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Business Overview

     
SCG Chemicals
 

Operating Results

In 2015, revenue from sales of SCG Chemicals totaled 200,433 Million Baht, declining by 19% from the previous year despite higher plastic resin sales volume. This is a result of sagging resin prices triggered by falling crude oil prices. Nevertheless, EBITDA and profit for the year increased by 64% and 129% from the previous year to 42,900 and 28,488 Million Baht, respectively, on the back of wider product-to-feed margins.

Market and Competition

  • In 2015, the petrochemical industry entered an upward cycle with demand outstripping supply, resulting in wider product-to-feed margins. This contributed to the overall improved performance of SCG Chemicals.
  • Prices of naphtha, the main feed, averaged 491 USD per ton, a drop of 43% from the previous year owing to a fall in crude oil prices. The average prices of polyethylene and polypropylene resins were 1,237 and 1,159 USD per ton, declines of 20% and 26% year-on-year, respectively. In spite of lower product prices, the plummeted feedstock prices provided larger cost advantage, leading to wider product-to-feed margins.
  • To counteract the high volatility in petrochemical business, SCG Chemicals has developed a vast array of high value-added products and services (HVA), which are less prone to price fluctuations. Examples include plastic resins that can withstand extremely low and high temperatures for food packaging and plastic resins that can be used to produce high-pressure pipe for natural gas distribution and mining. In addition, the company also utilizes its know-how and expertise in petrochemical operations to drive numerous innovations and services. Chief among them are high-emissivity coatings for energy savings in industrial furnaces, inspection robots for machinery and plant condition assessment, consulting service for maintenance works and major turnarounds of petrochemical plants, as well as inspection and certification of flowmeters for distribution pipes. These endeavors are designed to enhance the company's sustainable competitiveness.

Organization Development

Business Development

  • Developed a wide range of special grade resins to address various needs of the customers, such as plastics for medical devices, home appliances, automotive parts, and packaging film. These innovative products have driven HVA sales to reach as high as 53% of the total sales.
  • Acquired the remaining 49% stake of Norner Holding AS in Norway in August 2015. This resulted in SCG Chemicals holding 100% shares of Norner Group, a world-class provider of plastics research and development. This acquisition creates an opportunities for both companies to work collaboratively on several projects to add value to polymer products (e.g. polypropylene resins with improved quality for automotive applications and new production technology for polyethylene with advanced properties).
  • Further implemented Integrated Business Excellence (IBE) system to enhance efficiency in the production system and interconnected work plan throughout the value chain. In 2015, over 1,200 Million Baht was released through SCG Chemicals' increasing plant productivity, adjusting product portfolio, and improving inventory management. IBE implementation also incorporates cultural transformation to foster continuous improvement mindset among the employees. To fully drive IBE, a selected group of employees with high potential were asked to leave their original positions and work full-time on work improvement projects.
  • Began production and sale of polyethylene resins for high-pressure pipes used in natural gas distribution and mining. These special grade resins have been certified by The Plastics Industry Pipe Association of Australia and have gained wide acceptance from pipe manufacturers in various countries.
  • Upgraded the quality of polypropylene resins that are used to produce compounds for automotive applications. These resins offer high impact resistance with lower weight to save energy, as well as other distinctive properties (e.g. minimization of light reflection on materials used in the interior and elimination of flow marks, or tiger stripes, on the plastics surface).
  • PT Chandra Asri Petrochemical Tbk. in Indonesia has completed capacity expansion and commenced operations with an increase in ethylene capacity from 600,000 to 860,000 tons per year. Additionally, the company jointly invested with Compagnie Financière du groupe Michelin to construct a synthetic rubber plant, which is scheduled for completion in 2018.

Human Resources Development

  • Placed high importance on workforce retention, which was evidenced in higher job satisfaction in the latest employee engagement survey completed by all staff. This is a fruitful result of the company's policy to take exceptional care of the employees and to promote communication between the managements and their subordinates to drive the organization forward with unity.
  • Focused on personnel development by establishing SCG Chemicals Academy, which comprises executives and team members from all business functions encompassing operations, commerce, technology, and corporate function. The working group is tasked to establish guidelines in developing employees' capabilities in alignment with the company's business direction.
  • Defined strategic positions vital to driving the company in tandem with SCG Chemicals' strategies and appointed highly capable workforces to such positions. Capability building plans are also in place to equip the staff members with new knowledge and skills to prepare them for future business challenges.
  • Conducted training on Process Safety Management to build a working system that ensures maximum safety. In addition, the Operation Excellence Training Center has developed a simulation system which simulates the real production control system at the plant for staff members to practice safe control of production process in emergency.

Innovation Development

  • Entered a collaboration agreement with the Faculty of Engineering at Chulalongkorn University to research and develop technology for petrochemical industry. Both parties also jointly established the SCG-Chula Engineering Research Center at the 100th Year Building of Faculty of Engineering to drive research projects addressing industrial needs and to cater for growing work scope with better tools and equipment.
  • Developed safe packaging innovation, a special grade of plastic resin for food packaging that tolerates temperature as low as -40 degrees Celsius. At this temperature, food freezes instantly, preserving the nutrition and taste of the food at its best. The plastic also withstands temperature of up to 130 degrees Celsius, making it ideal for heating food containing oil with high boiling point.
  • Established the first commercial plant in Thailand that converts chemical waste into inorganic salt for pulp bleaching within SCG. This patented conversion system decreases chemical usage and reduces water consumption by 100,000 cubic meters annually.
  • Design Catalyst, an SCG Chemicals' business unit dedicated to offering product design service to serve the needs of the customers, is committed to developing "Innovation for Care" to uplift the consumers' quality of life. Examples include:
    • Entered a collaboration agreement with the Faculty of Engineering at Chulalongkorn University to research and develop technology for petrochemical industry. Both parties also jointly established the SCG-Chula Engineering Research Center at the 100th Year Building of Faculty of Engineering to drive research projects addressing industrial needs and to cater for growing work scope with better tools and equipment.
    • Developed safe packaging innovation, a special grade of plastic resin for food packaging that tolerates temperature as low as -40 degrees Celsius. At this temperature, food freezes instantly, preserving the nutrition and taste of the food at its best. The plastic also withstands temperature of up to 130 degrees Celsius, making it ideal for heating food containing oil with high boiling point. • Established the first commercial plant in Thailand that converts chemical waste into inorganic salt for pulp bleaching within SCG. This patented conversion system decreases chemical usage and reduces water consumption by 100,000 cubic meters annually.
    • Design Catalyst, an SCG Chemicals' business unit dedicated to offering product design service to serve the needs of the customers, is committed to developing "Innovation for Care" to uplift the consumers' quality of life. Examples include:

Sustainable Development in Business Operations

  • • Incorporated the Eco Factory guidelines of The Federation of Thai Industries with the operations system to enhance eco efficiency, add value to the products, and minimize environmental impact.
  • Supported the establishment of 12 community enterprises in Map Ta Phut, Rayong, building eco communities that sustainably generate income. This, in turn, will help shape Rayong into an eco industrial town.
  • All the efforts in 2015 resulted in SCG Chemicals becoming the first chemical business in Thailand to have all its plants achieve eco-factory certification from The Federation of Thai Industries. At the same time, the company also collaborated with Community Partnership Association to support other plants to operate in line with the Eco Factory guidelines. Furthermore, SCG Chemicals was the first chemical company in Thailand to achieve Green Industry Level 5, which is the highest level, from the Ministry of Industry.

SCG Chemicals Consolidated Financial Information (Million Baht)

  2015 2014 2013 2012 2011
Information from Statements of Financial Position
Current assets 45,769 47,070 51,321 46,423 43,257
Assets * 185,583 183,884 192,063 176,837 176,583
Liabilities * 79,818 99,133 109,273 99,968 95,884
Shareholders' equity 105,765 84,751 82,790 76,869 80,699
Information from Income Statement
Revenue from sales 200,433 248,118 209,997 203,539 192,929
Cost and expenses 170,433 237,386 202,921 206,946 192,642
Profit for the year ** 28,488 12,461 11,292 2,690 11,190
EBITDA *** 42,900 26,142 20,342 8,628 14,394

* The figures for year 2011 are reclassified.
** Profit for the year attributable to owners of the parent.
*** Profit before finance costs, income tax expense, depreciation and amortization and includes dividends from associates.