SCG Packaging Public : Management Discussion and Analysis Quarter 2/2022 (Reviewed)

During H1/2022, ASEAN demand improved when comparing to the same period of last year particularly in the segments of Consumer product, Food and Beverage and Export business. Tourism and service sectors were recovering as a result of country's reopening and relaxation of preventive measures against COVID-19. Nonetheless, the challenges remained from the effects of lockdown in major economic cities in China and the shortage of microchip and semiconductor parts in the electronics and automotive industries. Rising global inflation has undermined overall household's purchasing power and business costs, such as energy and transportation, while also put pressure on the economic recovery.

For packaging industry during Q2/2022, regional consumer's demand has gradually improved following the easing of COVID-19 prevention measures. In addition, the export sector continued to expand specifically in frozen & canned food, pet food, clothing and footwear exports to USA and Europe markets. Nevertheless, on a QoQ basis, demand in Thailand and Indonesia was affected by national long holidays.

SCGP's H1/2022 performance, total revenue from sales was 74,616 MB (+31% YoY) from the continuous growth of all businesses including the consolidation of financial performance from M&Ps in Duy Tan, Intan Group and Deltalab, product price adjustment in alignment with rise in costs and the increase in demand of fiber packaging and foodservice packaging. EBITDA was at 10,365 MB (-4% YoY) with EBITDA margin 14%. Profit for the period was 3,514 MB (-20% YoY) and a net profit margin of 5% as a result of a global increase in raw materials and energy costs across industries.

SCGP's Q2/2022 performance, total revenue from sales registered at 37,982 MB (+27% YoY), mainly due to revenue growth of the integrated packaging business in customer segments of consumer-linked products, especially in Vietnam along with the commercial start-up of new packaging paper production line in the Philippines (UPPC 3) while the product prices were adjusted to reflect broad-based costs increase. Growth in revenue of Fibrous business was due to the surge in pulp price and the improved demand of foodservice packaging and paper. EBITDA was 5,478 MB (-2% YoY) with EBITDA margin of 14%. Profit for the period recorded at 1,856 MB (-18% YoY) with net profit margin of 5%. The YoY decrease in profit was mainly attributed to the rise in overall costs as per abovementioned and higher depreciation from the consolidation of the completed M&Ps and organic expansions in 2021. On QoQ basis, revenue from sales grew 4%, while EBITDA increased 12% and the profit for the period increased 12% in Q2/2022. The QoQ improvement was due mainly to better performance of Fibrous business across all product categories.

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Interim dividend payment

On 26 July 2022, the Board of Directors of SCGP has approved a H1/2022 interim dividend payment of 0.25 Baht/Share (1,073 MB), which is payable on 24 August 2022 (XD-date on 8 August 2022, and record date on 9 August 2022).

Table 1 - SCGP's Consolidated Financial Statements

Unit: MB

		Q2				Jan - Jun
		2022	2021	%y-o-y	% q-o-q	2022	2021	%y-o-y
Operating Results from Consolidated Financial Statements
Revenue from sales		37,982	29,895	27%	4%	74,616	57,148	31%
Integrated Packaging Business	31,790	25,051	27%	3%	62,745	48,018	31%
Fibrous Business		6,192	4,844	28%	9%	11,871	9,130	30%
Cost of sales		31,302	23,748	32%	3%	61,648	44,952	37%
Gross profit		6,680	6,147	9%	6%	12,968	12,196	6%
Gross profit margin (%)		18%	21%			17%	21%
Distribution costs and administrative	4,202	2,922	44%	5%	8,191	5,892	39%
expenses
EBITDA		5,478	5,564	-2%	12%	10,365	10,831	-4%
EBITDA Margin (%)		14%	19%			14%	19%
Profit for the period		1,856	2,263	-18%	12%	3,514	4,398	-20%
Net profit margin (%)		5%	8%			5%	8%
Earnings per Share (Baht)	0.43	0.53			0.82	1.02
Core Financials
Core EBITDA		5,501	5,593	-2%	10%	10,489	11,064	-5%
Core Profit		1,906	2,287	-17%	11%	3,628	4,550	-20%
Note:
Revenue from sales by business = Revenue from sales after inter-segment elimination basis
EBITDA	= Earnings before finance cost, tax, depreciation and amortization
	(excluded dividend from associates and included FX gain/loss from loans)
	In Jan-Jun 2022 and 2021, Dividend from associates were 3 MB and 6 MB, respectively.
Profit for the period	= Profit for the period attributable to owners of the company

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Table 2 - Non-operating Items Adjustment for Core Profit and Core EBITDA

Unit: MB

		Core Profit	Core EBITDA
		Q2		Q2
		2022	2021	2022	2021
		1,906	2,287	5,501	5,593
Key Items
1)	FX Gain/Loss from Loan, Derivatives and Investment	346	111	378	116
2)	Company restructurings	-	-	-	-
3)	Changes to local regulations	-	-	-	-
4)	Expenses related to M&Ps Transactions	(10)	(137)	(14)	(145)
5)	Others	(386)	2	(387)	-
Total	(50)	(24)	(23)	(29)
Profit for the period and EBITDA	1,856	2,263	5,478	5,564

Key analysis on Core profit and Core EBITDA

In Q2/2022, SCGP's Core EBITDA amounted to 5,501 MB (-2% YoY, +10% QoQ) and Core profit was 1,906 MB (-17% YoY, +11% QoQ). The adjustment above showed key non-operating items that affected SCGP's profit for the period and EBITDA which mainly from FX gain/loss from loans, derivatives and investment related to M&Ps, and special items from the adjustment of Duy Tan's earn-out provision in accordance with the share purchase agreement.

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For the performance of H1/2022, IPB revenue from sales recorded at 62,884 MB (before inter-segment elimination), increased by 31% YoY owing to product price adjustment in all categories, financial consolidation of completed M&Ps of rigid plastic packaging manufacturer (Duy Tan), corrugated carton producer (Intan Group), and medical supplies and labware specialist (Deltalab) and commercial start-up of packaging paper plant in the Philippines. EBITDA reported at 8,148 MB, decreased by 8% YoY with EBITDA margin of 13%. Profit for the period was 2,679 MB, decreased by 30% YoY mainly due to the rise in raw materials, energy and freight costs across industries as well as a non-recurring adjustment related to Duy Tun's earn-out provision.

For the performance of Q2/2022, IPB revenue from sales reported at 31,862 MB (before inter-segment elimination), increased by 27% YoY, mainly from the product price adjustment, the consolidation of the successful M&P and organic expansion projects. On QoQ basis, IPB revenue from sales increased by 3%, supported by the improved demand for F&B and pet food and commercial start-up of new packaging paper machine in the Philippines.

EBITDA recorded at 3,879 MB, decreased by 9% both YoY and QoQ with EBITDA margin of 12%. Profit for the period was 1,184 MB, dropped by 33% YoY mainly caused by a broad-based increase in raw materials and freight costs across the industries. On a QoQ basis, profit for the period decreased by 21% as a result of the higher energy costs and the adjustment related to earn-out provision mentioned earlier. Nevertheless, SCGP was able to maintain the core EBITDA through active cost management and the adjustment of product prices across the board.

For the performance of H1/2022, FB revenue from sales recorded at 13,224 MB (before inter-segment elimination), increased by 31% YoY attributed to the augmented demand of foodservice packaging which aligns with the recovery of global economic activities, and the overall increase in products price especially, pulp. Additionally, the revenue growth was also driven by commercial start-up of pressboard foodservice packaging in Thailand and Vietnam. EBITDA recorded at 1,883 MB, increased by 7% YoY with EBITDA margin of 14%. Profit for the period was 570 MB, decreased by 3% YoY.

For the performance of Q2/2022, FB revenue from sales reported at 7,016 MB (before inter-segment elimination), increased by 31% YoY mainly due to the rise in demand of all products especially, food service packaging, printing & writing paper from school and workplace reopening as well as the increase in demand for specialty grade paper (i.e. Food grade). Meanwhile,

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