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SCG resigned to wait for sales recovery

After second-quarter net profit fell 14 per cent, Siam Cement Group sees no meaningful recovery in demand for cement and building materials until the second half of next year.

Kan Trakulhoon, president and chief executive officer, said yesterday that the industrial conglomerate expected its third quarter earnings to continue to slide.

SCG's consolidated sales from April to June rose 17 per cent year on year to Bt124.8 billion, thanks to improved chemical prices. However, net profit dropped to Bt8.53 billion on lower contributions from its non-core businesses, decreased chemical earnings, and a slowdown in domestic demand for building materials that caused it to ship more products abroad at lower profit margins.

For the first half, sales bounded 14 per cent to Bt246.56 billion, while net profits tumbled 10 per cent to Bt16.91 billion.

The economy is undergoing a "stabilisation" period and there is no quick recovery in sight, Kan said.

"During quarters three and four, Thai businesses might have to depend more on exports. SCG has already succeeded in boosting our export figures but the margins are lower as a result," he said.

However, SCG's earnings before interest, tax, depreciation and amortisation (EBITDA) increased in both the first and second quarters. All three core businesses - cement and building materials, chemicals, and paper - booked higher EBITDA in the second quarter, although EBITDA from its holdings in non-core businesses dropped from Bt3.15 billion to Bt2.22 billion because of lower contributions from the automobile and farm-machinery businesses.

Kan said he supported the National Council for Peace and Order's plan to pursue the dual-tracking project on the railways because it would help improve the country's competitiveness over the long term.

But the economic effects from new infrastructure investments are unlikely to be realised before the second half of next year. Cement demand only started to stop falling in early July, and for the whole year, it is now forecast to show growth of 0-1 per cent, compared with 9 per cent expected earlier.

Dismal sales of polyvinyl chloride (PVC) and lower equity income from associated companies sent the chemical business' profit plunging, even though its gross margin for olefin products remained higher than US$600 a tonne in the first and second quarters, and in the first 28 days of the third quarter.

During the second quarter, the paper business reported an 11-per-cent increase in sales to Bt15.86 billion, but net profit sank 14 per cent to Bt887 million. The pulp and writing-paper business continued to be sluggish because of a 6-7-per-cent contraction in domestic demand and continued low pulp prices, although the packaging and kraft paper business line is performing well and its Asean sales increased by more than 10 per cent.

Kan said he would submit to the company's board of directors a revised investment plan for the next five years. More than half of the budget would go for investing in other Asean countries. The group is expected to meet its investment target of Bt5 billion this year.

SCG's board approved the issuance of four-year debentures worth Bt10 billion, half of which would replace retiring debentures and half would support future investment. The board also approved a Bt5.50 interim dividend, the same as last year.


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