12. Financial Position and Operation Performance

Summary of Auditor’s Report

Auditor’s Office : KPMG PHOOMCHAI AUDIT LTD.

Names of Auditors: MR. SUPOT SINGHASANEH

  Auditor Number 2826 or

  MR. CHAROEN PHOSAMRITLERT

  Auditor Number 4068 or

MR. PISIT CHIWARUANGROCH

Auditor Number 2803

From the audits carried out upon the generally accepted standards, the
auditors formed the opinion that the financial statements of the Siam
Cement Public Company Limited and subsidiaries present fairly, in all
material aspects, the financial position as at December 31, 2009, 2008,
and 2007, the results of its operations and its cash flows for the years
then ended in accordance with generally accepted accounting principles.

 

Consolidated Financial Statements and Financial Ratios

of

The Siam Cement Public Company Limited and Subsidiaries

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 Financial Statements and Financial Ratios

of

  The Siam Cement Public Company Limited

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Management Discussion and Analysis

Operating Performances and Financial Status of The Siam Cement Public Company and Subsidiaries

Business Overviews

In 2009, SCG’s consolidated net sales showed a decrease of 19 percent
over the previous year to 238,664 Million Baht, primarily on lower
product prices of chemicals and paper products in the global market.
Consolidated net profit increased by 45 percent to 24,346 Million Baht,
due to gains from cost cutting measures and efficient production
improvement. Moreover, there was 5,000 Million Baht one-time stock loss
in the 4^(th) quarter of 2008, which was mostly from SCG Chemicals.
Similarly, consolidated EBITDA increased by 21 percent to 47,116 Million
Baht.

Equity income for 2009 amounted to 7,200 Million Baht, increased 54
percent over the past year, with details as follows:

-   SCG Chemicals associates: 5,234 Million Baht, an increase of 77
    percent over the last year, mainly from improved operating results
    of PTA business

-   Other associates: 1,966 Million Baht, an increase of 15 percent from
    last year.

  Moreover, total dividends received in 2009 registered 4,153 Million
  Baht, down 31 percent from last year, primarily from lower dividends
  from the SCG Chemicals associates. Details of the dividend are as
  follows: a) 3,070 Million Baht was from associates (20 percent to 50
  percent stake), and b) 1,083 Million Baht was from other companies
  (less than 20 percent stake).

Operating Performances of Strategic Business Units

SCG Chemicals

In 2009, net sales decreased by 26 percent from the previous year to
101,115 Million Baht on lower products prices. However, EBITDA increased
by 55 percent to 19,482 Million Baht. Similarly, net profit increased by
105 percent from last year to 12,556 Million Baht, due to the over 4,000
Million Baht one-time stock loss in the 4^(th) quarter of 2008.

In 2009, prices of Naphtha and Polyolefins continuously increased from
last year due to demand growth from world economic recovery, rise of
crude oil prices, and delayed start-up of new Olefins and Polyolefins
capacities from the Middle East. Average Naphtha price in 2009 was 553
USD per ton, lower than the previous year average by 274 USD per ton.
Meanwhile, average Polyolefins price was 1,134 USD per ton, decreased
from the last year average by 342 USD per ton.

SCG Paper

In 2009, net sales registered 42,729 Million Baht, down 9 percent from
last year, due to lower paper price. EBITDA was 7,901 Million Baht, up
19 percent.  Likewise, net profit was 2,286 Million Baht, up 38 percent
from last year due to increased capacity and efficient cost management.

Pulp and Printing & Writing Paper: Sales volume grew 18 percent from the
previous year due to launch of innovative paper products under “Idea”
brand and the increasing export volumes in ASEAN region such as Vietnam,
Malaysia and Middle East region. Average product prices decreased by 15
percent from the previous year.

Packaging Paper & Corrugated Containers: Sales volume grew 2 percent
from the previous year due to the increasing export volumes and
additional capacity from Vietnam plant. Meanwhile, sales of corrugated
containers dropped due to slowdown in electric component and auto parts
industry, comparing to 2008. Average product prices decreased by 15
percent from the previous year.

SCG Cement

In 2009, the domestic cement industry had a combined capacity of 56
million tons while demand totaled 24 million tons, similarly to the
previous year due to global economic downturn and domestic political
turmoil. Total sales of grey cement in 2009 decreased by 3 percent with
domestic sales and export sales volumes were in a similar level to the
previous year. Meanwhile, total sales of ready-mixed concrete decreased
by 11 percent on 9 percent decrease of domestic sales volume. In 2009,
14 more franchises were enlisted.

In 2009, net sales decreased by 7 percent from last year to 46,661
Million Baht, while EBITDA increased by 3 percent to 11,616 Million Baht
on energy savings from the Waste Heat Power Generator, and likewise net
profit increased by 3 percent to 6,214 Million Baht.

SCG Building Materials

In 2009, net sales increased by 15 percent from last year to 26,873
Million Baht. Likewise, EBITDA gained 20 percent to 4,907 Million Baht
and net profit increased 108 percent to 1,617 Million Baht, assisted by
the operations turnaround of Thai-German Ceramic Industry Public Company
Limited (TGCI) and the consolidation of Sosuco Ceramic Co., Ltd. since
the 1^(st) quarter of 2009.

SCG Distribution

In 2009 net sales decreased by 16 percent from last year to 86,641
Million Baht on lower prices, likewise EBITDA decreased 9 percent to
1,581 Million Baht, and net profit decreased 11 percent to 1,077 Million
Baht.

Financial Status

Assets

Total assets of SCG as at December 31, 2009 valued 315,992 Million Baht
with an increase of 10 percent over the year 2008, mainly from project
investment. Moreover, Sosuco Ceramic Co., Ltd. (SCG’s 54 percent
portion) was consolidated into SCC’s financial accounts in the 1^(st)
quarter of 2009 as SCG had significant management control over its
operation. Key components of total assets are property, plant and
equipment at 48 percent, and investments in shares at 19 percent.
Ranking of asset values by business units is SCG Chemicals, SCG Cement,
and SCG Paper respectively.

Current assets: amounted to 89,988 Million Baht as at December 31, 2009,
increased by 7 percent over the past year. The main proportion was:
inventories, cash and cash equivalents and trade accounts receivable.
According to its efficient management of liquidity and working capital,
at December 31,2009, SCG’ s cash and cash equivalents was 28,937 Million
Baht whereas working capital stood at 36,855 Million Baht with working
capital days at 53 days, a significant improvement from the previous
year at 61 days.

Property, plant and equipment: amounted to 151,804 Million Baht as at
December 31, 2009, increased by 11 percent over the past year. This
resulted from the acquisition of property, plant and equipment of the
year amounted to 27,512 Million Baht which are mostly from under
construction projects, while depreciation amounted to 11,957 Million
Baht.

Investments in associates and jointly-controlled entity: amounted to
58,690 Million Baht as at December 31, 2009, increased by 9,092 Million
Baht or 18 percent from the past year, resulted from reasons as follows:

-   Equity income accounted for using equity method was 4,130 Million
    Baht (Net of dividends received).

-   Increase in investments amounted to 5,536 Million Baht, mainly from
    SCG Chemicals.

Liabilities

Total liabilities as at the end of 2009 amounted to 184,570 Million
Baht, an increase of 6 percent over the previous year which was mostly
from long-term debts increase of 21,909 Million Baht for committed
projects such as SCG Chemicals’ 2^(nd) naphtha cracker. During the year,
SCG issued new debentures amounted to 30,000 Million Baht to replace
25,000 Million Baht in matured debentures. Net debt (interest-bearing
debt less cash and cash equivalent) of SCG as at December 31, 2009
increased 1,498 Million Baht over the past year to 122,019 Million Baht,
while finance costs was 5,649 Million Baht, a decrease of 440 Million
Baht from the previous year.

Liquidity

At the end of year 2009, SCG had cash and cash equivalents amounted
28,937 Million Baht, an increase of 2,223 Million Baht from the last
year. As a consequence of cash flows provided by operating activities
increased by 12,159 Million Baht from the past year to 42,966 Million
Baht, primarily due to an increase in profit provided by operating
activities before changes in operating assets and liabilities.
Meanwhile, cash flows used in investing activities amounted to 29,918
Million Baht, primarily from on-going projects that are under
construction. Moreover, cash flows used in financing activities was
10,825 Million Baht, mainly from repayment of short-term loans and
long-term debts.

Regarding the liquidity ratios, SCG earned a current ratio of 1.7 times
while the cash flow liquidity was 0.7 times. SCG’s Cash Cycle was 31
days (average collection period + inventory turnover period - average
payment period). The cash flows and liquidity ratios ensured that SCG
possessed adequate liquidity for business operation, accompanying with
overdraft accounts with various banks for 5,600 Million Baht.

Financial ratios

In 2009, current ratio registered 1.7 times compared with 1.3 times at
the end of 2008. Moreover, from net debt amounted to 122,019 Million
Baht, net debt to EBITDA ratio was 2.6 times whereas was 3.1 times at
last year. However, the mentioned net debt includes the approximately
35,728 Million Baht in debt of on-going projects which are under
construction, and have yet to begin commercial operation. Without these
in progress capacity expansion projects, net debt would have otherwise
dropped to the approximately 86,291 Million Baht level, and would have
resulted in the net debt to EBITDA ratio of 1.8 times. At the end of
2009, debt to equity ratio was 1.4 times, compared with 1.6 times at the
end of 2008. However the ratio is low and remains relatively stable,
reflecting SCG’s strong financial structure.

CAPEX

SCG is nearing completion its current CAPEX cycle, with CAPEX &
Investment amounting to 34,535 Million Baht in 2009. The estimated CAPEX
for 2010 is approximately 20,000 Million Baht. This is comprised of
10,000 Million Baht to complete the current crop of chemicals capacity
expansion, 5,000 Million Baht for maintenance, and the rest are
improvement projects such as energy savings, productivity improvements,
and debottlenecking.

Having considered the financial status and the operating results of
2009, the Board of Directors resolved to propose the ordinary general
meeting of shareholders for approval of 2009 dividend payment of 8.50
Baht per share, representing a dividend payout ratio of 42 percent of
consolidated net profit. SCG has already paid an interim dividend of
3.50 Baht per share on August 27, 2009. The final dividend will be paid
at the amount of 5.00 Baht per share on April 28, 2010.

In summary, SCG managed to achieve better operating results in 2009
compared to the previous year and a more solid financial status as a
result of the rapid adaptation of every business unit, including
efficient management of liquidity and working capital as well as cost
cutting measures. In 2010, SCG continues to operate prudently and manage
risks carefully to achieve sustainable growth by implementing the
following approaches such as, having an emphasis on developing a diverse
range of high value-added products and services to enhance customer
satisfaction. Moreover, SCG remains to expand into the ASEAN region and
also contribute to society and environment by employing the best
environmentally-friendly technology for mutual sustainable growth.

Audit fees

1. Audit fees

For the fiscal year 2009, the Siam Cement Public Company Limited and its
subsidiaries paid the audit fee of 30.54 Million Baht to KPMG Phoomchai
Audit Ltd. which the auditors have worked for, including the persons or
the businesses related to the auditors and the audit fi rm. This audit
fee amount excluded the remuneration paid by associates.

In this regard, KPMG Phoomchai Audit Ltd. and its auditors have no any
relationship or interests with the company, management, and major
shareholders including their related persons.

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  Audit fees for the Year 2009                       

  1. Annual audit fee for SCC’s financial statements 240,000 Baht

  2. The quarterly review fee and annual audit fee   30.30 Million Baht
  of 120 subsidiaries and consolidated financial     
  statements                                         

                                                     

  Total Audit fees                                   30.54 Million Baht
  -------------------------------------------------- --------------------

2. Non-audit fee

For this fiscal year, the subsidiaries paid the non-audit fee of 920,000
Baht, which was the charge for reviewing the compliance with the
condition of the BOI Promotion Certificate to the audit firm and the
persons or the businesses related to the auditors and the audit firm.