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

Can I interject a little bit highlights? You could see that the cement, if you look at the market, it's actually is not good. But if you look at our performance, it's getting better and better. And as said, second half, we look at the brighter in terms of cement and construction because the government budget already passed and now disbursed. I heard that at least to last week, 80% already disbursed. And the way we adjust is adjust on the completeness on the energy price, on the cost optimization. . But more importantly, we have made many cement, as you can see. We the Rhino cement, okay? If someone maybe wants to have a very tough, Rhino. We have the Star. We have Adamax. So these are the things that need to adjust to respond to micro segments of the market in order to serve. So the green is a flagship of cost, but you could see that business has been adjusted significantly to answer to this demand, and the result is quite okay. The market is tough, but we are not standstill. That one I tried to highlight. So because he is so polite, so I need to put some highlight a little bit, okay?

Good morning, everyone, for the Smart Living and Distribution and Retail financial highlights. In this quarter, our overall performance declined due to seasonal factor. However, we continue healthy profitability in both EBITDA and net profit in the first half year. While the revenue dropped 4% year-on-year from the softened demand in project and again to low segment that people mentioned. For the Thai building materials market situation, building material in the first half dropped 8% due to the residential segment. However, the commercial and government segment showed some recovery signs. For the regional market demand, slightly pick up in some countries. You see the demand in Vietnam and Indonesia also. We expect to see the positive trend in the second half of the year. For the Smart Living highlights, the journey toward inclusive green growth is gaining momentum. Here are some recently achieved. One is we developed the SCG ventilation tile to help ventilate the spaces under the roof. And the second one, we are expanding SCG Green'In Wood which is made from bamboo that offers the same beautiful look and feel. Our business is achieved THB 142 million in cost saving as we used Green'In Wood energies. During the first half of this year, we're enhancing our overall cost competitiveness. For the Smart solutions, solar sales momentum is continuing with strong growth in both segment, residential and commercial and industrial also. And we drive the energy efficiency a quarter, that was building segment by expanding our smart building solution, and we also developed a new model for the SCG HEIM. The 3.2 meter to height is a new model for the customers. And for the distribution and retail, we proceeded in extending our business globally. In India, we partnered with a big-box construction to land lightweight concrete wall factory in Gujarat. And in Indonesia, our partner is Mr. Chen, rating modern trade reserve in Indonesia, opened 2 new brands in Sumatra and West Java, reaching to 50 stores in total. And for the outlook, in the second half, we anticipate to see the recovery of Thai market in both segment, the government segment and the private segment. For the regional prospects, a recovery in some currency. However, we still aim to achieve inclusive green growth as far as continued [ NPD ] and HVA strategy and go with the smart solution with new HVAC scrubber model which is smaller than the PV ones and improved cost competitiveness to the solar energy. And we use the digitalization to improve our supply chain operation and reinforced our distribution in ASEAN and beyond responsively to different need in each area. That's our Smart Living and Distribution. And another part is SCG Decor. The SCG Decor, the performance in the second quarter showed a positive sign in the EBITDA and net profit have increased both year-on-year and Q-on-Q. the EBITDA was THB 910 million, increased by 13% year-on-year and 7% Q-on-Q due to the ability to maintain the selling price and efficiency enhancement, the project of the cost savings. Net profit was THB 283 million, also in line with EBITDA, increased 45% year-on-year and 10% Q-on-Q. Revenue, however, we dropped at 8% year-on-year and 3% Q-on-Q. The market demand is still soft. And EBITDA margin has improved to 14% which aligns with the gross profit margin that increased 27% and net profit margin increased 4%. In terms of the half year, the EBITDA was increased 7% and net profit was increased 36%, even though the revenue dropped by 7%. Order margin improved. EBITDA margin in the first half, it increased 13%. The gross profit increased 76% and the net profit margin also increased at 4%. That's all for me.

I'll start with the SCG Packaging, which they already have the analyst conference on Tuesday, so I will just quickly recap that first half performance. For the first 6 months, sales revenue was about THB 68 billion; EBITDA, THB 9.8 million, and then net profit is about THB 3.2 billion. That increased both on year-on-year and half-on-half. The good results was contributed to SCG Packaging's effective management of the raw material sourcing and also their continued effort in terms of the energy cost savings. Looking at by country, Thailand performed as expected. Vietnam is doing much better than what we expect in the first place, but Indonesia performed a little bit weaker than we expected. On the financial part, starting from the net debt. At the end of June, net debt was about THB 290 billion, increased about THB 20 billion from end of last year. Net debt to equity. 0.6x. Net debt-to-EBITDA increased quite a lot from the end of last year to THB 5.7 billion. If you observe, the net debt level doesn't increase that much. But net debt to EBITDA increased from 5x to 5.7x. That's pretty much because of the lower EBITDA cycle of the chemical business. We have taken actions, and we will continue to do so to kind of deleverage our leverage position. We will explain more in details at the end in terms of the measures that we have taken and the new measures that we will be taking. In terms of the capital expenditure and investment, first 6 months, it's THB 17.6 billion. A little bit more than half of that came from the Chemicals business, on the ROC turnaround and also the LSP project. Full year, we still expect the CapEx in the range of THB 35 billion to THB 40 billion. And please note this excludes the Fajar acquisition that will take place in the third quarter. Despite the high leverage that I mentioned, I would say our financials in terms of balance sheet remain very solid. We have cash on hand at about THB 78 billion at the end of June. And the composition of our loan portfolio remains pretty much unchanged. Majority came from debenture. It's majority in Thai baht. So majority of the interest is already fixed. That concludes my part. Sorry, I have one last slide. It's the dividend. So yesterday, our Board approved the interim dividend of THB 0.025 per share. That equates to 49% of the payout ratio. And this dividend will be paid on the 23rd of August. So for us, in terms of the net zero road map that we have and good progress that we set with the science-based targets initiative at 25% in 2030. So so far, so good. Next is we're doing very well in terms of using the gas energy source. So in domestic Thailand, you can see that we have been able to use biomass and consumer waste as a raw material for the energy use. So now it's about 40% of domestic cement consumption. In terms of the low-carbon product, as was explained, we're doing quite well considering the economic headwind. The low-carbon cement is making good progress and good growth. For Saraburi Sandbox, which is our inclusive, broad based ESG initiative to achieve the low-carbon society. So in terms of renewable energy, we were able to work with the Princeton University to the energy transition road map for Saraburi province and starting to do the study on how to scale up the energy transition for Saraburi. And in terms of the community, we work with the farmer in terms of doing the level of the low-carbon rice. So we used the technique that you see in the web, drying technique, to grow the rice where we are making good progress. And also we're very hard with the community to build a job for them, so especially in terms of the eco-tourism and community forests. These are our initiatives for sustainability.

On the Cleanergy, so Cleanergy still have a steady growth. So we are adding more and more megawatts. As I used to say, Thailand still need a lot of grid megawatt. Now our renewable energy portion is just 80%. Immediate target should be 30%. And later on, if we want to achieve the NDC and maintain our competitiveness in the overall industry, we need to go for the 50%. So that's why green megawatts is still very, very important for the country. And now I start to separate into the operational megawatt and also decided megawatt. Operational megawatt is 2027 and decided megawatt is an additional 475. So every month, we have a new customer joining our private PPA. And every once in a while, we have a big lot of the government PPA. So we are developing this in Thailand and also working several projects in the region. Some of the key examples is the Seagate now already be part of our private PPA, Linde and SNF. So you could see it get going. Another thing that we are working very hard and put a lot of effort on is to decarbonize the industry through the heat battery. This project already demonstrated the feasibility of the replacement of the boiler especially those who use the diesel or the oil or the LPG for generated steam, so these are the things that are easily feasible to use this, the heat battery. And now we're working on 54 customers in various industry on the detailed engineering and the facility study to show them. You could see the demand is pretty strong. And we hope that our first unit in Thailand will be complete next year. And then that will create even stronger and clearer picture of these potential technologies. So Cleanergy is still steady growth. We are moving forward on this new business segment. So that's on our detail of each business. Maybe I'd just touched on the outlook. The outlook is something that's probably worth to discuss because if you see, our fourth quarter, first quarter, second quarter, I think getting better and better and better. And in terms of Cement, in terms of the Packaging, in terms of the Building Battery or Smart Living, we start to see things get improved. However, the big channel is still in the Chemical. As already mentioned, the delay in the capacity in the first half will come in the second half. So that means pressure will still be there. The geopolitics, that will compress trade, and that means the trade cost and also the trade flow will be the key volatilities. So globally, pricing risk, in my opinion, we look at it as a rising risk, still highly uncertain. One thing for true is tariff barrier will increase. Anyone becomes the U.S. President, so that elevated trade war is there, okay? And Thailand is something that's also worth mentioning. Tourism is good. if you just look at on the number of tourists coming in. Lisa bringing more of the tourists. This is good. I think that's pretty clear. However, emerging risk of the slowdown in many sectors due to the elevated household debt and the bank also slowed down in terms of credit lending, especially on the medium to low segment, that creates friction in the growth. On another hand, the government already come and help on the government budget. So you could see one force is pulling down, another force us is pushing up. So will see uneven growth in the Thai economy. We're now in Indonesia, you see a different picture. I think it's growing in these 2 countries. That's why our business strategy will shift very quickly to target to the growth. People already mentioned about India. For me, it's a very important step that we put the manufacturing plant in India, and we can up and run, and sell it all. So this is a good start. India is a very big construction market. And our technology, our products are needed, but we need to find a way to set up the manufacturing facility in India. If we can do it, I think long-term growth is there. And we are setting up the office in Riyadh to tap into Saudi Arabia and the Middle East. So that's the another thing we are working on. In terms of the Chemical piece, I mentioned it's still in the trough. We see very slow improvement in the gap. Gap is pretty low now and still really, really slow coming back. So that's why we need to be very cautious, okay? We need to be very careful on the product chemicals. Our LSP in [ Hasan ] we started up. But after that, we have to optimize it. That's the fact of life. So this is not the first time we start up the new complex in the trough, but I hope the last time. But anyway, this is not the first half. So we know what to do during this situation. Cement business, we enhanced the competitiveness in Southern Vietnam, better access to the OEM clinker grinding plant, we lack of the grinding plant in Vietnam and now we can access to the OEM of the grinding plants. That helped. So that will help in the long run. Efficiency improvement is there. You can see how are the players. When we do the decarbonization, we are not paying in terms of return. But actually, we do it in a way that we become more competitive. And mentioned about net debt-to-EBITDA, our debt has not increased, but our EBITDA is still suppressed by the LSP in particular, that's the fact of life. Even though the Chemical Thailand operation is still profitable, the quantum of the depreciation and interest of the LSP will pull us down, so that's our worry. What should we do? We will not just say that because of the LSP we do nothing. We faced the facts. And one of the things that we will do is streamline the CapEx, and we have done all along. There will be more because, if the outlook is so uncertain, okay, we have to put priority on our net debt and EBITDA, so we slowed down on the CapEx. The lease cash from the working capital. That's something we will squeeze further using the AI, using all the operation efficiency, I think we can squeeze further of this working cap. And that will go straight to the debt reduction. So early assets and streamline the low-performing business. So this is a good time. When the water is low, you see all the issue, then it's time that we will cut and stop. Actually, we already stopped some for the Express business, that you're able to express, we stock that one, okay? Some of the green construction target for the general construction we started, okay? So you could see that the business has to be improved in terms of fitness, okay? We have to do that. And we already show that we adjust. Now we are not only for the premium segment anymore, we will serve our segment. We will serve, okay? So you could see that we have Rhino, we have the Star, We have the Adamax, we have Bezt. This is the way to make it work. And energy efficiency will be the main and sustained long march because the more that we do on the energy efficiency, we can reduce carbon, we can improve our cost position. Strong financial position is important. We still have high cash, but mainly because we're not quite so sure about the long-term outlook, okay? So if the things set out, we see over the horizon, then we can optimize this, but so far, need to be prudent, okay? So that's the mood and tone of the business situation and the outlook, okay. [Foreign Language]