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Message from the Board of Directors

The global economic fundamentals showed slight growth in 2017 driven by growth-friendly fiscal policies and steadily expanding global trade primarily in the United States, the European Union, Japan and China coupled with a favorable economic environment and diminishing risks.

The ASEAN economy expanded steadily, particularly in Vietnam which focused primarily on the promotion of investment and trade liberalization, making its economy one of the most attractive in the region. The country with the largest population in ASEAN like Indonesia benefited from higher government spending and healthy household consumption, which has positively affected the country’s economy. The Philippines maintained a consistent economic growth rate. While Thailand’s neighboring nations including Myanmar, Lao PDR and Cambodia enjoyed economic advantages derived from the foreign direct investment.

For Thailand, the economy growth beat market expectations. The National Economic and Social Development Board (NESDB) has projected that Thailand’s 2017 GDP growth will expand by 4.0% as a result of government spending on infrastructure and stimulus packages on top of the recovery of export market.

Despite improvements in economic performance from the previous year, SCG faced challenges that affected the business operations ranging from the high costs of raw materials in petrochemicals and packaging businesses, the rise of energy cost to strong Thai currency compounded with the fierce competition in the region especially in the cement business. Thus, SCG put the focus on embracing agile and adaptive business approach to keep up with the fast-paced and turbulent environment. SCG not only restructured the organization to enhance business performance but also expanded the embedment of Integrated Business Excellence (IBE) System to improve the efficiency of the production system and provide the effective management throughout the value chains. The transformative approaches brought about streamline operations, increase productivity, reduce costs and increase revenues. In addition, to improve SCG’s competitive advantage, R&D has been promoted to constantly develop high value-added (HVA) products and services to be more responsive to consumer demands and support business expansion in the region.

For 2017, SCG reported revenue from sales of 450,921 Million Baht, increasing by 6% from the preceding year due largely to the increased sales price of chemicals products. Nevertheless, the Company’s operating profit for the year totaled 55,041 Million Baht, decreasing by 2% year-on-year as a result of fierce competition in the region especially in the cement and building products business, strong Thai currency compounded with the high energy cost. Having taken into account of the Company’s performance, its overall financial status, and global economic conditions, the Board of Directors has resolved to propose to the 2018 Annual General Meeting of Shareholders a dividend of 19.00 Baht per share for 2017, representing 41% of consolidated profit for the year. The full year dividends were divided into an interim dividend of 8.50 Baht per share and a final dividend of 10.50 Baht per share.

  Enhancing Innovation to Seek Customer-Centric Solutions with Digital Technology  
 
     

SCG focuses on adopting an open innovation strategy to enable SCG to address demand of today’s consumers. For instance, the Open Innovation Center was set up to collaborate with various sectors and startups worldwide, for developing high-capability innovation in Materials, Clean Tech and Sensor & Internet of Things (IoT). The establishment of a pilot plant allows the Company to jointly carried out collaborative research with a university in China with strong expertise. The efforts enable the scaling up of production capacity of Functional Material under the trademark CIERRATM as a consequence of the creation of innovation derived from successful R&D collaboration with The University of Oxford in 2016.

Furthermore, SCG established AddVentures, a Corporate Venture Capital (CVC), to invest in startups relating to SCG’s businesses. Examples include investment in startups that focus on digital and logistics businesses to allow customers to have access to SCG Logistics’ delivery trucks, offering a more convenient and faster service with more than 7,000 trucks throughout the ASEAN region. Moreover, SCG aims to promote innovation processes utilizing digital technologies into the organization.

SCG has adopted digital technology to enhance its business proficiency such as automation & robotics to be used in the production and maintenance which succeeded in providing further services to serve customer needs internationally such as the Netherlands, other digital technologies such as automated storage/retrieval system (AS/RS), in addition to the integration of The IoT into the inventory management to ensure speed, convenience, and operation safety to ensure that SCG is leaping towards Industry 4.0.

In 2017, sales of HVA products totaled 175,541 Million Baht, accounting for 39% of total revenue from sales, whereas sales of eco value products amounted to 185,158 Million Baht, representing 41% of total revenue from sales. The Company earmarked over 4,178 Million Baht budget for R&D and innovation, representing 0.9% of total revenue from sales.

 
     

  Moving Forward on Investment Plans in ASEAN to Achieve Sustainable Growth Together  
 
     

One of the most prominent projects is Vietnam’s first petrochemicals complex: Long Son Petrochemicals Company Limited (LSP). The construction of LSP complex is scheduled to take 4-5 years after the financing and project details will be updated in early 2018.

SCG Cement-Building Materials acquired Vietnam Construction Materials JSC (VCM) located in central Vietnam with the production capacity of 3.1 million tons per year. Meanwhile, cement plants in Myanmar and Lao PDR started the production in January and March 2017, respectively. SCG now addresses the growing demand in the region and operates in six major ASEAN nations, including Thailand, with the total production capacity of 33.5 million tons per year.

In Thailand, SCG Cement-Building Materials has restructured its ceramic tile business by merging five subsidiaries to leverage on the combined strengths of each subsidiary to generate synergies from marketing and sales, production, together with R&D. In addition, SCG launched SCG Express which offers express delivery service and is the first and only service provider to offer temperature-controlled parcel delivery. SCG Express plans to expand its service to cover areas nationwide by mid-2018.

SCG Packaging has completed the acquisition of stake in PT Indocorr Packaging Cikarang, Indonesia with a total output capacity of 32,000 tons per year. SCG Packaging has also set its sights on investing in all kinds of packaging solutions in response to growing market demand and consumer lifestyles.

SCG’s overseas business operations in 2017 contributed to SCG’s revenue from sales in ASEAN registered 106,597 Million Baht, representing 24% of total revenue from sales which is an increase of 9% y-o-y. And SCG’s revenue from sales in other regions outside ASEAN, registered 80,084 Million Baht, amounting to 17% of total sales revenue. The total assets of SCG as of December 31, 2017 amounted to 573,412 Million Baht, while 24% representing assets in ASEAN.

 
     

  Getting Ready for Changes  
 
     

Despite improvements to keep the organization operating in an efficient manner under the disruptive circumstance driven by digital technology developments which lead to consumer behavior shifts on top of the rising energy cost and material input cost, SCG has also put its focus on employee’s skill development program to help tackle potential challenges and expand their work horizon to support consumer demand and overseas business expansion.

 
     

The Board of Directors would like to express gratitude to all shareholders, debenture holders, joint-venture partners, suppliers, contractors, clients, employees and other relevant parties including domestic and international financial institutions for your continued contribution and support for SCG. And please be confident that SCG will operate our business conduct ethically in accordance with sustainability and principles of good corporate governance to establish a balance for developments between economy, society, and the environment to maximize benefits for all relevant parties along with realizing the SCG Vision of becoming ASEAN’s sustainable business leader.

   
Chirayu Isarangkun Na Ayuthaya
Chairman
 
Roongrote Rangsiyopash
President & CEO