Download Slide 1

The Business Trends for Thailand
in 2008 and SCG’s Response to
Thailand’s economic challenges
15 February 2008
Kan Trakulhoon
Revision 6: February 15, 2008
@ 2008 SCG
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Agenda
 Trend and Challenges in 2008
 Global
 Domestic
 Overview of SCG
 Looking Forward / SCG Vision
 Key Challenges and SCG Strategies in 2008
@ 2008 SCG
2
Agenda
 Trend and Challenges in 2008
 Global
 Domestic
 Overview of SCG
 Looking Forward / SCG Vision
 Key Challenges and SCG Strategies in 2008
@ 2008 SCG
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Contribution to World Growth
3.7
3.2
Middle East
Latin Ame
Asia & Aus
EU
USA
In 2007: US 16%, Eu 24%, Asia+Aus 43%, Others 16%
Decreasing US portion… while Asia increases.
@ 2008 SCG
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Sub-Prime
 Securitization of low quality mortgages sold to
investors.
 Sub-prime assets are widely held, but their
ownership is not transparent.
 Sub-prime mortgage defaults have placed serious
pressure on financial institutions.
 Banks and other financial institutions have become
overly cautious about their new loans.
@ 2008 SCG
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World Economy - Slowdown
Source: The Economist Intelligence Unit (EIU)
@ 2008 SCG
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US Economy
 Recent Fed rate cuts will result in further weakening
of the US$.
 Falling interest rates and lower financial costs may
help, but the EIU predicts that US has a 30-40%
chance of entering a recession.
 Fed rate cuts will put pressure on the BoT to cut
rates to stimulate the economy. But will this help, as
business sentiment remains largely negative? With
expected higher inflation, the BoT may necessarily
increase rates again.
 A sharp decrease in US private consumption would
have negative global impact through the trade
channel.
@ 2008 SCG
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The rest of the world
Europe
 Slow growth, caused by the strong currency which has
deteriorated the export sector and decreased consumer
confidence.
Asia
 Deceleration of growth, and rise in energy costs.
 Effected by the US economic slowdown.
 Japan’s economy remains stagnant.
Others
 Geo-political risks in the Middle East.
 Global inflationary pressure (oil and food).
 Using lower interest rates to stimulate economic growth
may prove difficult.
@ 2008 SCG
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@ 2008 SCG
Source: EIA
9
01/08
11/07
09/07
07/07
05/07
03/07
01/07
11/06
09/06
07/06
10
05/06
03/06
01/06
11/05
09/05
07/05
05/05
03/05
01/05
11/04
09/04
07/04
05/04
03/04
01/04
Crude Oil Price – Increasing Trend
USD/Barrel
100
90
80
70
60
50
40
30
20
Brent Crude (USD/Barrel)
0
Global Oil Demand Still in High Level
@ 2008 SCG
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Coal Price – Rising Trend
USD/Ton
100
90
80
70
60
50
40
30
20
New Castle Index (USD/Ton)
10
0
01/05
04/05
07/05
10/05
01/06
04/06
07/06
Source: Globalcoal
@ 2008 SCG
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10/06
01/07
04/07
07/07
10/07
01/08
Agenda
 Trend and Challenges in 2008
 Global
 Domestic
 Overview of SCG
 Looking Forward / SCG Vision
 Key Challenges and SCG Strategies in 2008
@ 2008 SCG
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Macro Economic Overview
Growth (%)
2007E
2008F
Real GDP
4.5
4.0-4.5
Investment
Private
Public
1.3
0.3
4.5
5.8
4.0
8.0
Consumption
Private
Public
3.1
1.9
10.2
4.5
3.5
10.0
Export ($ Terms)
16.0
10.0
Import ($ Terms)
10.0
12.5
Inflation
2.3
3.0-3.5
Source: NESDB, BOT
@ 2008 SCG
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Current Business Sentiment
Dec-07
Nov-07
Oct-07
Sep-07
Aug-07
Jul-07
Mar-07
Feb-07
Jan-07
Dec-06
Nov-06
Oct-06
74
72
70
Jun-07
82
80
CCI 78
76
May-07
56
54
Business Sentiment Index
52
Consumer Confidence Index
50
77.3 48
76.2
BSI
46
44
45.6
44.5 42
40
38
Apr-07
86
84
Source : BOT, CEBF
 There are negative risks from the increase in price and
cost of living
 The business sector will face the slow down in export
market, the increase in raw material prices and baht
appreciation
@ 2008 SCG
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Current Export and Domestic Demand
เครื่ องชีเ้ ศรษฐกิจที่สาคัญ
หน่ วย % Y-o-Y (ยกเว้ นระบุ)
1H07 3Q07 4Q07 Nov 07 Dec 07
ดัPrivate
ชนีการบริConsumption
โภคภาคเอกชน Index
0.7 1.3 2.4 3.7 0.9
ดัPrivate
ชนีการลงทุ
นภาคเอกชนIndex
-1.9 -2.0 3.1 3.4 3.6
Investment
in USD
Term
มูExport
ลค่าการส่Value
งออก ในรู
ปดอลลาร์
ฯ
17.9 12.6 24.0 24.5 19.5
in USD
Term
มูImport
ลค่าการนValue
าเข้ า ในรู
ปดอลลาร์
ฯ
6.7 8.4 16.6 17.1 10.6
Trade (Mil
ดุBalance
ลการค้า (ล้ofานดอลลาร์
ฯ) USD) 4,558 2,942 4,473 1,964 1,069
ดุBalance
ลบัญชีเดินofสะพั
ด (ล้ านดอลลาร์
ฯ) 5,810 2,928 6,184 2,647 1,661
payment
(Mil USD)
ทีSource:
ม่ า : ธปท. BOT
 Private sector was cautious about consumption and
investment spending
 Export in December is slowing down, but still in a
high growth level
@ 2008 SCG
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Current Producer Price Index
42
36
Producer Prices, % YoY
30
24
18
12
6
0
-6
0.3
3.1
4.4
Aug-07
Sep-07
Oct-07
7.9
8.7
10.0
Nov-07
Dec-07
Jan-08
-12
Producer Price Index
Agricultural products
Petroleum Products
Metal Products
Source: KBANK
 Other than energy price, raw materials in the
agricultural, food, plastics and metal sectors
are also increasing as well.
@ 2008 SCG
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Oil and Us Economy Dependence
8
• Singapore
7
6
• Thailand
• Vietnam
5
4
• India
3
• Malaysia
• China
• Korea
• Taiwan
2
• Japan
1
0
0
5
Source: KBANK
@ 2008 SCG
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15
20
Exports to U.S., % of GDP
17
25
30
35
Government Expenditure Outlook
-2.7
รัรัฐฐบาลใหม่
บาลใหม่นน่ า่ าจะจั
จะจัดดททางบกลางปี
างบกลางปีเพิ
เพิ่ม่มเติ
เติมม ซึซึ่ง่งจะท
จะทาให้
าให้กการขาด
ารขาด
ดุดุลลงบประมาณเพิ
งบประมาณเพิ่ม่มขึขึน้ น้ มาเป็
มาเป็นประมาณ
นประมาณ 1.8-2.7
1.8-2.7 แสนล้
แสนล้าานบาท
นบาท
-2.4
-2.1
3.25
%
3.25
-1.8
-1.5
3.00
-1.2
-2.0% to -3.0% of GDP
2.75
2.75
-1.6% of GDP
-0.9
% of GDP
3.50
-0.6
-0.3
2.50
0.0
2007
2008
Government Budget to GDP (Inverted)
BOT Repo 1-Day (End of Period)
Source: KBANK
 The government is expected to proceed in fiscal
policy to stimulate the economy
 The relax in monetary policy will have limitation
from the pressure of inflation
@ 2008 SCG
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Export Sector Outlook
20
17.0
18.1
14
14.9
16
12
10.5-12.5
14
10
12
9.6
10
8
7.0-13.0
7.9
5.0-10.0
6
6
4
4
2
8
USD Billion
Growth Rate, % YoY
18
16
2
2.2
0
0
2006
2007
Current Account (USD bn) - RHS
2008
Exports
Imports
Source: KBANK
 Export is slowing down due to the US economy
slowdown and Baht Appreciation
 Balance of payment surplus is in a high level, but
less than 2007
@ 2008 SCG
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Export to New Markets
Other
New
Markets
28%
Other
New
Markets
36%
U.S.
20%
2002
China
5%
ASEAN5
17%
Japan
15%
EU15
15%
สัดส่ วนการส่ งออก
ของไทยไปยังตลาด
ใหม่ เพิ่มสูงขึน้
U.S.
13%
Japan
12%
2007
EU15
13%
China
10%
ASEAN5
16%
Source: KBANK
 Growth of export to new market is 26% while the
export to main market growth is 11%
@ 2008 SCG
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Baht Continues to Appreciate
Baht/USD
FX (Baht/USD)
44
42
40
38
36
34
32
Source: BOT; Average Buy TT and selling
@ 2008 SCG
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/0
8
01
/0
7
11
/0
7
09
/0
7
07
/0
7
05
/0
7
03
/0
7
01
/0
6
11
/0
6
09
/0
6
07
/0
6
05
/0
6
03
/0
6
01
/0
5
11
/0
5
09
/0
5
07
/0
5
05
/0
5
03
01
/0
5
30
Baht appreciation affects labor and wages
not just headline export growth
@ 2008 SCG
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Politics
@ 2008 SCG
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Source: Power People Party
@ 2008 SCG
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Agenda
 Trend and Challenges in 2008
 Global
 Domestic
 Overview of SCG
 Looking Forward / SCG Vision
 Key Challenges and SCG Strategies in 2008
@ 2008 SCG
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SCG Background
 Established in 1913 by King Rama VI.
 Registered to The Stock Exchange of Thailand since
1975 At present, the Crown Property Bureau holds
30% shares in the company.
 Employs 25,000 people, and comprises of 100
subsidiary companies in 5 business units: chemicals,
paper and packaging, cement, building materials and
distribution.
 Total assets of 250 Billion Baht
 An ASEAN conglomerate, with 30 non-Thai companies
operating within the region.
 Market Capitalization of US$ 8 Bil (70% float)
@ 2008 SCG
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Consolidated Sales
Milion Baht
280,000
258,175
MB
230,000
267,737
+3.7% y-o-y
218,265
192,395
180,000
148,865
130,000
128,201
80,000
30,000
2002
@ 2008 SCG
2003
2004
2005
27
2006
2007
Consolidated EBITDA
Milion Baht
MB
70,000
60,000
54,626
4,267
50,000
53,507
EBITDA
-12.5% y-o-y
57,151
7,771
6,571
50,008
6,762
37,188
40,000
30,418
30,000
3,484
1,834
50,359
46,936
49,380
2005
2006
43,246
20,000
33,704
28,584
10,000
0
2002
2003
2004
EBITDA from Operations
2007
Dividend from Assc.
Note: EBITDA = EBITDA from Operations + Dividend from Associates
@ 2008 SCG
Dividend Received
28
EBITDA from Operations
-12.4% y-o-y
FCF, CAPEX, and Investments for FY2007
Free Cash Flow
MB
55,000
FY2006
50,000
47,653
45,000
FY2007
CAPEX & Investments
MB
55,000
FY2006
FY2007
50,000
40,436
45,000
40,000
40,000
35,000
35,000
30,000
30,000
25,000
25,000
23,574
20,000
20,000
7,457
15,000
15,000
10,000
10,000
5,000
5,000
0
0
27,160
1,462
25,698
16,117
Note: - Free Cash Flow = EBITDA (including dividends) - Interest Expense and Tax Paid.
- CAPEX includes debottlenecking and expansion projects.
- Investments are acquisitions and purchase of shares.
- Maintenance CAPEX spending is expensed and is included in EBITDA figure (as per Thai-GAAP).
@ 2008 SCG
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Investments
CAPEX
Sales and Profit breakdown 2007
Sales 267 Billion Baht
8%
10%
0%
48%
Net Profit Without 17%
Non-recurring Items
25.8 Billion Baht
3%
17%
16%
Chemicals
3%
50%
Paper
Cement
Building Products
20%
Distribution
Others
8%
@ 2008 SCG
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Net Debt
Billion Baht
180
Net Debt
175.8
Net Debt (Not including debt in projects under construction)
148.4
150
126.3
120
114.9
100.6
100.5
103.1
99.9
94.3
90
85.1
60
30
0
2000
2001
2002
2003
Net Debt/EBITDA 5.8
5.1
4.1
(If not include debt in projects under construction)
3.1
De-leveraging phase
@ 2008 SCG
2004
1.8
2005
1.9
2006
1.8
1.65
Investment phase
31
2007
2.0
1.7
Agenda
 Trend and Challenges in 2008
 Global
 Domestic
 Overview of SCG
 Looking Forward / SCG Vision
 Key Challenges and SCG Strategies in 2008
@ 2008 SCG
32
Key Challenges
Challenges
Aim to
 Slow domestic growth
 Maintain market
leadership in domestic
market
 Competition shifts from
domestic to regional or
 Develop regional
businesses
global platform
 Higher Energy Costs
 Move toward high-value
products & services
 Commoditization of products
@ 2008 SCG
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SCG Historical Growth Phases
Thailand’s
Economic Crisis
Go Regional +
High-Value
Products & Services
Restructuring
JVs
1990
@ 2008 SCG
1996
1997
2004
34
Why ASEAN?
 Market size
 Population of 550 Mil (China 1,300 Mil, India 1,100 Mil).
 Low consumption per capita of basic products.
 Economy is growing at an average of 5-6%.
 ASEAN is SCG’s familiar market, due to our long
historical experiences.
 Unique investment potential has largely been overlooked
by multinationals in the rush to set up operations in
China and India.
 Lowering of ASEAN import tariffs (AFTA) will create a
more integrated market and increase intra-regional trade
activity.
@ 2008 SCG
35
SCG Current Overseas Expansion
Vietnam
- Paper : Kraft Paper
- Chemicals
- Building Materials : Concrete Roof Tile
Cambodia & Laos
- Distribution
- Cement
- Building Products
Philippines
- Paper
- Building Materials
Malaysia &
Singapore
Indonesia
- Packaging Paper
- Chemicals
- Building Materials
@ 2008 SCG
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Innovation for Sustainability
How can we sustain our earning growth while our
core products are commodity in nature?
Continuous improvement in production cost and
product quality is no longer enough … everybody
does it today
“Innovation”
@ 2008 SCG
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Innovative Culture –
Building block for the new growth
“High-value” added products comes from innovative
culture as the fundamental stage……
Culture
R&D
 Open Minded
 Thinking out
of the Box
 Assertive
 Risking taking
+
Continuous
Improvement
 Our own
technology
Products/
 Own IP
(Intellectual Property)
 Eager to learn
@ 2008 SCG
High Value
38
Services
SCG Vision Statement
@ 2008 SCG
39
Agenda

Trend and Challenges in 2008





Global
Domestic
Overview of SCG
Looking Forward / SCG Vision
Key Challenges and SCG Strategies in 2008


@ 2008 SCG
Closely manage our costs and build strong growth
platform for our business
Maintain our spirit and nurture our people
40
SCG Strategies
 Closely manage our costs & build strong
growth platform for our business.
 Innovation and operational excellent
 Go regional
 SD & CSR
@ 2008 SCG
41
SCG Strategies
 Innovation and operational excellent
 TQM + innovation
 R&D
 Go regional
 To effectively manage overseas investment
project & technology transfers to ensure
successful execution
 SD & CSR
 To be leading role in sustainable development
by incorporating environment, and social
responsibility into our business practices
@ 2008 SCG
42
Higher Energy Price –
Higher Cost of Operation
•
Short term strategy of coal is to lock in FOB prices
and freight, however, cost escalation is a certainty
for FY2008.
•
Medium term strategy of coal is hedging for reduced
volatility and increased predictability, and securing
long term supply contracts.
•
Installation of a total of 5,850 MB in waste-heat
generators for the cement business.
@ 2008 SCG
43
Wastepaper Cost on the Rise
USD/ton
300
465
440
200
Wastepaper
(raw material)
240
220
100
0
Q1
Q2
Q3 Q4
2002
@ 2008 SCG
Q1
Q2 Q3
2003
Q4
Q1 Q2
Q3
Q4
Q1 Q2
2004
Q3
Q4 Q1
2005
44
Q2
Q3 Q4
2006
Q1
Q2 Q3
Q4
2007
Baht Appreciation
FX (US$) Exposure
•
Closing of FX position upon completion of sales
transaction, and matching of export and import
transactions.
•
Sell forwards $ positions to reduce FX
fluctuation, from the net export in $ terms.
@ 2008 SCG
45
Agenda
 Trend and Challenges in 2008
 Global
 Domestic
 Overview of SCG
 Looking Forward / SCG Vision
 Key Challenges and SCG Strategies in 2008
 Closely manage our costs and build strong
growth platform for our business
 Maintain our spirit and nurture our people
@ 2008 SCG
46
SCG Strategies




@ 2008 SCG
Set proper expectation & being proactive to
manage labor relations.
Fostering an “inno-culture” environments &
engaging people.
 New comers “Orientation Program”
Role model on ethical practices.
Stay healthy… taking care of yourselves.
47
SCG Training &
Development
Program
AMP
Adv Mgt Prog.
EDP
Exec.. Dev .Prog.
General Management
Executive
Leadership
Negotiation
Problem Solving
MDP
&
Decision Making
Mgt. Dev .Prog.
LDP 3
Facilitative Leadership
Manager
Communication
Presentation
Supervision
Team Building
BCD
Bus Concept Dev.
Supervisor
ABC
Operator
LDP 2
Leading the Team
LDP 1
English proficiency
Teamwork
Abridge Bus.Concept.
Leading Yourself
SCG Value – CG – Ethics
Competency Development
TRM -Functional Training
Rev Mar 2007
TQM-Operational Excellence
@ 2008 SCG
Safety and Environment
48
Q&A
@ 2008 SCG
49