The Siam Cement Public Company Limited Management s Discussion and Analysis (MD&A) Consolidated Financial Results: Q2/10 and H1/10

Transcription

1 The Siam Cement Public Company Limited Management s Discussion and Analysis (MD&A) Consolidated Financial Results: Q2/10 and H1/10 Q2/10 Net Profit of 7,295 MB, up 6% q-o-q and 7% y-o-y. H1/10 Net Profit of 14,152 MB, up 18% y-o-y. H1/10 Equity Income grew 28% y-o-y, mainly from chemicals associates. Continued financial stability, while working capital rose. Interim dividend of 4.5 Bt/Share for H1/10. SCG s Consolidated Performance Overview SCG reported Q2/10 Net Profit of 7,295 MB, up 6% q-o-q, attributed to better performance from the paper business, and increased dividend income from other companies. Similarly, EBITDA grew 12% q-o-q to 12,265 MB, while Net Sales increased 13% q-o-q to 77,371 MB. On a y-o-y basis, Net Profit gained 7% y-o-y, primarily from the earnings growth of the paper business. EBITDA dropped 4% y-o-y, following the squeeze in chemicals margins, and the drop in domestic cement prices. Net Sales increased 36% y-o-y, following the volume growth in most businesses. For the first half of 2010 (H1/10) Net Profit registered 14,152 MB, an increase of 18% y-o-y, primarily from the earnings recovery in the paper business. However, EBITDA decreased 5% y-o-y to 23,260 MB due to lower performance from SCG Chemicals upstream subsidiaries, while Net Sales increased 30% y-o-y to 146,010 MB. Equity Income in H1/10 amounted to 4,131 MB, an increase of 28% y-o-y, as the chemicals associated companies have recovered from the weak H1/09 performance. Total dividends received in H1/10 amounted to 2,466 MB, down 17% y-o-y with details as follows: a) 1,524 MB from Associated companies (20%-50% stake), and b) 942 MB from Other companies (less than 20% stake). Solid financial structure, with cash on-hand of 27,748 MB at the end of Q2/10 and continued solid performance and efficient working capital management. Net Working Capital rose to 45,866 MB, from 37,041 MB in Q1/10, largely as a result of the start-up of SCG Chemicals second complex. The Board of Directors of SCC has approved an interim dividend payment of 4.5 Bt/Sh, and is payable on Aug 26/10 with record date of Aug 11/10 and book closing date of Aug 16/10. Table 1 - Consolidated SCG Q2/10 % Change % Change H1/10 % Change MB y-o-y q-o-q MB y-o-y Net Sales 77,371 36% 13% 146,010 30% Net Profit 7,295 7% 6% 14,152 18% EBITDA 12,265-4% 12% 23,260-5% EBITDA from Operations 11,274-1% 8% 21,736-3% EPS 6.1 7% 6% % Dividend Summary H1/10 H1/09 FY2009 Baht Per Share Payout Ratio (% of Net Profit) 38% 35% 42% Note: EBITDA EBITDA from Operations = Earnings before interest, tax, depre, and amortization, plus dividends. = Earnings before interest, tax, depre, and amortization. - page 1 -

2 SCG Chemicals Trough margin for the PE chain, while the margin of the PP chain is holding up. SCG Paper Continued strong performance. SCG s Business Sector Summary In Q2/10, the average Naphtha price was flat q-o-q at $710/ton but increased $196/ton y-o-y, following crude oil prices which rose $19/bbl y-o-y. Monomer prices decreased due to the influx of supply from M/E producers amid sluggish demand from PE, MEG and SM producers from cautious economic sentiment prevailing in Europe and tightening stimulus package in China. The Q2/10 average ethylene price was $1,088/ton, down $177/ton q-o-q but up $346/ton y-o-y. On the other hand, the average price of propylene decreased only $38/ton q-o-q, but hiked $341/ton y-o-y to $1,138/ton. HDPE prices remained high during Apr-May/10 at $1,200/ton - $1,250/ton, but dropped rapidly to touch $1,100/ton in June/10, following new global supply and decreased demand from China. With the average Q2/10 HDPE price of $1,187/ton (down $132/ton q-o-q), the resulting Q2/10 HDPE-naphtha margin dropped $125/ton q-o-q to registered $477/ton. Faring better was the PP chain which has a tight supply balance in Northeast Asia region almost throughout the quarter. The average price of PP in Q2/10 was $1,348/ton, down $12/ton q-o-q, with the resulting PP-Naphtha price gap of $638/ton, or flat q-o-q. The total polyolefins (HDPE and PP) sales volume in Q2/10 registered 364,000 tons, up 119,800 tons q-o-q, following the start-up of new chemicals complex which consisted of a naphtha cracker and combined HDPE & PP capacity of 800,000 tons. PVC prices averaged $993/ton, an increase of $27/ton q-o-q and $274/ton y-o-y, following the continual price rise of feedstock (EDC, and VCM). The average price of EDC in Q2/10 was $528/ton, up $43/ton q-o-q and $215/ton y-o-y due to tighter regional supply and decreased export from the U.S.A. In Q2/10, the average PVC spread improved by $33/ton q-o-q and $18/ton y-o-y to $310/ton. PVC sales volume in Q2/10 increased 15,000 tons q-o-q and 6,000 tons y-o-y to 170,000 tons following the end of VCM turnaround season and the better utilization rate of the PVC line #8. Net Sales in Q2/10 registered 38,057 MB, an improvement of 31% q-o-q and 63% y-o-y with the additional volume from the new chemicals complex. This has also resulted in the 26% q-o-q EBITDA growth to 4,168 MB, but dropped 18% y-o-y on lower Ethylene margins and the stock adjustment due to falling product prices and feedstock costs in Q2/10. With additional quarterly depreciation, amortization, and interest expenses from the new chemicals complex, Net Profit grew only 1% q-o-q to 3,078 MB, but dropped 6% y-o-y. At SCG Paper, the Packaging Paper segment saw its total sales volume in Q2/10 (Thailand, Philippines, and Vietnam) drop 1% y-o-y and 7% q-o-q. This is attributed to lower seasonal demand in the food and consumer product segments, as well as lower export sales. For the Thai-based facilities, exports accounted for 17% of the Q2/10 sales volume, compared to 28% in Q2/09 and 19% in Q1/10. The regional average price of Packaging Paper increased to $470/ton. Remarkably, the average price of Wastepaper in Q2/10 dropped $15/ton q-o-q to $230/ton as a result of weaker Asian demand (North Asia, China, and ASEAN) for paper and board products. In the Printing & Writing Paper business, Q2/10 total sales volume decreased 2% y-o-y and 5% q-o-q due to the overall softness of market demand. Export sales volume in Q2/10 decreased to 21% of the total sales volume, compared to 36% in Q2/09 and 23% in Q1/10. The regional price of P&W Paper was $990/ton (up $140/ton q-o-q), while the price of Long-fiber Pulp was $870/ton (up $115/ton q-o-q) and Short-fiber Pulp was $810/ton (up $105/ton q-o-q), all due to the continued supply tightness of market pulp in South America, and coupled by the strong demand from China for newly started P&W capacity. However, the rise in pulp prices had limited impact on SCG Paper, as most of the pulp is sourced in-house. Financially, the paper business posted Q2/10 for Net Sales of 12,781 MB, up 21% y-o-y and 2% q-o-q mainly due to higher product prices. Similarly, EBITDA increased 23% y-o-y and 8% q-o-q to 2,630 MB from increased product margins in both the Packaging Paper and Printing & Writing Paper businesses. Net Profit recovered 83% y-o-y to 1,170 MB, 20% q-o-q. - page 2 -

3 Table 2 - SCG's Sectors Change Change Change Q2/10 H1/10 NET SALES (MB) % y-o-y % q-o-q % y-o-y Consolidated SCG 77,371 36% 13% 146,010 30% SCG Chemicals 38,057 63% 31% 67,012 49% SCG Paper 12,781 21% 2% 25,332 25% SCG Cement 12,033 9% -6% 24,866 6% SCG Building Materials 7,795 13% -2% 15,761 15% SCG Distribution 24,358 16% -1% 49,026 15% SCG Investment 74 48% -46% % EBITDA (MB) Q2/10 % y-o-y % q-o-q H1/10 % y-o-y Consolidated SCG 12,265-4% 12% 23,260-5% SCG Chemicals 4,168-18% 26% 7,468-27% SCG Paper 2,630 23% 8% 5,054 38% SCG Cement 2,616-9% -21% 5,917-5% SCG Building Materials 1,371 4% -6% 2,824 18% SCG Distribution 370-7% -18% 820 0% SCG Investment 1,171 14% 365% 1,423 22% EBITDA from Operation (MB) Q2/10 % y-o-y % q-o-q H1/10 % y-o-y Consolidated SCG 11,274-1% 8% 21,736-3% SCG Chemicals 3,441-11% 24% 6,214-25% SCG Paper 2,619 22% 8% 5,043 38% SCG Cement 2,616-9% -21% 5,917-5% SCG Building Materials 1,282 1% -12% 2,735 16% SCG Distribution 365-8% -18% 809-1% SCG Investment 1,012 22% 302% 1,264 31% EBITDA MARGINS (%) Q2/10 Q2/09 Q1/10 H1/10 H1/09 Consolidated SCG 15% 20% 15% 15% 20% SCG Chemicals 9% 16% 10% 9% 18% SCG Paper 20% 20% 19% 20% 18% SCG Cement 22% 26% 26% 24% 27% SCG Building Materials 16% 18% 18% 17% 17% SCG Distribution 1% 2% 2% 2% 2% Net Profit (MB) Q2/10 % y-o-y % q-o-q H1/10 % y-o-y Consolidated SCG 7,295 7% 6% 14,152 18% SCG Chemicals 3,078-6% 1% 6,123 7% SCG Paper 1,170 83% 20% 2, % SCG Cement 1,481-5% -23% 3,405-3% SCG Building Materials % -22% % SCG Distribution % -29% 543-8% SCG Investment 1,389 18% 111% 2,047 29% 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. SCG Cement Q2/10 domestic volume growth of 18% y-o-y, but with softer pricing. Thailand s domestic demand of grey cement in H1/10 amounted to 13.6 MT, an increase of 12% y-o-y. This follows the total Q2/10 domestic demand of 6.8 MT, an increase of 18% y-o-y, but flat q-o-q, with growth coming from both the residential sector due to improved economic outlook, and the government s investments in civil-work projects. SCG Cement s Q2/10 domestic sales volume performance was relatively in-line with that of the industry trend, with the realized domestic grey cement price of approximately 1,550-1,600 Bt/ton, compared to the Q2/09 range of 1,600-1,700 Bt/ton and Q1/10 range of 1,650-1,700 Bt/ton. - page 3 -

4 SCG Building Materials Q2/10 was softer q-o-q, but with y-o-y growth. SCG Distribution Seasonal effects in Q2/10. Net Debt 129,498 MB, up 7,479 MB from Q4/09. Corporate Debenture CAPEX Completion of the existing CAPEX cycle. SCG s Q2/10 export sales volume registered 1.7 MT, a decrease of 0.2 MT y-o-y and 0.3 MT q-o-q due to lower sales to Vietnam. The average FOB export price improved to $40.6/ton, up $2.8/ton y-o-y and $0.3/ton q-o-q, with decreased clinker sales portion. Note, however, that the increase in US$ FOB price is negligible in Thai Baht terms, due to the recent weakened of the US$/THB. SCG Cement s Q2/10 Net Sales rose 9% y-o-y to 12,033 MB, primary on strong domestic sales volume but drop 6% q-o-q from lower domestic prices. However, EBITDA decreased 9% y-o-y to 2,616 MB due to maintenance expenses, and decreased 21% q-o-q as a result of softer domestic prices. Similarly, Net Profit registered 1,481 MB, a decrease of 5% y-o-y and 23% q-o-q. The domestic building materials industry was soft in Q2/10, due to the seasonal effect. SCG Building Materials saw its Net Sales decline 2% q-o-q to 7,795 MB, but showed a 13% y-o-y growth following the acquisition of Quality Construction Products and the recovery of the domestic Building Materials industry. Similarly, EBITDA in Q2/10 dropped 6% q-o-q to 1,371 MB but grew 4% y-o-y, while Net Profit registered 419 MB, down 13% y-o-y and 22% q-o-q as there was a gain from the sale of land in Q1/10. SCG Distribution registered Q2/10 Net Sales of 24,358 MB, a drop of 1% q-o-q, attributed to seasonal effects and decreased product prices. EBITDA dropped 18% q-o-q or by 80 MB to register 370 MB as a result of increased marketing and promotional efforts, and similarly Net Profit decreased 29% or by 93 MB to 225 MB. SCG s Financials Net Debt at the end of Q2/10 stood at 129,498 MB, up 7,479 MB from the end of Q4/09. The Net Debt/EBITDA ratio registered 2.9 times. Finance Cost in Q2/10 amounted to 1,190 MB (FY2009 total was 5,649 MB). The average cost of debt at the end of Q2/10 was at 4.4%. Following the issuance of the 10,000 MB SCG corporate debenture (4 year, 3.85% coupon) on Apr 1/10 to retire the 10,000 MB tranche (4 year, 6.00%), SCG will have another tranche of debenture maturing in Oct 1/10 that is worth 5,000 MB (4 year, 6.25%). Following the CAPEX & Investment of 3,705 MB in Q2/10, and resulting 9,034 MB in H1/10, as SCG is nearing the completion of its current CAPEX cycle. Since 2006, SCG has invested approx 137,000 MB ($4.3 Billion), which will more than doubled the capacity of SCG chemicals, while green-field expansion projects were accomplished in the cement and paper businesses, and M&A (market consolidation) transactions were executed in the building materials business. - page 4 -

5 Table 3 SCG's Debt Profile (MB) Q2/10 Q2/09 Q1/10 Short Term 9,851 2,558 5,909 Foreign 1, ,027 Baht 8,557 1,945 4,882 % of Total Loan 6% 2% 4% Long Term 147, , ,958 Foreign 16,185 16,327 16,341 Baht 131, , ,617 % of Total Loan 94% 98% 96% Total Loan 157, , ,867 Total Net Debt 129, , ,398 SCG's Financial Ratios Q2/10 Q2/09 Q1/10 EBITDA on Assets (%) 14% 16% 13% Current Ratio (times) Quick Ratio (times) Net Debt to EBITDA (times) Interest Coverage (times) Debt to Equity (times) Return on Equity (%) 26% 26% 26% Note: Net Debt EBITDA on Assets Current Ratio Quick Ratio Net Debt to EBITDA Interest Coverage EBITDA Debt to Equity Return on Equity = Total debt (interest bearing), less cash on hand and short term investments = Annualized EBITDA, to Total Consolidated Assets = Current assets, to current liabilities = Cash + short term investments + receivable, to current liabilities = Net debt, to annualized EBITDA = EBITDA, to interest expense = Earnings before interest, tax, depreciation, and amortization, plus dividends. = Total Liabilities, to total shareholders equity & minority interest = Annualized Net profit, to average total shareholders equity (not including minority interest) Table 4 SCG's Balance Sheet Items (MB) Jun '10 Jun '09 Mar '10 Total Assets 332, , ,760 Current assets Cash and short term investment 27,748 29,411 33,469 Accounts Receivable 27,759 21,227 24,561 Inventory 36,888 28,290 35,139 Investments in shares 65,272 55,116 63,783 Property, plant, and equipment 151, , ,076 Total Liabilities 192, , ,171 Accounts Payable 18,781 16,498 22,658 Loans 157, , ,867 Total Shareholders' Equity 139, , ,589 Total equity attributable to the Company's shareholders 112,376 96, ,123 Minority Interest 27,223 25,294 27,466 - page 5 -