Good afternoon, ladies and gentlemen. We are very happy to welcome all of you again to SCGP Analyst Conference. Today, we will cover the performance of the first half of this year, and also the second quarter of 2023.
My name is Vigor, I am from the IR team. I will be your host this afternoon. For our event, may I remind all of you to keep your microphone on mute for the time being. We will have a Q&A session right after the presentations. Without further delay, may I hand over the floor to our two presenters, SCGP CEO, Khun Wichan Jitpukdee, and SCGP CFO, Khun Danaidej Ketsuwan . Thank you.
Good afternoon, and sawasdee krub. Once again, welcome to the second quarter of the 2023 financial performance of SCGP. May I start with the consolidated key financial for the first half of this year. The revenues in the first half of this year is THB 65.9 billion, which reduced from last year, 12% and negative 8% from the second half of last year.
However, the percentage of cost of goods sold on sale is reduced to 82%. In terms of the core EBITDA for the first half of this year, equal to THB 9 billion, which improved 3% from the second half of last year and reduced 14% from the same period of last year.
For the core profit, end up with the first half of this year is THB 2.6 billion, which improved 22% from the second half of last year and reduced 28% from the same period of last year. This bring to the profit margin of 4% and end up with the net profit is THB 2.7 billion for the first half of this year, which the performance is really strong in the second quarter.
Next slide. In terms of the business segment for the first half of this year. In terms of the integrated packaging business, which account for 75% of the total sales. The revenue from sales at THB 49 billion, which reduced 9% from the second half of last year. The revenues reduced mainly from the price decrease. In term of the EBITDA.
EBITDA THB 7.2 billion, which improved 11% from the second half of last year, and ended with the EBITDA margin 15%, which improved a lot from the second half of last year. In terms of the fiber business, which account for 19%, the revenue from sales equal to THB 12.5 billion, which improved 2% from the second half of last year and also improved 6% compared to the same period of last year.
Which lead to the EBITDA THB 1.9 billion, which reduced 9% from the second half of last year and improved 7% from the same period of last year. Which ending the EBITDA margin 16%. So fiber business also give a really strong result and really strong performance from the second half and the whole first half of this year. Next slide. In terms of the sale revenue by the business unit, the integrated packaging business account for 75%.
This has been reduced compared to last year. The reduction mainly comes from the packaging paper because the demand, especially in Indonesia, has been reduced and also the price also reduced. The next two portions are recycling business, accounting for 6%, and also fiber business, accounting for 19%.
Once again, in the past year, I improved the first half of this year, fiber business also contributed a lot to SCGP. In terms of the revenues from sale by end destination, Thailand accounts for 42%, and in ASEAN has been reduced to 34%, mainly from Indonesia as mentioned.
However, in Europe and U.K., the percentage improved to 5%. This is due to the per day. And also the export to the rest of the world accounts for 19%. Thanks for the sales team and also the collaboration between the country here.
That is why we can find new markets, especially in the South Asia market, that we can export more to compensate the loss of market from China. In terms of the consumer link, the figure is still 71%, almost the same as the past time here. We still keep this as a strategy, try to expand more of the customer into the consumer link segment.
One thing that I want to point out here, in terms of the detailed segmentation, in terms of E&E, electronic and electrical appliance, the percentage of this portion has been reduced due to the electronic and electrical appliance in the low season, especially in the second quarter.
Next slide, please. In terms of the macro update, China GDP by sector, actually the service sector has dominated the GDP of China, which last year accounted for 52%. This year, the figure is not out yet.
However, we see the service PMI in the second quarter of this year was 55.8%. This also contributes to the service sector of the China GDP. This proves that the demand of the packaging paper in China starts to improve a little. In ASEAN manufacturing PMI, this continues to grow. We can see here all the green color.
However, we have to monitor in terms of the export, especially for the global demand in Europe and in the U.S. In terms of the energy, especially the core market price, which we call this is the manufacturing essential.
The energy cost, the future we think is going to be reduced because in the past year or so it reduced and we are confident that it is going to be reduced further. That is a lovely update for the movement of the first half of the year and the macro update. Next, I would like Danaidej to present in detail about the second quarter. Please come.
So let's start talking about the market condition in the various countries in the second quarter. If you look at the year-on-year change, you can see that for almost all the countries in ASEAN, there's a year-on-year drop in terms of demand. That's mainly coming from the same factor in which subdued global economy where the global economy is particularly soft in this second quarter compared to the same period of last year.
Mainly because of the high inflation, high interest, and reducing purchasing power of consumers across the globe. Anyhow, if we look in terms of the Q1Q change, we can see that in Thailand and in Vietnam, this has a positive demand growth Q1Q. In Thailand, domestic consumption has been increasing, and that's due to increased activities in the economies, also in terms of the tourist arrivals and related to traveling and other things.
Even with Songkran holiday, we still observe the increase in the demand in Thailand. In Vietnam, the second quarter is better due to the first quarter, there's a long holiday, the Lunar New Year. So the demand bounced back in the second quarter. However, in Indonesia and in the Philippines, the demand Q1Q was still lower in the second quarter.
In Indonesia, mainly is because of the long holiday, Hari Raya, in the countries in which manufacturing activities and consumptions are lower. In the Philippines also mainly because of reduced consumption during the period.
Now, if you look into various parts or segments of our business in the downstream part where we have fiber and polymer packaging, if you look at the F&B, food and beverage, that still continues to grow, which is in line with the domestic consumption recovery. Also, the export in some sectors already improved.
That's related to the food and the basic needs, such as frozen food or canned food. Fresh fruits export also increased, especially export to China. For packaging paper, the demand is recovered well in Vietnam in the second quarter, and that's related to the holiday in the first quarter. But in Indonesia, the market is still soft, both from the holiday and from the lower commodity prices, which also impact the overall economy there.
But in terms of export of packaging paper products out of ASEAN, it's also improved and increasing in terms of the amount. The volume export also goes to China is also increased. The big increase comes from the food service packaging in which we see rising demand domestically as well as in the key markets like Europe and U.S., where we export to.
That's driven by more activities in relation to gathering and traveling in the summer months in preparation for that. So the spring and the summer are the seasons that people consume a lot of food service packaging for outdoor. So that's related to the preparation for that period.
Also for the QSR or quick service restaurants also increased in demand due to the promotion and people going to the fast food more. So overall, the pictures of the demand is in this way. From that, we move to our performance in the second quarter.
If you look at all the quarter only, second quarter, we have the revenue of THB 32.2 billion, and that's a reduction in terms of year-on-year and Q1Q. But mainly due to the reduction in the overall volumes of the integrated packaging business.
But if you look into the profitability, both in terms of EBITDA and profit, we can see that the Q1Q, EBITDA and Q1Q profit has improved, and that is mainly from lower cost elements such as raw materials or energy costs, and also the fibers business is doing very resilient and doing quite well.
So overall, in the second quarter, we have a core EBITDA margin of 14% and EBITDA margin of 15%, which are an improvement over the margin from the first quarter. So EBITDA margin at this level is quite healthy already.
The profit for the period is THB 1.485 billion. Next, I want to get into the details in each chain of business. For the integrated packaging business, which is 75% of our revenue, the revenue is THB 24 billion in the second quarter.
That is a drop of 24% year-on-year, mainly from the packaging paper price and volume. But for Q1Q, the drop is lower because in some part of the business, we have an increase in revenue, such as for polymer packaging. Q1Q was increased in terms of revenue due to the higher demand for frozen food and personal and home care, which is linked to the consumption in the region.
For fiber packaging is also quite resilient. We have recovery in the Vietnamese sales and also export of some segment doing quite okay. For packaging paper, this is when the revenue declined Q1Q due to mostly domestic operations or domestic volume.
But export outside of ASEAN to China, to South Asia, actually increased. Overall, the Q1Q packaging paper volume dropped by about 5%, whereas price dropped by about 2%. So that is the reason why the revenue has declined.
But if you look at the EBITDA. The EBITDA year-on-year dropped mainly because of the price in the region. But if we look in terms of the margin Q1Q, it is already improving, from 14% to 15%, and that is due to the reduction in the cost element, whether it is the raw materials, recovered paper, freight, and energy costs.
So those are the factors that contribute to the lower cost and increase in margin. On the fibers business, which is about 19% of our revenue. The revenue for this chain is THB 6.4 billion in the quarter, and an increase both in term of year-on-year and Q1Q. For year-on-year, the main increase driver would be from paper price as well as the expansion of the food service packaging.
For Q1Q, food service packaging also play a key role in the increase as well because of the rising demand in term of this product in the U.S. and Europe, as well as the pickup in the QSR, as I mentioned earlier. Paper volumes also increased Q1Q, and that is supported by the school term getting started.
For pulp, however, revenue declined mainly because of the price of the short-fiber pulp. But anyhow, we are shifting more of our operation and our product mix to dissolving pulp, which is having a stronger demand. But if we look at the EBITDA also, we have a Q1Q decline mainly from the pulp price. But if we look at Q1Q change, it is a healthy increase. So EBITDA is THB 1.1 billion and margin is 17%.
This is due to the expansion of margin for food service when the freight cost has already reduced. The margin per unit also increased. We have quite an improvement in terms of the margin of food service as well as the production cost for the paper. Printing and writing paper was also reduced, so that expanded margin for that operation.
That is the picture for the second quarter. Next, we look at our first half comparison if we exclude M&P. We can see the same trend in the sense that the revenue declined year-on-year and half-on-half.
That is mainly because of the same reason in which the packaging paper price and volume were down. If you look at the EBITDA, it is also a decline year-on-year, but in terms of half-on-half, it is quite square.
If you look at the existing operation, the margin in the second quarter would be about 14%. M&P margin, which you can calculate from this. If you take out recycling business, which is a significant part of the M&P revenue here. The recycling business generally generate about 2%-3% EBITDA margin.
If you exclude that part, the margin in the second quarter would be about 16% for the M&P operations, which is an increase from 13% in the second half of last year. This is half-on-half comparison.
Next will be on profit. Core profit and net profit figures for Q2 were similar because there is only a small adjustment of THB 46 million , mainly come from foreign exchange. Other things are quite minimal. Our net profit is 1,485.
In term of our balance sheet, our net debt at the end of the quarter is about THB 35 billion , which is slightly lower than in the end of 2022. Net debt to EBITDA was 1.9 times, and debt to equity ratio is 0.9. This is an increase from the end of last year, and I will explain a little bit on that in the next slide.
For the cash under management, we have about 13 billion, and the cost of debt is about 4.1% year to date. That is an increase from the last year, mainly because of the increase in interest rate in the period for the overseas short-term loan. Also today, the board of directors has approved the interim dividend of THB 0.25 per share, amounting to THB 1 billion in term of payment.
For CapEx, the first half is about THB 3.2 billion that we have spent mainly on the maintenance and ESG and others. Our plan for CapEx for this year is still target at THB 18 billion. About half of it, about THB 9 billion, will be from M&P. Star Print will be one of them, and also we have some potential M&P that may materialize in this fourth quarter.
That together, that is why we still keep the budget of THB 9 billion. The other part will be coming from the regular maintenance, ESG and others, approximately 5 billion a year. Next will be on the potential CapEx in investment in Fajar. There is a potential CapEx for next year amounting to about 20 billion THB, and this is associated with the acquisition of additional shares of 44.48% from the current partner.
If this materialize, it will be in the middle of next year. As you can see, we enter into Fajar with a 55% shares in 2019. In the next year, if this investment occurs, we will get another 44.5% and that will bring our shares to about 99%. This is part of the put call options that is part of the original transaction package.
With this, in the second quarter of this year, we record this transaction in the balance sheet. Because of this, and also we still have other growth CapEx in our pipeline, and as we still have quite a gearing ratio of quite low with this at 5.9%.
We have room to take on planned investment in other M&Ps or other organic aspect expansion still on intact. That is the update for the financials and the performance of the second quarter. Next will be for business update from Kun Wichan.
Thank you for the explanation, Kun Danaidej. For the business update, I want to add from Kun Danaidej that the strategic direction of Fajar for sharing. Fajar continue to be one of the key assets for SCGP for the future growth. This is just very important. We are also seeing the potential new strategy who could add value to Fajar, while the main team of the top management is still working with us.
For the operational excellence during the short term in this year and 2024, beginning of next year. We see that the optimization of sale location and the production optimization, along with the cost saving, will be the key for the success of the running Fajar. Also we want to ramp up utilization of Surabaya plant and also seeking for the new growth market, especially for the South Asia.
In addition to that, the continuous improvement and continuous optimization of the energy consumption to secure the cost reduction for Fajar. That will be the short term. For the longer term into next year, 2024 onward, we plan that we will increase the chain integration and improve the captive demand with the box M&P.
We also will continually develop a new product to improve the profit margin. Also expand food and beverage and FMCG link or more consumer link in the Indonesia market. Next information, next slide, please. Look at Indonesia for big picture. We see the Goldman Sachs projection in the year 2050 is quite long from now, more than 20 year. We see that the GDP of the world will move to Asia.
The top 4 of the world will start from China, followed by U.S.A., followed by India, and followed by Indonesia. That is why Thailand, Vietnam, and Indonesia will be the key strategy and key playing field of SCGP. In addition to that, for the large growing population of Indonesia, help a lot in term of the consumption in the future.
Look a bit in term of the demand and the growth by the industry. We see here in Indonesia, the F&B account for 59% and consumer account for 19%. These 2 consumer and F&B combined is roughly almost 80% of the consumption in Indonesia. This is the good side and the good thing that we quite confident for Indonesia in the future. In term of the market lead position here, we see that we increase the integration level.
As of now, we have the market share of the box roughly 8%. In the future, we plan to improve to 20% of the downstream and box plan. In term of the packaging solution, we also want to increase the packaging solution from our R&D, especially the Green Carton in Indonesia. Also we also want to M&P for the display packaging that increase the portfolio of the downstream, and we can improve the cross-selling among those product.
Last but not least, and really important that the operational excellence and automation will help to improve the performance of the Indonesia operation here. Also this will lead to our future expansion and more expansion in Indonesia in the future. Next slide, please. For the innovation update, last week on July 20th, I was in Canada, I visited Origin, and this is the update.
Right now we success for the first phase, which lab trial. Also we finished the second phase with the condition optimization, meaning we know the condition how to run the bio-PET plant by that condition. For the next phase, we will go to we call the pilot scale or pilot plan or pilot test. After these 3 phase and the third phase, we hopefully will finish by end of this year.
After we get all information here, by the first quarter of next year, we will conclude the investment and also with the seeking and discussion with the partner, that is progress from SCGP side. But for Origin site, they call Origin 1, which the first demonstration plant of the bio-PTA plant in the world, has been commissioning. I visited last week and saw that by myself and very proud of this disruption technology.
After this demonstration plant finished, now under commissioning, if after finish, they will invest another investment 1 million ton of the wood material in the U.S.A., so that they call Origin 2. This is thing that we have been discussed with Origin. Not only for that, in the first half of this year, we start to develop we call the biodegradable wooden food service packaging.
Mostly, we see the wooden packaging, especially the ice cream pack, this thing like that made from the wood from Europe. The name is birch. So now we develop those food service packaging, fork, spoon, knife, even bowl and tray from the eucalyptus wood log. These are under the R&D, and we see a good progress of this one.
In addition to that, we also invest and research on the new species of the wood to produce the wooden food service packaging. This is a new innovation, and the first time we use the eucalyptus as the wooden food service packaging. Next slide. In term for developing the wellbeing solution product in the brand of Holis.
As you know that we start from the IM-MU CAP, which produce from Tang Chao. We also with the B Cap, mean brain cap from the bamboo mushroom, and also, Cholest Cap, which produce from the Ganoderma.
This is a series of the product that involve the wellbeing. In the second quarter of this year, we launched the new product we call probiotic. Actually, we call HOLIS by SCGP PROBIO ACTIVE PLUS.
This to help the digestion system in the stomach, and very well accepted and very proud of this because of Watsons. We discussed with Watsons, and Watsons asked us to be the sole exclusive distributor for this product. In term of Almight, which we use from the nanocellulose from eucalyptus, is very soft and gentle, especially for the baby and the ladies.
Due to the demand of the alcohol and gel has been decreased due to the COVID-19 subside. We launched a new product we call the Ultramight Foaming, which is the foam that to clean your hand, and we put the small capsule inside with the blue color. When you wash your hand, pass by 30 second, the blue color shade of the foam will convert to the white color, meaning this is very clean.
Especially this one for the children and those who don't know to wash your hand 20 second or 30 seconds, things like that. This is the innovation is about the wellbeing product. In term of the outlook, we see that the outlook in term of the internal effort, we see that the cost saving still continue.
Even the selling price has been reduced in the second quarter, and also the volume reduced a bit. But due to the cost reduction effort a lot that show that we make the profit better than expectation. In term of the innovation, we continue to improve the innovation, especially for the sustainable packaging and the wellbeing solution. In term of the growth, now we have the M&P starting in the third or first quarter of this year.
This point of time, due to the interest rate is high, so the working capital management is still the key important. These three key point will be the internal that we can manage by ourself. For the external factor, at least we see the positive momentum of the packaging demand in this region and also in China, just a little bit.
Yes. In term for the domestic consumption, we see the food and beverage, as Khun Danaidej mentioned. Frozen food or those high has been improved. However, for the export outside the ASEAN too, especially Europe, we have to watch that.
We have to monitor that. Last but not least, the cost improvement. We see that the energy cost, the first cost still continue to reduce. But for the recycled paper price, we see somewhat maybe sideways, maybe stable in the third quarter. That all.
In summary, we can see that upcoming M&P, the starting project in Vietnam, hopefully it can be finished end of this third quarter or beginning of the fourth quarter of this year . Also with the research and development capability, we still focus on renewable material innovation. Last but not least, we commit on the ESG.
Right now, our greenhouse gas reduction, we target that in year 2030, the greenhouse gas reduction should be 20% from the base year 2020. When the time passed for 3 years, as of 2023 now, we have been done quite very well, and we wish that we can achieve the target before 2030. As of now, our renewable energy usage is reached 35%. So that all the first half of the year and the second quarter of this year performance