The Siam Cement Public Company Limited

Transcription

1 Management s Discussion and Analysis Consolidated Financial Results: Q4/05 and FY2005 Business Overview FY2005 Net Profit of 32,236 MB, down 12% y-o-y. Equity Income from Associated Companies in FY2005 was relatively flat y-o-y. The Siam Cement (SCC) reported FY2005 Net Profit of 32,236 MB, down 12% y-o-y, and Operating Profit of 30,713 MB, down 9% y-o-y, primarily due to decreased performance from the petrochemicals and paper business. Consolidated Sales showed an increase of 13% y-o-y on higher product prices, while EBITDA decreased 2% y-o-y on increased production costs which was largely attributed to higher energy prices. The income tax for FY 2005 was 7,702 MB, reflecting the effective tax rate of 23% for the year. In Q4/05, when compared to the previous year, both Q4/05 Net Profit and Operating Profit registered 5,102 MB, down 46% y-o-y and 45%, respectively, primarily due to the 35-day maintenance shut-down of the naphtha cracker. Similarly, EBITDA decreased 32% y-o-y, while Consolidated Sales decreased 2% y-o-y. On a q-o-q basis, Q4/05 Net Profit decreased 39% q-o-q, while Operating Profit dropped 36% q-o-q, attributed to the mentioned naphtha cracker shut-down. Likewise, EBITDA dropped 20% q-o-q to 9,419 MB, and Consolidated Sales dropped 12% q-o-q to 50,030 MB. Equity Income in FY2005 amounted to 9,934 MB, up 1% y-o-y, with major contributions coming from the associated companies in the petrochemicals businesses. On a quarterly basis, Q4/05 Equity Income registered 2,991 MB, flat y-o-y but up 21% q-o-q. Dividend from Associated Companies (SCC stake of 20 to 50%) during FY2005 was 6,571 MB, up 54% with gains coming from most of the associates. Table 1 - Consolidated Results Q4/05 % Change % Change FY2005 % Change MB y-o-y q-o-q MB y-o-y Net Sales 50, % -11.6% 218, % Net Profit 5, % -39.4% 32, % Operating Profit 5, % -36.2% 30, % EBITDA 9, % -20.0% 53, % EBITDA from Operations 8, % -24.9% 46, % EPS (Bt) % -39.4% % EPS from Operations (Bt) % -36.2% % Full Year Dividend Paid (Bt/share) % As a % of Operating Profit % Note: Operating Profit = Profit before extraordinary items. EBITDA = Earnings before interest, tax, depreciation, and amortization, plus dividends. EBITDA from Operations = Earnings before interest, tax, depreciation, and amortization. Petrochemicals FY2005 was a profitable year, despite oil price hikes as the industry was still on the plateau. Sector Summary FY2005 was marked as an extension of a profitable period for petrochemicals producers, as increased global demand kept pace with new production capacity. HDPE price traded in range of $870/ton (Q2/05) to $1,160/ton (Q3/05), while the average yearly price registered at $1,034/ton. The HDPE-Naphtha price gap declined slightly by $28/ton y-o-y to $548/ton, but Ethylene-Naphtha price gap dropped $118/ton y-o-y to $425/ton. The year also saw continued volatility in Naphtha prices, reaching as high as $617/ton (Q4/05) and averaged $486/ton (up $97/ton y-o-y) as it tracked the global crude oil prices closing which saw supply disruptions due to hurricanes in the USA (Aug-Sept 2005)

2 Paper & Packaging Improved sales volume, but squeezed margins continue. Moreover, average prices of Ethylene declined $21/ton y-o-y to $911/ton, as a result of the 3.8 MT in new supply mainly from China, and Iran, in addition to softer demand of non-pe derivatives. The PTA market collapsed in Q2/05, as a result of the trade quota dispute between Chinese and US/Europe, which has recovered some what. However, MMA continued to experience tight supply due to no new major capacity. Sales in FY2005 improved 15% y-o-y to 86,084 MB on higher product prices overall. EBITDA dropped 17% to 19,653 MB due to lower product to feedstock margin and the 35-day maintenance shutdown of the naphtha cracker in Q4/05. However, Operating Profit dropped 10% y-o-y to 16,263 MB with help from the 22% y-o-y increase in Equity Income (6,811 MB) from associated companies. On a quarterly basis, HDPE price in Q4/05 rose to the average of $1,087/ton up $71/ton q-o-q, while the HDPE-Naphtha price gap increased $75/ton q-o-q to $560/ton, due to the tight supply in the USA after devastation from hurricanes Katrina and Rita. Naphtha price marginally declined q-o-q following a gradual decline of crude oil price from the peak in 3Q/05. In light of the Q4/05 35-day maintenance shutdown of the naphtha cracker, Polyolefins sales volume dropped 15% q-o-q to 241,551 ton, resulting in the 17% y-o-y and 24% q-o-q drops in Sales to 18,294 MB. As the naphtha cracker is the major profit driver of the integrated margins, EBITDA decreased 80% y-o-y and 71% q-o-q to 1,376 MB, while Operating Profit decreased 46% y-o-y and 38% q-o-q to register 2,915 MB. Equity Income contributions from the associated companies registered 2,447 MB, up 33% y-o-y and 22% q-o-q. In Q3/05, the Petrochemicals division announced its plan to invest $1.5 Billion to construct a propylene-rich naphtha cracker ($1.1 Billion joint venture with Dow Chemicals) and $400 Million for a wholly owned and integrated Polyolefins operation with emphasis on high-value noncommoditized products. Commercial start is expected in FY2010. The Packaging Paper business recorded FY2005 domestic sales volume of growth of 10% y-o-y, primarily as a result of the consolidation of Thai Cane Paper (TCP), as well as growths in the packaging industry. Export sales during the year remained relatively unchanged at 21% of total sales volume (22% in FY2004). Realized prices of Packaging Paper in Q4/05 decreased slightly by $5/ton q-o-q, averaging $405/ton, while prices of Recovered Paper dropped $10 q-o-q to $135/ton due to decreased purchasing from China and increased supply from North America. In the Printing & Writing Paper (P&W) business, FY2005 domestic sales volume growth was relatively flat. Export sales volume was up slightly to 16% of the total sales volume. Realized prices of P&W Paper in Q4/05 increased $5/ton q-o-q to $815/ton on seasonal demand for New Year printing. The average prices of Long-fibre Pulp remained unchanged q-o-q at $505/ton. Prices of Short-fibre Pulp dropped slightly by $5/ton q-o-q to an average of $525/ton, as paper producers avoided high inventory at year s end. Sales for the Paper & Packaging division in FY2005 registered 40,306 MB, an improvement of 5% y-o-y, while operations continued to run at full utilization. However, due to rising energy costs, EBITDA dropped 4% y-o-y to 9,496 MB, while Operating Profit dropped 11% to 3,689 MB. During FY2005, the Paper and Packaging division announce two major investments: 1) 2,900 MB investment to expand the Packaging Paper, and box capacity by 100,000 ton and 120,000 ton, respectively, and - 2 -

3 Cement FY2005 domestic sales volume growth of 8% y-o-y, with realized price of 1,650-1,700 Bt/ton. Building Products & Distributions Lower sales, attributed to the slowing residential housing market. 2) 6,600 MB investment to expand the in P&W Paper capacity by 160,000 ton in the Khon Kan area. The domestic demand for grey-cement in Thailand reached 27.7 MT, up approximately 6% y-o-y. Domestic sales volume of grey-cement for the Cement Division in FY2005 reached 10.9 MT, a growth of 8% y-o-y attributed primarily to the increase in demand from the government sector during H1/05. Domestic sales volume in Q4/05 was 2.6 MT, a slight drop of 1% y-o-y and 2% q-o-q, primarily due to the continued slow demand in the residential housing market. The realized domestic prices of domestic grey cement through all of FY2005 remained in the range of 1,650-1,700 Bt/ton. Export sales volume of grey cement for FY2005 reached 6.7 MT, an increase of 12% y-o-y, assisted by the strong Q4/05 exports. Export prices (FOB) remained relatively unchanged at the $33/ton level. With increased domestic sales volume, FY2005 Sales rose 14% y-o-y to 41,630 MB. EBITDA growth was flat at 0.5% y-o-y as energy cost increased. With decreased depreciation and interest expense, Operating Profit increased 16% to 7,920 MB. On a quarterly basis, Q4/05 Sales grew 14% y-o-y on higher export sales volume, but dropped 2% q-o-q on decreased domestic sales volume. However, with increased production costs as a result of higher transportation of fuel and raw materials, EBITDA increased 1% y-o-y, but decreased 12% q-o-q, resulting in the EBITDA margin of 28.0% (31.1% in Q3/05). With lower depreciation and interest expenses, Operating Profit grew 13% y-o-y, but dropped 17% q-o-q as a result of the drop in the highly profitable domestic sales volume. In Q2/05, the Cement division announced its plan to investment 3,200 MB to build an integrated cement plant in Cambodia with the production capacity of 0.85 MT. Production is expected to commence by The residential housing market continued to grow in FY2005, but at a noticeably lower rate than in FY2004, resulting in the slowing sales growth of roofing products and ceramics tiles nationwide as FY2005 Sales increased 8% y-o-y, compared to the growth of 13% in FY2004. With rising production expenses, both EBITDA and Operating Profit growth was relatively flat y-o-y. During Q4/05, the Building Products division announced its plan to investment 1,100 MB to replace and upgrade the production of fibrecement roofing tiles, and is expected to be completed by H1/07. The Distributions Business continued to grow, with FY2005 Sales expanding 11% y-o-y to 76,070 MB from increased sales of building material. EBITDA was flat y-o-y at 1,546 MB, due to increased transportation cost while Operating Profit grew 111 MB or 12% y-o-y to reach 1,079 MB

4 Table 2 - Sector Summary Q4/05 Change Change FY2005 Change SALES MB % y-o-y % q-o-q MB % y-o-y Consolidated 50, % -11.6% 218, % Petrochemicals 18, % -24.1% 86, % Paper & Packaging 10, % 0.9% 40, % Cement 10, % -2.1% 41, % Building Products 4, % -11.8% 22, % Distribution 18, % -4.0% 76, % EBITDA Q4/05 % y-o-y % q-o-q FY2005 % y-o-y Consolidated 9, % -20.0% 53, % Petrochemicals 1, % -70.5% 19, % Paper & Packaging 2, % -4.8% 9, % Cement 2, % -12.0% 13, % Building Products 1, % -18.0% 5, % Distribution % -22.6% 1, % EBITDA from Operation Q4/05 % y-o-y % q-o-q FY2005 % y-o-y Consolidated 8, % -24.9% 46, % Petrochemicals 1, % -73.0% 15, % Paper & Packaging 2, % -4.8% 9, % Cement 2, % -12.0% 13, % Building Products 1, % -20.6% 5, % Distribution % -26.3% 1, % EBITDA MARGINS (%) Q4/05 Q4/04 Q3/05 FY2005 FY2004 Consolidated 17.3% 25.2% 20.4% 21.5% 26.2% Petrochemicals 6.6% 28.4% 18.5% 18.5% 27.6% Paper & Packaging 20.8% 22.9% 22.1% 23.5% 25.7% Cement 28.0% 31.6% 31.1% 31.8% 35.9% Building Products 21.9% 21.7% 24.4% 23.6% 25.2% Distribution 1.7% 2.5% 2.2% 2.0% 2.2% OPERATING PROFIT Q4/05 % y-o-y % q-o-q FY2005 % y-o-y Consolidated 5, % -36.2% 30, % Petrochemicals 2, % -38.2% 16, % Paper & Packaging % -14.3% 3, % Cement 1, % -17.0% 7, % Building Products % -20.3% 2, % Distribution % 6.7% 1, % Note: EBITDA = Earnings before interest, tax, depreciation, and amortization, plus dividends. EBITDA from Operation = Earnings before interest, tax, depreciation, and amortization. EBITDA Margin = Operating EBITDA, to Net Sales. Net debt at the end of FY2005 was 100,540 MB. Financials Net Debt at the end of FY2005 decreased to 100,540 MB, compared to 100,579 MB at the end of FY2004. SCC s leverage ratio remains relatively stable, reflected by the FY2005 Net Debt/EBITDA ratio at 1.9 times, compared to 1.8 times in FY2004. During FY2005, SCC issued a total of 20,000 MB in 4 year debenture (10,000 MB in Apr/05 at 4.75% fixed, and another 10,000 MB in Oct/05 at 5.25% fixed) to replace the 19,500 MB in matured debenture

5 Interest Expenses in FY2005 decreased to 4,762 MB from 5,876 in FY2004, reflecting the lower average cost of debt at the end of FY2005 which stood at 4.4%, compared to 5.1% at the end of last year. In Q4/05, SCC reached an agreement with Tata Steel Limited to sell its 41% stake in MS, valued at 3,000 MB and pending MS shareholders approval in H1/06. In terms of Dividend payout, SCC has already paid an Interim Dividend (H1/05) of 7.5 Bt/share (9,000 MB). Furthermore, the company s Board of Directors has recommended a further 7.5 Bt/share (9,000 MB) year-end Dividend to be paid for the H2/05 performance, pending approval at the shareholders meeting on March 22/06. The book closing date is April 5/06, with dividend payable on April 20/06. In total, the FY2005 dividend payment amounts to 15.0 Bt/share (18,000 MB), representing 59% of SCC s FY2005 Operating Profit. As of the end of FY2005, SCC will be implementing the cost method approach to booking its assets. As a result, the asset revaluation surplus of approximately 75 Billion Baht will be taken out from the consolidated equity of SCC. Moreover, the non-revalued figures for FY2004 have been presented to allow for accurate comparison of the y-o-y changes which is non-cash and has no effect on cash flow or income statement. Moreover, beginning Q1/06, Thai Plastic and Chemicals (TPC) and Thai British Security Printing (TBSP) will be consolidated into the accounts of SCC, in light of SCC s management control and the fact that SCC is the major shareholder in these companies. In FY2005, TPC had Sales, EBITDA, Assets, and Liabilities of 24,754 MB, 4,009 MB, 20,174 MB, and 8,625 MB, respectively. The corresponding figures for TBSP are 763 MB, 169 MB, 682 MB, and 117 MB, respectively. Table 3 - Debt Profile (MB) Q4/05 Q4/04 Short Term 7,366 6,730 Foreign 1,143 1,388 Baht 6,223 5,342 % of Total Loan 7% 6% Long Term 95,727 97,899 Foreign 1, Baht 94,458 97,832 % of Total Loan 93% 94% Total Loan 103, ,629 Total Net Debt 100, ,579 Financial Ratios FY2005 FY2004 EBITDA on Assets (%) 26.8% 28.6% Current Ratio (times) Quick Ratio (times) Net Debt to EBITDA (times) Interest Coverage (times) Debt to Equity (times) Return on Equity (%) 53.3% 79.1% Note: Net Debt = Total debt (interest bearing), less cash on hand and short term investments EBITDA on Assets = Annualized EBITDA, to Total Consolidated Assets Current Ratio = Current assets, to current liabilities Quick Ratio = Cash + short term securities + receivable, to current liabilities Net Debt to EBITDA = Net debt, to annualized EBITDA Interest Coverage = EBITDA, to interest expense EBITDA = Earnings before interest, tax, depreciation, and amortization, plus dividends. Debt to Equity = Total Liabilities, to total shareholders equity & minority interest (not including revaluation surplus) Return on Equity = Annualized Net profit, to average total shareholders equity (not including minority interest) - 5 -