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. WINID SILAMONGKOL

  Auditor Number 3378 or

  MR. CHAROEN PHOSAMRITLERT

  Auditor Number 4068 or

MRS. SUREERAT THONGARUNSANG

Auditor Number 4409

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, 2011, 2010,
and 2009, 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 2011, SCG’s revenue from sales grew 22% from the previous year to
368,579 Million Baht primarily from higher product prices in all
business units and higher sales volume in the chemicals business. EBITDA
was relatively flat at 46,253 Million Baht while profit for the year
decreased 27% to 27,281 Million Baht, as there was the non-recurring
gain of 9,963 Million Baht from the divestment of shares in PTT Chemical
Public Company Limited (PTTCH) in 2010.

Equity income for 2011 amounted to 6,774 Million Baht, a decrease of 19%
from the previous year due to the poor performance from all business
units with details as follows:

-   SCG Chemicals associates: 5,485 Million Baht, a drop of 13% from the
    previous year, due to global economic uncertainties.

-   Other associates: 1,289 Million Baht, down 37% from the previous
    year, due to the effects of the domestic flood.

Total dividends received in FY2011 was 8,083 MB, up 25% y-o-y with
details as follows: a) 5,415 MB from “Associated” companies (20%-50%
stake), and b) 2,668 MB from “Other” companies (less than 20% stake).

Operating Performances of Strategic Business Units

SCG Chemicals

In 2011, the petrochemicals business highly fluctuated due to changes in
global economic conditions and regional demand and supply position,
especially in the second half of 2011 where the concern over European
debt crisis led to a slowdown of overall market and, consequently,
decreased product-to-feed margins. Prices of Naphtha, main feedstock,
remained high on the back of rising crude oil prices and USD
depreciation. The average Naphtha price in 2011 was 938 USD per ton, an
increase of 214 USD per ton over last year. The average HDPE price was
1,373 USD per ton, an increase of 149 USD per ton over last year, from
higher feedstock cost.

In 2011, revenue from sales increased 34% from the previous year to
192,929 Million Baht, attributed to higher volume and selling price.
However, EBITDA decreased 10% to 14,394 Million Baht, while profit for
the year decreased 51% from the previous year to 11,190 Million Baht due
to squeezed margin of products and absence of non-recurring divestment
of PTTCH shares.

SCG Paper

In 2011, the economy in countries in this region including Thailand grew
in the first half of the year. However, the economic slowdown in Europe,
the persistent downturn in the United States, and flood crisis in
Thailand had clearly impacted the overall industry.

In 2011, revenue from sales increased 6% from the previous year to
54,839 Million Baht, mainly from higher average selling prices in
packaging paper segment. EBITDA down 3% to 8,811 Million Baht. Likewise,
profit for the year was 3,331 Million Baht, a drop of 5% from the
previous year, as a result of higher production costs.

  Packaging Paper & Corrugated Containers: Total sales volume rose by 3%
  from the year before on the back of rising local demand in packaging
  especially in food industry and consumer products and additional sales
  from plants in Vietnam and the Philippines. However, the flooding
  affected several industries, reducing packaging paper demand in the
  fourth period.

  Pulp and Printing & Writing Paper: Total sales volume remained the
  same as last year while the average price decreases by 1%. The higher
  production cost and the effect from the flood in Thailand affected
  printing houses and the demand during the end of the year. Short fiber
  pulp prices in the region declined in the second half of the year from
  new pulp capacity startups in China and others in ASEAN.

SCG Cement

In 2011, domestic cement business had a total production capacity of 56
million tons, whereas market demand totaled 27 million tons, a demand
increase of 3% compared to the previous year due to domestic economic
growth especially in private investment in both industry and commercial
sectors, even though the flood affected the last quarter of the year

In 2011, revenue from sales increased 11% from the previous year to
54,249 Million Baht due to higher sales volume and price from domestic
economic growth. EBITDA increased 18% to 12,781 Million Baht. Similarly,
profit for the year increased 21% to 7,288 Million Baht from the
previous year, derived from investing in high power saving project.

SCG Building Materials

In 2011, the building materials business continued to grow in the first
three quarters. Despite the flood crisis in the fourth quarter, domestic
sales grew compared to the previous year. In addition to that, the
significant growth in ASEAN economies contributed to notable growth in
export, especially to the Philippines, Vietnam, and Myanmar.

In 2011, revenue from sales increased 11% from the previous year to
34,171 Million Baht with the acquisition of PT Keramika Indonesia
Assosiasi Tbk (KIA), a manufacturer of ceramics tiles in Indonesia.
EBITDA dropped 8% to 5,060 Million Baht and profit for the year
decreased 21% from the previous year to 1,476 Million Baht, attributed
to higher energy and raw materials costs, and the drop in demand during
the flood.

SCG Distribution

In 2011, the distribution business gained the benefit from market growth
in the first three quarters. Despite the flood crisis in the fourth
quarter, the distribution business still grew 16% from its diverse
businesses both domestically and internationally.

In 2011, revenue from sales increased 16% from the previous year to
111,920 Million Baht with the acquisition of PT Kokoh Inti Arebama Tbk
(KOKOH), a distributor specializing in building materials in Indonesia.
EBITDA increased 6% from the previous year to 1,532 Million Baht and
profit for the year was relatively flat at 1,075 Million Baht.

Financial Status

Assets

Total assets of SCG as at December 31, 2011 was 374,738 Million Baht
with an increase of 4% from the previous year. Key components of total
assets are property, plant and equipment at 42%, and cash and cash under
management at 13%. Ranking of asset values by business units are SCG
Chemicals, SCG Cement, and SCG Paper, respectively.

Current assets: amounted to 116,764 Million Baht as at December 31,
2011, a decrease of 17% from the previous year. The main proportion was:
cash and cash equivalents, inventories and trade receivables. At
December 31, 2011, SCG’s working capital was 50,060 Million Baht with
working capital days at 49 days.

Cash and cash under management: amounted to 50,288 Million Baht as at
December 31, 2011, a drop of 19,539 Million Baht from the previous year
due to the CAPEX and M&A activity of 32,053 Million Baht and the
dividend payments amounted to 16,200 Million Baht.

Investments in associates and jointly-controlled entity: amounted to
55,747 Million Baht as at December 31, 2011, an increase of 15,039
Million Baht or 37% from the previous year, with reasons as follows:

-   Increase in investments amounted to 14,002 Million Baht, mainly from
    SCG Chemicals' acquiring of PT Chandra Asri Petrochemical Tbk (CAP),
    the leading integrated petrochemical complex operator in Indonesia.

-   Increase from Equity income amounted to 1,359 Million Baht (Net of
    dividends received).

Property, plant and equipment: amounted to 156,683 Million Baht as at
December 31, 2011, while depreciation amounted to 12,771 Million Baht.

Liabilities

Total liabilities as at December 31, 2011 amounted to 211,769 Million
Baht, an increase of 6% from the previous year. During the year, SCG
issued new debentures which amounted to 25,000 Million Baht to replace
the matured debentures. Net debt (interest-bearing debt less cash and
cash under management) of SCG as at December 31, 2011 increased 28,490
Million Baht from the previous year to 112,114 Million Baht mainly from
investing in M&A activity. Finance costs were 6,048 Million Baht, an
increase of 1,378 Million Baht from the last year due to a decrease in
gain on foreign exchange rate.

Liquidity

At the end of year 2011, SCG had cash and cash equivalents amounted
22,680 Million Baht, a decrease of 41,147 Million Baht from last year.
As a consequence of cash flows provided by operating activities amounted
22,953 Million Baht. Meanwhile, cash flows used in investing activities
amounted to 46,093 Million Baht from the CAPEX and M&A activities.
Moreover, cash flows used in financing activities was 18,007 Million
Baht mainly from dividend payment.

Regarding the liquidity ratios, SCG earned a current ratio of 1.1 times
while the cash flow liquidity was 0.2 times. SCG’s Cash Cycle was 20
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 5,400 Million Baht.

Financial ratios

In 2011, current ratio registered 1.1 times and net debt to EBITDA ratio
increased to 2.4 times, compared to 1.8 times in last year as a result
of increasing in net debt from investing in M&A. At the end of 2011,
debt to equity ratio was relatively stable at 1.3 times.

CAPEX

SCG’s 2011 CAPEX & Investment amounted to 32,053 Million Baht, increase
13,675 Million Baht from the previous year mainly from M&A activities.

As the financial status and the operating results of 2011, the Board of
Directors considered to propose the Annual General Meeting of
Shareholders for approval of 2011 dividend payment of 12.50 Baht per
share, representing a dividend payout ratio of 55% of consolidated
profit for the year. SCG has already paid an interim dividend of 5.50
Baht per share on August 25, 2011. The final dividend will be paid at
the amount of 7 Baht per share on April 26, 2012.

In summary, SCG managed to continue solid financial position and
operating results in 2011 as a result of its thoughtful business
approach and effective Business Continuity Management (BCM) fundamentals
during crisis. SCG focuses on expansion of its business in ASEAN with
mechanisms and measures of the ASEAN Economic Community (AEC). Moreover,
SCG has continued it strategy to develop high value added products and
services (HVA) with advanced and environmentally-friendly production
technology, and also highlight the ‘Human Value Marketing’ concept, a
new development in marketing that is designed to satisfy customer
demand. SCG conducts its business in accordance with the concept of
sustainable development, focusing on achieving a balance among economic,
social and environmental commitments to achieve sustainable growth.