SCG combats energy cost surge and sharp decline in sales with investment and reprioritization

SCG has announced Q3/2022 operating results, reflecting a drop in sales and profits due to soaring and volatile global energy prices. This is a result of the Russia-Ukraine conflict, the global economic slowdown induced by the global rise in interest rates, and China’s economic downturn resulting from its Zero-Covid Policy. In conjunction with the petrochemical trough, the industry has hit its lowest point in the cycle in 20 years. SCGC is impacted by the high cost of raw materials and excessive capacity addition causing oversupply. The Cement and Building Materials business also faced skyrocketing energy costs. Nevertheless, SCGP is performing well despite energy fluctuations. Overall, SCG has a solid financial position due to its rigorous liquidity management and targeted investments in high-potential and sustainable businesses.

SCG proactively enters into three new businesses namely renewable energy, ASEAN logistic, and smart living. The strategy seeks to improve the quality of life and provides customers and society with convenience, affordability, safety, and environmental responsibility.

Roongrote Rangsiyopash, President and CEO of SCG, disclosed, “SCG’s Q3/2022 operating results
were significantly impacted by the energy prices that reached 10-year highs. Nonetheless, SCG is well-equipped to handle this recurring crisis while maintaining solid financial stability. It has scaled back costs and expenses, reassessed investments, and deferred new non-urgent projects.”

SCG focuses on leveraging projects with quick returns that are consistent with business expansion strategies, such as the LSP petrochemical project in Vietnam, whose construction progressed on plan and reached 97 percent completion. To further strengthen its financial position, debentures totaling 35,000 MB were also issued in Q3/2022.

Furthermore, the company accelerates the development of innovations to meet the needs of customers promptly by entering into three new businesses with high potential and addressing the needs of global megatrends as follows:

1) Renewable Energy. SCG seeks to lower costs and speed up renewable energy development with satisfactory outcomes by employing biomass from agricultural byproducts and municipal solid waste (Refused Derived Fuel or RDF) in place of fossil fuels. In Q3/2022, the cement operations in Thailand used renewable fuel for 40 percent of the total fuel used. Consequently, in 9 months of 2022, the proportion of renewable fuel use climbed from 18 percent to 34 percent y-o-y and solar energy accounted for 195 megawatts (as of September 2022). SCG also expands into solar energy businesses for residential and industrial estate sectors, namely SCG Solar Roof Solutions, and SCG Cleanergy Company Limited, with an output capacity of 29 megawatts. Electricity can be traded via a smart grid platform with a leading customer both in public and private sector customers.

SCGC has recently entered into a joint venture agreement with Denka Company Limited, Japan, to produce acetylene black, material primarily used as a component in producing lithium-ion rechargeable batteries for electric vehicles (EVs) and used in applications for high-voltage transmission cables to generate electricity from offshore wind power.

2) ASEAN Logistic. The company merged its logistics business and became ASEAN’s top integrated logistics and supply chain business, offering a wide range of services such as warehousing, cold storage systems, cargo services by land, sea, and air, docking services, import and export services, covering customers’ needs from end to end.

3) Smart Living. The business enhances the quality of life and provides customers and the society with convenience, affordability, safety, and environmental responsibility. Examples are smart innovations for air quality and energy savings, such as:

• SCG Active AIR Quality, SCG Bi-ion, and SCG HVAC Air Scrubber. Air quality management solutions that help eliminate virus and bacteria and reduce energy consumption in buildings.
• Trinity IOT Ecosystem. A smart-home innovative platform technology that connects and remotely operates smart home appliances
• Wellness Home Hub. A technology that measures and monitors the well-being of home residents. The system will promptly notify the hospital in case of any emergency.

SCG’s unreviewed Operating Results for Q3/2022 registered the Revenue from Sales of 220,660 Million PHP (US$ 3,909 Million), a drop of 7 percent q-o-q, due to lower chemical’s product prices driven by softer petrochemical’s demand due to the trough of Chemicals business. Profit for the Period was at 3,787 Million PHP (US$ 67 Million), a decrease of 75 percent q-o-q largely attributable to lower chemical’s spreads, higher energy cost, together with lower seasonal dividend. However, on a y-o-y basis, Revenue from Sales has climbed by 8 percent y-o-y, mostly due to higher product prices in line with the market of cement and building materials business and SCGP. However, Profit for the Period declined by 64 percent y-o-y due to lower chemical’s spreads and lower equity income.

In the first 9 months of 2022, SCG registered Revenue from Sales of 692,099 Million PHP (US$ 12,921 Million), a rise of 15 percent y-o-y. This is owing to higher sales across all businesses mainly from higher product prices in-line with the market. Profit for the Period totaled 32,832 Million PHP (US$ 613 Million), down 45 percent y-o-y, as a result of higher feedstock and energy costs as well as lower equity income in Chemicals business.

SCG has modified its HVA products and services strategy by tightening the criteria to increase product competitiveness in the global market. The efforts are to keep up-to-speed in launching products in response to the rapid change in customer’s needs and to increase profitability. Under the new criteria, SCG’s sales of HVA products and services in 9 months of 2022 amounted to 236,498 Million PHP (US$ 4,415 Million), and accounted for 34 percent of total Revenue from Sales. Furthermore, the proportion of New Products Development (NPD) and Service Solutions accounted for 17 percent and 6 percent of total Revenue from Sales, respectively.

In addition, SCG’s Revenue from operations outside of Thailand, including export sales from Thailand in 9 months of 2022 registered 314,222 Million PHP (US$ 5,866 Million), or 45 percent of total Revenue from Sales, equivalent to the same period last year.

SCG in ASEAN (ex-Thailand)

For SCG’s operation in ASEAN (ex-Thailand), the Revenue from Sales in Q3/2022 recorded a 12 percent increase y-o-y, amounting to 62,697 Million PHP (US$ 1,111 Million), and 28 percent of SCG’s total Revenue from Sales. This includes sales from both local operations in each ASEAN market and imports from the Thai operations.

As of 30 September 2022, the total assets of SCG amounted to 1,436,408 Million PHP (US$ 24,527 Million), while the total assets of SCG in ASEAN (ex-Thailand) were US$ 11,307 million, 46 percent of SCG’s total consolidated assets.

The company reported Q3/2022 Revenue from Sales at 5,262 Million PHP (US$ 93 Million), a 37 percent increase y-o-y. SCG Marketing Philippines extended the SCG Smart tools to the “Hardware and More”, adding more stocks for tools in Bocaue which was the second branch following the Sucat branch in Paranaque City.

United Pulp and Paper Co., Inc. (UPPC), with its new paper machine no. 3, expanded to meet the demand for corrugating medium paper in neighboring markets. This also responds to the country’s continuous growth of packaging paper demand which is, at present, a net importer, and benefiting from the abundant supply of domestic raw materials.

In accordance with the ESG concept, SCG held the SCG Sharing the Dream scholarship in its 14th year, which provided educational assistance to students from indigent families. This year, there are a total of 340 scholars, consisting of junior and senior high as well as college students. This scholarship encourages them to pursue their dreams despite global challenges, and further aim towards improvement for a better community.

Furthermore, SCG works closely with the Department of Education through the Adopt-A-School program. This includes the renovation of rural schools and making sustainable initiatives to invest in future generations.

Mr. Roongrote said, “This crisis is incredibly challenging, but we are confident that SCG will overcome it and emerge stronger than ever thanks to our strategies, which include making timely adjustments to business plans, reducing costs, delaying non-urgent investment projects, and adjusting production plans to meet market demands. Meanwhile, we also invest more in new businesses with high potential (New S-Curve). For SCGP, its investment portfolio companies continue to expand healthily.”

SCG’s financial position and cash flow remain robust due to less investment burden as the LSP project is now 97 percent completed. Through constant communication with employees, suppliers, partners, and customers, SCG showcases excellent collaboration to get through this crisis.