Minh Phu forced to adjust business plan to COVID-19 realities
Vietnam’s largest shrimp producer and exporter, Minh Phu Seafood, has had to lower expectations on its 2020 earnings and scale back its expansion plans as it adapts to the new business realities created by the COVID-19 pandemic.
At its annual stakeholders meeting on 27 June, the company approved a plan to export 56,700 metric tons (MT) of shrimp, set an export value target of USD 638 million (EUR 567.7 million), and a target of earning profits before tax of VND 994 billion (USD 42.5 million, EUR 37.8 million) this year.
The new targets are lower than the ones it set in February, a result of the coronavirus crisis. In February, Minh Phu’s board of directors targeted production of 63,000 MT of shrimp, an export value of USD 709 million (EUR 631 million), and profits before tax of VND 1.37 trillion (USD 58.5 million, EUR 52.1 million) in 2020.
Pre-coronavirus, Minh Phu sent abroad about half of its export volumes – comprised mostly of larger-sized shrimp of 25- to 40-count per kilogram – to restaurants, hotels, casinos, and cruise ships. But the total percentage of its shipments of those size of shrimp has declined to between 10 and 15 percent of its total exports as the foodservice sector faces global struggles related to the coronavirus.
Shifting its strategy, Minh Phu is now mostly harvesting and buying smaller sizes of shrimp – moving primarily to 50- to 60-count per kilogram orders. That shift has helped, but hasn’t prevented the company from suffering a significant financial hit, Minh Phu Chairman and CEO Le Van Quang said.
Beside exports, the outbreak of the coronavirus has also affected Minh Phu’s farming and processing expansion plans.
While Minh Phu put in a significant amount of investment in its two major farms – building a total of 400 ponds using its “2-3-4 technology” in the Loc An in Ba Ria-Vung Tau Province and 360 ponds in Kien Giang in Kien Giang Province – many of the company’s employees who traveled back to their homes for Vietnam’s Lunar New Year holiday in late January were not able to come back to work due to the pandemic, Quang said. The company was also reluctant to recruit new workers a few months ago for fears that they might spread the virus through the company’s workforce.
Minh Phu is also facing a shortage of workers at its Hau Giang plant, which has an annual production capacity of 40,000 MT per year. The company is hoping its former workers from leather, footwear, garment, and textile factories – all sectors struggling with lower global demand – will come back to work for Minh Phu Hau Giang in the second half of this year, possibly starting in July.
As a result of the labor shortage, the farming capacity for the first crop this year was between 35 and 50 percent, the company said. In Loc An, Minh Phu successfully farmed and harvested 206 ponds. In Kien Giang, nine out of 200 ponds incurred losses due to the spread of the white spot disease, Quang said, adding that the output of each pond was between 5 MT and 5.5 MT.
Supply from its own farms to Minh Phu Ca Mau and Minh Phu Hau Giang processing plants was about 30 MT per day during the harvest period. The company said it expects its two farms, which currently have a mixed-use set-up with both the “2-3-4 technology” and traditional farming methods, will produce 30,000 MT of shrimp material this year.
These factories have been built up in capacity in recent years to reap benefits from the Comprehensive and Progressive Agreement for Trans-Pacific Partnership, of which Vietnam is a member. The CPTPP is the replacement treaty for the failed Trans-Pacific Partnership, which was effectively killed off by U.S. President Donald Trump early in his term. They had paid high wages to attract many workers from Minh Phu. Quang is hoping more recruited workers in the coming months will help Minh Phu Hau Giang increase capacity to 3,000 MT per month, from current 2,500 MT per month. Minh Phu Ca Mau is able to process 3,000 MT per month as well.
“Material is not our concern but workers,” Quang said. “If the labor resource issue is addressed, we are confident that we will achieve production, export, and profit plans this year.”
Separately, the COVID-19 pandemic has resulted in a delay in the construction of a new processing plant, the Minh Qui, in Ca Mau province.
Minh Phu had planned to allocate USD 52 million (EUR 46.3 million) to build the Minh Qui plant, which had a projected capacity of 40,000 MT per year. The Minh Qui was initially planned to construct after Mitsui bought a 35.1 percent stake in Minh Phu in the middle of 2019. The new facility was expected to begin operation in 2020, with the primary goal of meeting demand from China.
However, last year, Minh Phu had to allocate much of its human resources capacity to deal with the ongoing U.S. Customs and Border Protection antidumping duty evasion investigation, and this year, the company has been caught up in coping with the coronavirus. Therefore, construction on the new plant has not begun, Quang said. Minh Phu’s board of directors has decided to plans for building the plant on a temporary hold, Quang said.
Minh Phu will instead prioritize the expansion of its two existing processing plants, the Minh Phu Ca Mau in Ca Mau and Minh Phu Hau Giang in Hau Giang Province. Expansion of the two plants will be easier to implement, as approved land areas are already available, according to Quang.
The board of directors may discuss renewing the Minh Qui project and resuming planning for another processing plant of similar capacity in the southern province of Kien Giang later this year, but only if the COVID-19 outbreak is contained, Quang told SeafoodSource on 29 June.
The expansion plans will increase by the capacity of the Ca Mau plant by 5,000 MT per year, up from its current capacity of 36,000 MT per year, and production at Minh Phu Hau Giang will rise by 8,000 MT annually from its existing capacity of 40,000 MT per year, Quang said, without saying when the expansion will be completed.
Also because of the COVID-19 outbreak, Minh Phu has decided to reduce 2019’s dividend per share from VND 5,000 (USD 0.21, EUR 0.19) per share to VND 1,500 (USD 0.064, EUR 0.057) per share. The move was made to create a reserve fund to help the company cope with the complexities of the pandemic.
Quang said he’s seeing positive movements in the shrimp market. Since the end of June, exports have recovered significantly and are expected to continue to increase through the summer, Quang said, adding that he’s confident the company will achieve or even surpass its newly adjusted annual targets, barring a second wave of the virus flaring up globally.
Photo courtesy of Toan Dao/SeafoodSource