilled seafood & related
			PetCare			Value-added and Others

Ambient seafood1:

Ambient seafood: Record quarterly sales over the past 9 years with healthier GPM, despite ongoing economic headwinds.

	2Q22	3Q22	4Q22	1Q23	2Q23	1H23
Value	16,912	16,985	17,086	15,225	17,136	32,361
Brand	57.1%	57.4%	51.2%	55.6%	59.2%	57.5%
PL	42.9%	42.6%	48.8%	44.4%	40.8%	42.5%
Volume	90,347	84,948	87,827	76,988	79,465	156,453

Value (unit: THB mn), Volume (unit: ton)

Remark: PL stands for Private Label business

1 Ambient seafood business includes entire tuna, sardine & mackerel, ambient & pouch salmon businesses, and other ambient seafood.

2Q23 ambient seafood recorded sales at THB 17,136mn, increasing slightly by 1.3% YoY, thanks to higher selling prices and promotional activities. This was partially offset by lower freight revenue, and lower volume temporally impacted by further price increases mainly in the U.S. and Asia.

2Q23 GPM was at 19.9%, improved YoY and QoQ, thanks to selling price adjustment, favorable product mix, and no one-off item from Rügen Fisch

To be the world's most trusted seafood leader, caring for our resources	4
to nurture generations to come.

Thai Union Group PCL.

Management Discussion and Analysis for 2Q23 Results, ended June 30, 2023

restructuring costs (THB 164mn in 2Q22). Offset by tuna prices rising higher than expected (+24.4% YoY, +9.9% QoQ) and lower sale volumes.

1H23 sales were stable YoY despite a soft performance in Q1, due to sales recovered in Q2, especially in the Europe market, France, the UK, and Italy, thanks to higher selling prices. GPM was at 19.1%, mainly impacted by high fish prices and lower sale volumes.

Frozen, chilled seafood and related2:

Frozen & chilled seafood: huge improvement in gross profit margin, close to 10%

	2Q22	3Q22	4Q22	1Q23	2Q23	1H23
Value	13,900	14,820	14,453	11,684	11,493	23,177
Brand	38.0%	35.5%	38.8%	38.9%	33.3%	36.1%
PL	62.0%	64.5%	61.2%	61.1%	66.7%	63.9%
Volume	71,086	73,704	65,352	60,768	64,034	124,802

Value (unit: THB mn), Volume (unit: ton)

2 Frozen, chilled seafood and related businesses includes shrimp & related (shrimp, lobster, shrimp feed & value-added shrimp), frozen, chilled & smoked salmon and other seafood (frozen cephalopod, crab, scallop, shellfish and other fish) businesses.

2Q23 frozen and chilled seafood sales were THB 11,493mn, dropping by 17.3% YoY, from certain market prices softening (shrimp, lobster, crab) and lower volume due to the rightsizing of our Frozen business in the U.S. This is partially offset by some growth in the salmon and feed businesses.

2Q23 GPM was at 9.6%, an impressive improvement from both branded and private labels, thanks to favorable raw material prices, especially shrimp price dropped to the lowest in 11 years in June 2023 at THB 120/kg, portfolio rationalization and inventory management, despite lower prices and volumes.

1H23 frozen and chilled seafood sales dropped by

16.3% YoY. Frozen & chilled performance remains challenging from inflationary macroeconomics in the U.S. However, we have seen signs of improvement, especially in the restaurant industry from lower customer inventory. GPM improved to 8.8%.

PetCare3:

Recovering gross profit margin, thanks to net pricing/mix improvement

	2Q22	3Q22	4Q22	1Q23	2Q23	1H23
Value	5,442	6,210	5,568	3,495	3,169	6,663
Brand	1.2%	0.6%	0.2%	0.1%	0.1%	0.1%
PL	98.8%	99.4%	99.8%	99.9%	99.9%	99.9%
Volume	34,776	38,405	37,485	23,562	21,574	45,136

Value (unit: THB mn), Volume (unit: ton)

3 PetCare business includes PetCare (wet-based cat and dog foods, cat and dog treats).

destocking for our customers, especially the U.S. and Europe, negative product mix, and lower freight prices.

2Q23 GPM was at 20.2%, recovering QoQ, yet declining from exceptional last year, mainly from lower volumes, higher raw material costs, product mix, and inventory provision.

1H23 PetCare dropped by 32.8% YoY, due to destocking issues in the U.S. but has showed a slow recovery, while Europe remains soft. However, we have seen signs of improvement since June 2023 from both global brands and private labels, especially in the U.S. and Japan. GPM was at 19.0%.

Value-added and others4:

Gross profit margin dropped mainly due to value added products and packaging

	2Q22	3Q22	4Q22	1Q23	2Q23	1H23
Value	2,691	2,741	2,505	2,248	2,260	4,508
Brand	13.8%	13.7%	11.6%	12.7%	18.5%	15.6%
PL	86.2%	86.3%	88.4%	87.3%	81.5%	84.4%
Volume	48,320	52,184	53,313	48,032	45,837	93,869

Value (unit: THB mn), Volume (unit: ton)

4 Value-added & other businesses include value-added businesses, ready-to- eat products (surimi-based fish snacks, dim sum, bakery products, packaged cooking sauce, scrap from fish and shrimp processing lines), packaging, printing service for can labels, ingredients (crude and refined tuna oil and algae oil), supplements, and alternative protein.

2Q23 value-added and other businesses sales stood at THB 2,260mn, dropping by 16.0% YoY due to continued soft demand across all segments and product mix. However, we have already seen signs of improvement from last quarter.

2Q23 GPM dropped to 25.7%, mainly due to negative product mix and lower volume, especially value-added products and packaging. This was partially offset by lower raw material prices.

1H23 value-added sales dropped by 12.9% YoY, mainly from sales decreasing from a high baseline last year and soft performance across all categories. GPM was healthy at 26.5%.

Sales breakdown by brand vs. private label:

Unit: THB mn

126,275 132,402	141,048 155,586
	38%
		41%
41%	42%		75,217			Brand
		66,709
59%	58%	59%	62%	39%	41%		Private
		61%	59%		label

2Q23 PetCare sales stood at THB 3,169mn, dropping

by 41.8% YoY after last year's exceptional performance, continued soft demand from inventory

2019

2020

2021

2022

1H22

1H23

1H23 branded and private-label business sales mix was at 41% and 59% respectively.

To be the world's most trusted seafood leader, caring for our resources	5
to nurture generations to come.