Khonburi Sugar Public Company Limited Opportunity Day Q2-2012 August 20, 2012 1
Content I. Company Overview II. Industry Update III. Financial Hi-Lights IV. KBS Outlook V. Q&A 2
Major Developments 1965 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 1996 Relocated the plant to Khonburi District, Nakornratchasima with production capacity of 13,690 ton canes/ day 2006 Expanded the crushing capacity to 21,000 ton canes/ day 2007 Changed the company s name to Khonburi Sugar Company Limited 2010 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 2011 Expanded the crushing capacity to 23,000 canes/day 2012 BOD approved the 35 MW power plant project with investment amount of THB1,638 mm 3
KBS s Business Overview Breeding Project Sugar Molasses Ethanol Manufacturer Farmers Filter Cake Organic Fertilizer KBS s Electricity Production Unit Bagasses PEA 4
Expansion in Capacity Maximum Crushing Capacity Maximum Refining Capacity (Tons/day) (Tons/day) 21,000 23,000 1,200 13,690 900 1,000 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 5
Value Creation through Revenue & Product Mix 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 Revenue & Operating Profit Contribution Revenue 2010: Total THB4,863 mm 2011: Total THB6,010 mm Operating Profit 2010: Total THB298.2 mm 2011: Total THB1,091.7 mm Sugar Product Mix Note: Service & utility included performance from Agricultural products and Electricity 2008 2009 2010 2011 6
Distribution Channels 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 Sugar Sales: Export vs Domestic 2008 2009 2010 2011 Distribution Channels - Domestic 2008 2009 2010 2011 7
Content I. Company Overview II. Industry Update III. Financial Hi-Lights IV. KBS Outlook V. Q&A 8
Global Sugar Overview (2012/2013 crop) 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 9
Global Sugar Overview (2012/2013 crop) 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%) 10
Global Sugar Situation Update (mm tons) Global Sugar Production, Consumption, and Stock 10yr avg stock level = 43.7% Source: F.O. Licth International Sugar and Sweetener Report 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% 11
World Sugar Price Movement ( NY#11 ) Wet Weather in Brazil, slow loading at port Santos Worst drought in 50 years in Midwest, USA Brazil reports its production to by quite stable (better than expected) The market fear of the reporting surplus number for 2 consecutive years 12
Thailand Sugar Situation (mm tons) Cane Volume: Thailand and KBS s Source: Office of Cane and Sugar Board (OSCB), the Company 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 13
Content I. Company Overview II. Industry Update III. Financial Hi-Lights IV. KBS Outlook V. Q&A 14
Understanding of Sugar Business 2010 2011 2012 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Operation 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) Domestic Sales Sales & Delivery (Jan12 Dec 12) International Sales Sales (Mar11 Mar 12) Delivery (Jan12 Oct 12) 15
Conservative Selling Policy 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 Hedging Sugar Price Hedging Exchange Rate Case I: TCSC sells @ 25 cent/lb; KBS follows and sells @ 25 cent/lb Case III: TCSC locks ex rate @ 31 THB/USD; KBS follows and locks rate @ 31 THB/USD 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% Change from TCSC -10% -5% 0% 5% 10% 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% Case II: TCSC sells @ 25 cent/lb; KBS NOT follow and sells @ prevailing price Change from TCSC -10% -5% 0% 5% 10% 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% Case IV: TCSC locks ex rate @ 31 THB/USD; KBS NOT follows and gets prevailing rate Change from TCSC -10% -5% 0% 5% 10% 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% 16
Total Revenue Analysis (THB mm) Total Revenues KBS s total revenues for Q2-2012 has dropped by 23.4% mainly due to the following factors THB2,800 mm THB2,144 mm 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.) Molasses Sales and Pricing (THB mm) (THB/ ton) 17
Quarterly Sale Volume (Tons) 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 18
Margin Analysis Margin Analysis Q2-12 vs Q2-11 Selling & Administrative Expenses to Sales 6.3% 7.1% 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% 19
Balance Sheet Hi-Lights (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 20
Summary of Financial Hi-Lights 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% 21
Content I. Company Overview II. Industry Update III. Financial Hi-Lights IV. KBS Outlook V. Q&A 22
Investment Plans 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 On going 150 Breeding project On going 50 23
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 24
35 MW Power Plant Project 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 Bagasses Electricity Production Unit EGAT 25
Preparation for AEC Sugar Production/ Consumption in ASEAN Countries Total Production 6.5 mm tons/year _ Total Consumption 11.1 mm tons/year = Net deficit 4.6 mm tons/year 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 Source: International Sugar Organization Tax Rate for Sugar under AEC 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 KHONBURI SUGAR 5% PUBLIC COMPANY LIMITED 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 26
Thank You Q&A 27