Khonburi Sugar Public Company Limited Opportunity Day Q2 ...kbs.listedcompany.com/misc/presentations/20120820-KBS-oppDay2… · According to the forecast, world sugar production will

บริษัท น ำ้ตำลครบุรี จ ำกัด (มหำชน) KHONBURI SUGAR PUBLIC COMPANY LIMITED

Khonburi Sugar Public Company Limited Opportunity Day

Q2 - 2012

August 20, 2012

1


I. Company Overview

II. Industry Update

III. Financial Hi-Lights

IV. KBS Outlook

V. Q&A

2

Content


Major Developments

Khonburi Sugar Plc. was established as Nong Yai Industry Company Limited with registered capital of THB 1 mm and production capacity of 1,500 ton canes/day

Relocated the plant to Khonburi District, Nakornratchasima with production capacity of 13,690 ton canes/ day

Expanded the crushing capacity to 21,000 ton canes/ day

Increased its registered capital to THB500 mm by offering newly issued shares 150 million for IPO, and become a listed company in the Stock Exchange of Thailand

Changed the company‘s name to Khonburi Sugar Company Limited

3

1965

1996

2006

2007

2010

BOD approved the 35 MW power plant project with investment amount of THB1,638 mm 2012

Expanded the crushing capacity to 23,000 canes/day 2011


4

KBS’s Business Overview

Farmers

Breeding Project

KBS’s Electricity Production Unit

Sugar

Molasses

Filter Cake

Bagasses

Ethanol Manufacturer

Organic Fertilizer

PEA

http://guru.sanook.com/encyclopedia/การปลูกอ้อย/

http://www.thaionlinemarket.com/picproduct/11-144/thumbnailshow361074.jpg


Expansion in Capacity

5

(Tons/day) (Tons/day)

21,000

13,690

23,000

1,000

900

1,200

Maximum Crushing Capacity Maximum Refining Capacity

KBS continues to expand capacity to capture growth of the industry

At the start of 2012 crushing season, the Company has completed the capacity expansion. Maximum crushing capacity was raised to 23,000 tons/day, and maximum refining capacity to 1,200 tons/day


Value Creation through Revenue & Product Mix

6

Revenue & Operating Profit Contribution

Sugar Product Mix

Revenue

2010: Total THB4,863 mm 2011: Total THB6,010 mm

Operating Profit

2010: Total THB298.2 mm 2011: Total THB1,091.7 mm

2008 2009 2010 2011

KBS will increase the proportion of electricity business that generates stable income steam to the Company KBS will focus on value-added products such as refined and white sugar

Note: “Service & utility” included performance from Agricultural products and Electricity


Distribution Channels

7

Sugar Sales: Export vs Domestic

2008 2009 2010 2011

Distribution Channels - Domestic

70-80% of total sales are export, which KBS mostly sells through large, credit-worthy international traders For domestic market, KBS sells through multiple channels with the aim to maximize profit margin

2008 2009 2010 2011


I. Company Overview

II. Industry Update


IV. KBS Outlook

V. Q&A

8

Content


Global Sugar Overview (2012/2013 crop)

9

Brazil

Cane production in Center-South region of Brazil in year 2011 had decreased first time in the last decade due to higher aged cane profile and unfavorable weather; as a result, the cane production dropped to 494 mm tons (-11.3%) from 557 mm tons last season

The Center-South region of Brazil delayed the start of 2012/13 crushing season due to unseasonal raining. Crushing volumes ended July 12 are 22% lower than last year with sugar yield drop by 4%

Australia

So far, the sugar production in new season is slightly worse than last year. The sugar production number is estimated at 4.00 mm tons (-3.6%), reduced from 4.15 mm tons of last year.

Russia

The beet harvest started in early Aug 12

Root weight and sugar content increased from last year due to the weather conditions

Even the beet farming areas are down by 11% this year, but the higher sugar yield coupled with increased capacity has made up for the loss

Sugar production in 2012/13 is expected to match last year’s level of 5.0 mm tons


Global Sugar Overview (2012/2013 crop)

10

EU

As a consequence of bad weather (colder and wetter than expected), the start of beet plantation has been forced to delay for 3 weeks, and so will the harvesting

The sugar beet production will decrease to 16.7 mm tons (-9.8%) down from 18.50 mm tons

India

For 2012, sugar production in India was 26.5 mm tons while consumption amounted 24.0 mm tons. India sugar producers exported the excess of 2.5 mm tons (out of the export quota of 3.0 mm tons)

For updated situation in India, drought in India would be worse than expected, leading to an increase in domestic sugar price

Current domestic price is significantly higher than world market price

Export ban in India is possible

China

The 2011/12 production had ended at 12.50 mm tons while consumption at 15.50 mm tons and import approximately 3.00 mm tons

20112/13 higher support from domestic price and cane price this year should encourage farmers to grow more cane; it is estimated that the sugar production next year will be 13.50 mm tons (+4%)


Global Sugar Situation Update

11

Global Sugar Production, Consumption, and Stock

(mm tons)

According to the forecast, world sugar production will increase significantly to 177.75 mm tons while the consumption is continue to grow and is expected to reach 164.54 mm tons

The surplus this year will bring world sugar stock up to 42.7% from the tough of 37.6% in 2010; however, it is still lower than the 10-year average level of 43.7%

Source: F.O. Licth International Sugar and Sweetener Report

10yr avg stock level = 43.7%


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World Sugar Price Movement ( NY#11 )

• Wet Weather in Brazil, slow loading at port Santos

• Worst drought in 50 years in Midwest, USA

• The market fear of the reporting surplus number for 2 consecutive years

• Brazil reports its production to by quite stable (better than expected)


Thailand Sugar Situation

13

Cane Volume: Thailand and KBS’s

There are favorable factors contributing to good cane situation in Thailand, which are 1) sugar price in world market remains in high region for a relatively prolonged period, leading to continued high cane price, and 2) good weather conditions

Thailand start its crushing season in Dec 11, and most of the sugar mills completed the crushing in Apr 12; the total cane crushed broke the record again with total 97.97 mm ton (+2.7%)

KBS’s cane crushed for 2012 was 2.55 mm tons (-11.4%), decreased from the record high of 2.88 mm tons last season

(mm tons)

Source: Office of Cane and Sugar Board (OSCB), the Company


I. Company Overview

II. Industry Update


IV. KBS Outlook

V. Q&A

14

Content


Understanding of Sugar Business

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Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2011 20122010

Support farmers on cane plantation (Oct 10 – Oct 11)

Cane Crushing (Dec 11 – Apr 12)

Re-melting season (Dec11 – Aug 12)

Machinery Maintenance (May12 – Dec 12)

Operation

Domestic Sales

Sales & Delivery (Jan12 – Dec 12)

International Sales

Delivery (Jan12 – Oct 12)

Sales (Mar11 – Mar 12)


Conservative Selling Policy

16

• To protect the Company against the damage that may arise from the fluctuation in cane price and exchange rate, KBS has the policy to follow TCSC

Case I: TCSC sells @ 25 cent/lb;

KBS follows and sells @ 25 cent/lb

Case II: TCSC sells @ 25 cent/lb;

KBS NOT follow and sells @ prevailing price

Case III: TCSC locks ex rate @ 31 THB/USD;

KBS follows and locks rate @ 31 THB/USD

Case IV: TCSC locks ex rate @ 31 THB/USD;

KBS NOT follows and gets prevailing rate

Hedging Sugar Price Hedging Exchange Rate

Change from TCSC -10% -5% 0% 5% 10%

Sugar price 22.5 23.8 25.0 26.3 27.5

KBS price 25.0 25.0 25.0 25.0 25.0

Cost (70% of TCSC) (17.5) (17.5) (17.5) (17.5) (17.5)

Gross profit 7.5 7.5 7.5 7.5 7.5

% profit change 0.0% 0.0% 0.0% 0.0% 0.0%


Sugar price 22.5 23.8 25.0 26.3 27.5

Revenue 22.5 23.8 25.0 26.3 27.5

Cost (70% of TCSC) (17.5) (17.5) (17.5) (17.5) (17.5)

Gross profit 5.0 6.3 7.5 8.8 10.0

% profit change -33.3% -16.7% 0.0% 16.7% 33.3%


Exchange rate 27.9 29.5 31.0 32.6 34.1

Revenue 27.9 29.5 31.0 32.6 34.1

Cost (70% of TCSC) (21.7) (21.7) (21.7) (21.7) (21.7)

Gross profit 6.2 7.8 9.3 10.9 12.4

% profit change -33.3% -16.7% 0.0% 16.7% 33.3%


Exchange rate 27.9 29.5 31.0 32.6 34.1

Revenue 31.0 31.0 31.0 31.0 31.0

Cost (70% of TCSC) (21.7) (21.7) (21.7) (21.7) (21.7)

Gross profit 9.3 9.3 9.3 9.3 9.3

% profit change 0.0% 0.0% 0.0% 0.0% 0.0%


Total Revenue Analysis

17

THB2,800 mm

THB2,144 mm

(THB mm)

KBS’s total revenues for Q2-2012 has dropped by

23.4% mainly due to the following factors

Sugar sales decreased by 23.0% as sale

volume has dropped by 27.4% owing to the

delay in international logistics &

transportation process

Molasses sales decreased by 55.6% as

average selling price of molasses this year is

significantly lower than that of last year

Sugar Sale Volume (mt.)

Total Revenues

Molasses Sales and Pricing

(THB mm) (THB/ ton)


18

Low season of sugar business is Q4 of calendar year, which is the export season for Brazil’s sugar, putting pressure on world sugar price overall

Thai sugar companies hardly export their sugar during this period

Normally, we export sugar during Q1 – Q3 of calendar year; the concentration of export volume among these three quarters varies from year to year, subject to logistics and requirements of customers

Quarterly Sale Volume

(Tons)


19

Gross margin Q2-12 dropped by 6.4% mainly due to a dip in selling price of molasses this year

EBIT margin Q2-12 decreased by 7.1% mainly due to the reduction in gross margin coupled with an increase in SG&A to sale ratio

Net margin Q2-12 had less effect and decreased by only 3.9%, thanks to the reduction in corporate income tax rate from 30% to 23%

Margin Analysis

6.3%

7.1%

Margin Analysis Q2-12 vs Q2-11 Selling & Administrative Expenses to Sales


Balance Sheet Hi-Lights

20

(THB mm)

KBS still has a strong balance sheet with D/E of 0.93x, and the Company is in a comfortable position to support expansion projects that will lead to sustainable growth prospect


Summary of Financial Hi-Lights

21

Q2 - 12 Q2 - 11 % change 1H - 12 1H - 11 % change

Total revenues (THB mm) 2,144 2,800 -23.4% 3,765 4,504 -16.4%

Gross margin 22.8% 29.3% -6.4% 23.3% 27.9% -4.6%

EBITDA margin 17.1% 23.6% -6.4% 20.8% 22.2% -1.5%

EBIT margin 15.4% 22.5% -7.1% 19.0% 20.9% -1.9%

Net margin 11.3% 15.1% -3.9% 14.6% 14.6% 0.0%


I. Company Overview

II. Industry Update


IV. KBS Outlook

V. Q&A

22

Content


2010 2011 2012 2013 2014 Investment Cost

(THB mm)

Improve the crushing capacity to 23,000 tons/day

260

Improve sugar purification process capacity to 1,200 tons/day

140

Biomass Power Plant 35 MW.

1,638

Cane machinery development project 150

Breeding project 50 On going

On going

Investment Plans

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Cane machinery development project

Breeding Project

• KBS developed prototypes of cane chopper and planter which are cheaper and more appropriate for small land plot in Thailand

• The Company is looking for the right strategic partner to develop the project commercially

• More than 7,000 cane breeds developed under KBS’s breeding projects

• KBS’s breeding program is aim to develop cane that give higher sugar yield

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35 MW Power Plant Project

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Electricity Production Unit

Bagasses

EGAT

KBS’s Board of Director has approved the 35 MW biomass power plant project in June 2012 with following details

Khorburi Power Plant (KPP), KBS’s 99.9% subsidiary, will be the owner of the Project

Estimated investment amount is THB1,638 mm

Feedstock will be bagasses, the by-product of sugar crushing from KBS’s mill

The electricity will be sold to the Electricity Generating Authority of Thailand (EGAT)

The project construction period will be approx. 18 months; electricity sale to EGAT is expected to be early 2014

KPP already secured bank loan for the project with D/E around 2.3x

Benefit of the Project to KBS

Increase portion of electricity revenue which is less volatile compared to income/profit from sugar business

With new technology employed by the new electricity generating unit, KBS’s group can increase its efficiency in energy utilization within the sugar production


26

Preparation for AEC Sugar Production/ Consumption in ASEAN Countries

Tax Rate for Sugar under AEC

_

Impact of AEC (ASEAN Economic Community) in General

Allow for the free movement of goods, services, investment, capital, and skilled labor

Tariffs will be eliminated and non-tariff barriers will be gradually phased out

Impact of AEC to Thai Sugar Business

Thai sugar business will be beneficiary under AEC

ASEAN countries –excluded Thailand – consume sugar of 11.1 mm tons/year and produce 6.5 mm tons/year; most of the imports to satisfy local consumption are from Thailand

The local sugar production in other ASEAN countries is far less cost-efficient compared to Thailand

If all quota, tariff, and other measures are completely removed, Thailand can export more sugar to ASEAN region rather than ship outside

Net deficit 4.6 mm tons/year

Total Production 6.5 mm tons/year

Total Consumption 11.1 mm tons/year

=

Country Tax rate

Original members Brunei 0%

Singpore 0%

Thai 0%

Malaysia 0%

The Philippines 38% (sensitive list), will reduce

to 5% in 2015

Indonesia 30-40% (sensitive list), will

reduce to 5-10% in 2015

CLMV Cambodia 5%

Lao 5%

Myanmar 13% (sensitive list), will reduce

to 0-5% in 2015

Vietnam 5%

Source: International Sugar Organization


Thank You

Q&A

27

Documents

Khonburi Sugar Public Company Limited Opportunity Day Q2 ...kbs.listedcompany.com/misc/presentations/20120820-KBS-oppDay2… · According to the forecast, world sugar production will