The Siam Cement Public Company Limited (SCC) Earnings Call Transcript & Summary

[Audio Gap]

[Audio Gap] THB million prior year to THB 99 million this year. ASEAN, in terms of our centers, really no change. What changed is the export in South Asia, which is [ merely ] for chemicals and also for cement products. In terms of our HVA -- percentage of HVA sales actually improved from 32% in 2020 to [ 34% ] for the first 9 months this year. New products also accounted for 15%, which is higher than the prior year. And also the Service Solution now accounting for about 5% of our total revenues. Now I'd like to give the floor to Thammasak [ for the financial figures ].

For financial part, as usual, we start with EBITDA on Assets, which dropped from 12.3% to 11.3%. And this is basically from the COVID situation and inflation impact on the high oil price, high energy price. Hence EBITDA margin stood at 11%. Our net debt is still at THB 224 billion by the end of the third quarter. And you can see this increased due to the [ LSP ] project. Net debt on EBITDA stood at 2.5. And if you exclude [ projects under construction ] it will be 1.3. For the first 9 months, we spent THB 72 billion for CapEx investments. And [ still the ] Chemical business still consumes a lot of investment, 66% against Packaging business spend around 23%. And in terms of the profile of the CapEx and spending, you can see that greenfield and expansion for 47% and investment is 32 -- 37%. Interest and finance cost amounts to THB 5 billion, and this is decreased year-on-year due to the decreased interest cost which stood at 2.8%. Highlight and outlook. Normalized profit stood at THB 9 billion in the third quarter with pressure from the COVID lockdown in Thailand and ASEAN, as well as the increase in the naphtha cost. Normalized EBITDA excludes asset impairment and hence fair value adjustment in the third quarter would have been still at THB 16.8 billion versus reported EBITDA of THB 14.7 billion. 9-month EBITDA generation for the period is THB 70.4 billion, and this is up 22% year-on-year. This is thanks to the expansion of the HVA product sales and ability to sustain the revenue at Cement-Building Materials and also the M&P. Again, just to reemphasize that every third quarter, we will [ without ] take out the impairment and that's asset impairment is non cash. Cash and cash under management stood at THB 69 billion by the end of the third quarter, and we still have a really strong balance sheet [ as you can see ]. CapEx and investment -- planned spending for this year is around THB 80 billion to THB 90 billion and this will go to the LSP project. For 2022, the CapEx for LSP is expected to be around THB 40 billion. For SCG Packaging, this is just to summarize because SCG Packaging already have a separate analyst conference. You could see that still pretty robust performance on the 9 months [ performance ] revenue from sales increased 29% and stood at THB 89 billion. Core EBITDA also improved by 19% and stood at THB 15.7 billion. Core Profit also increased 22% and stood at THB 6 billion. So SCG packaging still achieved the growth strategy as planned, and you can see that high quality targets like Go-Pak, Duytan, Intan [ all these are ] already announced and also captured long-term prospects in Deltalab and this is the [ multiplied stake ]. And also the new production base in North Vietnam and this is another significant growth step [ SCGP ]. I pass to Nithi [ P ].

Good morning, [ kab ]. I would like to start with Thai market. Grey cement demand decreased sharply by 12% year-on-year due to severe COVID widespread beginning in July, which resulted in government order suspension of construction sites lasting nearly 2 months. Heavy rainfall also caused a delay in construction projects. The factors I mentioned affected overall industries. As for residential and commercial segment, minus 12% and 19%, respectively. Infrastructure segment, minus 9% year-on-year. Ready-mixed concrete demand contracted minus 16% year-on-year. Despite weakness in cement demand, the demand for housing products shown positive signs at 2% growth year-on-year, thanks to increased renovation activities, but demand for ceramic tiles dropped 7% year-on-year. In ASEAN cement demand improved in Cambodia and Indonesia, thanks to better COVID situation while big contraction was seen in Myanmar and Vietnam as a new wave of COVID-19 outbreak led to strict lockdown in many areas, especially in major cities, which resulted in lower construction activity and demand. Ceramic tiles sales volume was lower at 15% year-on-year. Thailand sales segmentation. Domestic sales in this quarter rose by 2% year-on-year from an increased sales in distribution business, while sales of cement and housing products contract from 2 month long construction site [ closing ]. ASEAN. Total sales outside of Thailand rose 6% year-on-year, thanks to increased export to non-ASEAN market. Our ability to tap in other foreign markets helped mitigate the demand weakness, both in Thailand and our regional operations. Total revenue from sales in this quarter increased 3% year-on-year as a result of higher export sales, especially to South Asia, East Asia and [ the ex ] market. Normalized EBITDA excluding asset impairments for this quarter dropped 7% year-on-year due to lower demand from COVID and abnormal heavy rains. Meanwhile normalized profit for this quarter booked around THB 1.2 billion or decreased by 34% year-on-year. Outlook. We foresee a better demand outlook in fourth quarter as business sentiment improves both in Thailand and in regional markets. Government spending on [ sector work ] is expected to continue to be a major driver for the domestic cement demand. In the next slide, I will tell you about our preparation for demand recovery post COVID, but firstly it's a brief company update. We steadily grew our retail platform adding 2 new franchise stores to the total of 26 in 19 provinces. We also added 8 domestic outlets, bringing the total up to 62 stores nationwide. This slide shows our preparation for demand recovery post-COVID. Following the easing of government lockdown measures and announcement of the country reopening, we expect economic sentiment to improve as business gradually returns to normal. We plan to capitalize on expected demand recovery by first offering innovative and high-value added products, especially for health and hygiene products to serve the customer at a decent price. We also offer a comprehensive range of service solutions to serve growing demand [ of formulated service ]. With economies reopening, our service team are fully vaccinated and educated to ensure the safety of our customers. Second, we provide complete customer interface via active omni-channel from off-line to online and from online to off-line. Customer may access our products and services from anywhere at any time. Third, with improving demand prospects, we seek to compensate for the cost-push inflation by doing price adjustments to reflect the ongoing market tightness and cost goods. Next, I would like to ask Khun Chana to explain about the new stabilization.

Good morning, everyone. [ May I add ] the more detail on earnings stabilization through fuel cost management and commercial strategies. We still remain confident on our ability to cope with the recent abnormal surge in coal price and to stabilize our profit. We see the ongoing price environment as unsustainably high. And we note the sizable drop in the forward curve in next year as ongoing market tightness gets resolved. Our proactive inventory management, advance contracting activities and trying to maximize the use of domestic alternative fuels are helping to ensure our fuel costs will be under control. The waterfall chart that you see on this slide illustrates our framework for the fuel cost management. As you can see, when taking into consideration our mitigation activities, we expect our cement production cost in next year to increase about 10%, translating to a per tonne increase in cement production cost is about [ 5 to 6 ] per tonne. This caused by the average cost of coal increase next year, about [ USD 20 ]. We still believe this magnitude of production cost increase is manageable. Our commercial strategy, including the high value products and offering localized and customized solutions, and end-to-end value chain management are also being [ deployed ] to help compensate for the increased coal cost. You [ can optimize ] EBITDA and profit and balance the business amid the ongoing inflationary environment. May I pass to [ Tana kab ].

Good morning. Chemical business in the third quarter. And I -- next slide, please. I would say that actually, third quarter like Khun Roongrote mentioned about the situation the crude oil price cost move up [ substantially ]. And in addition, the COVID situation also a key factor that happened in ASEAN, including Thailand, you may -- if you remember -- I mean you will remember that when they started lockdown [ Bangkok harbor ] fully locked down and then especially Thailand and Vietnam. So that's why for those sectors, what you have seen here, the [ gap of ] product and raw material declined. But in term of performance highlights that we would like to say that through -- because what we have seen in the situation in third quarter that lockdown happened, we have to manage ourselves even though the [ freight ] tightness also a still problem, but we can manage to export our products. And so we can keep our operation, I mean 100% operation. So we are [ in polyolefin ] the volume, we can meet the volume [ and met ] more than 500,000 and in term of PVC as well. Actually, Chana Poomee mentioned about the construction activity stopped in ASEAN. So we also managed to export our product to other countries, for example, South Asia, India. So this is something that we can manage quite -- I would say that quite well respond to the COVID impact situations. And LSP construction process during the full lockdown in Vietnam. So we have to manage our construction level, so we can continue [ on whatever level say ], so we can keep our momentum for construction, and we will still believe that we can keep on [ time ] of the [ LSP ] bookings. And for HDPE and naphtha gap, like I mentioned, for the third quarter because of the oil price and naphtha costs are coming up and also the COVID impact is not -- not only in Thailand but in ASEAN so the spread between HDPE and naphtha declined compared to the second quarter. But what we have seen, I mean, if we look at to date this week, we have seen that demand also after the -- I mean, the naphtha lifting the lockdown. And in terms of the supply in China, what we have seen, what we call the [ dual ] control situation that we limit some supply in China. So it means that what we have seen that [ capping ] growth for this week. Look at PP and naphtha price, I think the situation is more or less the same. The third quarter, the gap declined compared to the second. But when we -- after lifting the lockdown and demand seems to be improved, quite good. And again, I mean, they have [ not ] dual control in the -- there's a kind of supply limit in China. And this [ one can ] what we have seen [ this week that seems to be lessened ]. And for PVC, PVC, like I mentioned, actually during the construction lockdown actually the domestic demand declined. In Vietnam, also they have a very solid full lockdown. So again what we did we have to manage our sales that we can that -- our sale of the product. But at the same time, I believe you can see that the gap in the third quarter, the gap declined and look forward to fourth quarter the demand already come back. So I think this is [ Q3 for qv ] And in addition, like I said, dual control also limits the, for example, the [ carbide portion ] in China [ multiply the ]. Benzene and Toluene. Actually, Benzene and Toluene what we have seen the gap in the third quarter improved slightly okay compared to second quarter, not that bad. And one thing that what we have seen, the downstream operations, there is a [ gap ] demand weakness in the downstream operation due to COVID situation in China. And Toluene naphtha gap at more or less the same situation [ with benzene ]. In terms of MMA gap and BD gap. MMA gap. What we have seen, we can still maintain the price but the cost of the -- cost push, so the gap slightly declined compared to the second quarter. And what we have seen that this one [ do ] in terms of the dual control, on one hand, that our main product like PP and PVC, we see some limited supply. But in terms of the MMA, we've seen some [ downstream ]. They also have to slow down. So that demand will be a little bit soft. And BD and naphtha, actually what you have seen here [ that acar for ] additional supply in place in China and in ASEAN and in Asia. But in the third quarter, what we have seen in the first 2 months, the gap is quite high because [ there is a shortage] situation in the Western. So there's [ arbitrage now ] volume at most from Asia to Western country. And after that when they resume, including with the additional supply so that's why the BD gap. And in terms of Polyolefin sales volume. Like I mentioned, we'll say that during the COVID impact and the domestic market in Thailand and in ASEAN, what we did and what we will be doing now we monitor closely and we try to adjust our product mix and product destination, including the freight. When we ship away from the COVID center [ we enter and the freight shortage ]. So this is something that I would say that we manage very well and hope we can have a higher sales volume compared to the previous quarter. And if you look at the last 9 months you see we have total volume also come up. If we see volume, I think this is the same situation. What we did, we moved product, I think to export to other country. There's still a lot of demand. That's why you can see higher volume compared to the second quarter. Financial revenue from sale. The revenue flat Q-on-Q. And if you compare 9 months this year and last year, of course, because of the -- I mean the raw material cost come up and the product price also come up substantially. So that's why the 9 months this year are higher than last year. Quite substantial. EBITDA in the third quarter because of the -- like I mentioned in the highlights that the cost push and the COVID strong impact to the ASEAN so we have to ship away the product to the destination that we can still have the demand. So the EBITDA declined from those reasons. And -- but if you look at the 9 months this year and last year, EBITDA also grew quite substantial compared to last year. Profit. Similar to the EBITDA because of those cost push and COVID impacts so therefore it declined from the previous quarter, but look at the 9 months compare this year - last year, then we also have substantial growth in terms of profit. This is the new slide that we would like to start to communicate to the analysts. That this is associated performance that we likely lost it in terms of the end market. What we would like to say that we have a very good, I mean, a combination of the associates at company performance in mainly in end market segments. For example, when we mentioned about the consumer packaging, this is something that you will see in the [ car ], high growth market, automotive, also one of the good industry product. Building construction, actually, this will include not only the building, but I mean [ nesocarb ], for example, the [ delinible ] segment material that we supply. And medical and well-being, this is something like we also produce material that are used in the health care business. So in a big picture, you can see that I think if we calculate contribution then for this year, the associates' performance contributed about 40% for this 9 months of this year. And look at in terms of the especially in our effort [ add to revenue ] we're talking about 40% to 50% of high value added product. And outlook. What we foresee for the outlook that -- in terms of the demand, we see that after lifting the lockdown, the demand come back quite strong. [ If an can help ] improve the gap and not only for polyolefin in term of PVC, the demand also [ fifor ] and especially in the agricultural and construction sector. And in terms of supply, what we -- like I said, what we have seen that for, I mean, both polyolefin and PVC. In terms of supply, even though there is a new additional capacity, that there's some capacity to add -- new capacity add up. But at the same time, they set up dual-control policy that what we see the impact in term of the supply in China that they have some [ problem ] that they have reduced the energy per GDP required that they have to reduce their production, for example. But okay, of course, in terms of the crude and naphtha [ we see ] that there’s still a stronger demand because after lifting the lockdown in many countries, the demand of the gasoline and other petroleum products are also quite high and this is the outlook. Anyway, before I discuss the company updates I want to touch on something that you may have seen in the unfortunate news about an incident that occurred at our [ Map Ta Phut ] our SCG Chemicals subsidiary while maintenance work was being done by our contractors at 1 of the naphtha tank which was empty. A fire broke out and last relative shortly but still did result in [ injury and casualties ]. We feel deeply sorry for the [ incident ] and [ not ] even have caused terrible loss for our contractor. We currently are investigating what happened in the hope of finding what went wrong and how incidents such as this can be [ even ] in the future. And we are also doing our best to assist our contactor during this difficult time. And operation-wise, I can confirm that both our sector and our [ CMOC ] these are operating normally. Basically because the incident happened at the time that was empty and not in use and was undergoing maintenance when the incident took place. And the company update. LSP project, like I mentioned, even though we have a tight lockdown in Vietnam, but for the focus still quite good, now the focus is at 87% on plan, maybe I'll show you some detail that what we prepare for commissioning and start-up. For the -- and another update that you may have heard that we signed MoU with Braskem to jointly to invest in a new bio-ethylene and bio-based polyethylene in Thailand. When we have more details [ happy to update this ]. You see the picture of the RFP. You can see that most of the main part, especially for utility and [ tep ] they already complete and you see the big picture that you can see from the top view. In terms of the preparations, what we have to prepare, we still plan to commercial startup in the first half of 2023. And to prepare ourselves to ensure the vertical start up, what we're doing now because of our construction, for example, the port already 100% complete. Utility, like some of them, we already started up, for example, from [ plan and some in ] and utility now we are 95% complete and tank farm 90%. And also to make sure that we can do the marketing activity properly, so we do the pre-marketing. We have already do the pre-marketing activity at the moment. So that's all I have. May I pass back to Khun Roongrote.

Thank you. I'd like to spend a little bit of time in terms of the ESG and sustainable development of our group. A few things that we have done. One is that from now on, we will begin the reporting carbon emissions for both domestic and regional operations. Secondly, we will also make a change from intensity-based carbon emissions, which is in short, emissions for [ carbon ] volumes of reduction to absolute level is this reduction plan. Third is that we will set a more ambitious carbon reduction target. Basically, Scope 1 and 2 carbon emission reduction by 20% from 2020 to 2030 with the commitment to become net zero by the end of 2050. This graph is showing our emission. We convert everything into the carbon dioxide. The top 1 is the combining both Thailand and also regional operations. Dotted line below is Thailand operations only. For example, the Thailand operation was 24.98 million tonnes in 2015. We have reduced now to 23.34 million tonnes. And if we look at the consolidated operations, today we are at 33.9 million tonnes by the end of 2020. We are planning to start up the operations in Vietnam. So the figures will increase in the next 2 or 3 years. That would be the peak year, roughly in the year of 2025. And then the plan is to reduce it to 27.1 million tonnes, which is [ cut it by ] 20% reduction by 2030 and then down to 0 by 2050. The following are our actions, energy efficiency, using the low greenhouse gas energy sources. We also introduce more low carbon products, and we will invest and try the carbon capture technology. And finally, is the national climate solutions, which is a way of offsetting the carbon emissions generated by our operations. This is also more details in terms of our greenhouse gas emission. As you can see here, we achieved about 3.8% compared to last year for the first 8 months this year. On the right-hand side is our Green Choice product, which now accounts for about 40% of our total sales. These basically are the organizations and the indexes where we joined in terms of sustainable development. For example, Dow Jones Sustainability Index, MSCI ESG, Sustainalytics and also the, for example, the CEFLEX for packaging and also Alliance to End Plastic Waste. In summary, the third quarter, we achieved THB 9.1 billion in terms of the operating profit. Net profit are still lower, down to THB 6.8 billion as a result of the lockdown and also increased cost and also the [ revaluation of the divestment and the asset retirement. Over the last first 9 month, result was healthy and solid. In terms of the chemicals business restructuring, we are on track, for example, the just past 2 weeks, we also filed for the debenture for SCG Chemicals. The outlook, nevertheless, is a lot of uncertainty, particularly in terms of the shape of the recovery of the demand and also the increased trend in terms of energy prices. We also have taken very proactive measures in terms of managing our costs. We will also focus on the sustainable growth, integrating the ESG principles into our business model. I think the Company remains committed in the strong execution and operational excellence in the areas and entities where we operate. So that's about all of our [Audio Gap]