Bangkok--15 Aug--Sahaviriya Steel Industries
— Affected by natural disasters and external factors, and pre-operating costs of SSI UK. Expects the second half sales volume to recover and grow by 40%.
- Decides to invest more in UK for longer blast furnace life.
SSI posted a net loss of Bt. 1.072 billion in Q2/2011 with Bt. 9.511 billion total revenue from sales and services, down 20% y-o-y, as a result of sales price being capped despite escalating costs of raw material. In addition, large volume of boron-added hot-rolled coils were imported from China to exploit tax loopholes and avoid anti-dumping duty, while demand from automobile group was deteriorated since the earthquake in Japan. 2011 second half sale is expected to grow by 40% because of anti-dumping measures enforced by the government and rapid recovery of automobile group. It plans to issue convertible unsecured subordinated debentures of maximum Bt. 2.25 billion for long-term financial stability and additional investment to improve the blast furnace at Sahaviriya Steel Teesside Plant in UK, which will be ready for operation by year end.
Mr. Win Viriyaprapaikit, President of Sahaviriya Steel Industries PLC (“SSI”) reveals that in Q2/2011 the Company and its subsidiaries realized total revenue from sales and services at Bt. 9.511 billion, 20% down from the same period last year. SSI’s HRC business in Thailand posted a net loss of Bt. 391 million due to 3 external factors, whilst SSI UK posted a net loss of Bt. 662 million as anticipated due to pre-operating costs and expenses. In the first half of this year, SSI and subsidiaries recorded revenue from sales and services of Bt. 21.528 billion, of which Bt. 19.680 billion was SSI’s from sales revenue, Bt. 5.920 billion or 23% down from the same period of last year.
“This was a challenging quarter for all Thai steel manufacturers as we experienced extraordinarily negative factors such as 1) rapidly and continuously increasing cost of raw materials due to major flood and hurricane in Australia while the government still capped the sales price ceiling of hot-rolled coil, 2) large import of boron-added hot-rolled coil from China to exploit tax loopholes and avoid anti-dumping duty, 3) 11 March 2011 earthquake and tsunami in Japan severely impacted the automobile and electronic industries’ supply chain and high-grade steel demand. These natural disasters and external factors impacted our business and resulted in a loss in Q2/2011. As a matter of fact, SSI achieved 329,963 tons shipment of which majority is domestic market, 39% down from the same quarter of last year. Sales of Premium Value Products achieved 32% ratio of total sales and 6 new customers were added.
As for results from investment in jointly-controlled entity and subsidiaries in Q2/2011, SSI realized net loss of Bt. 21.3 million from investment in Thai Cold Rolled Steel Sheet PLC (“TCRSS”), a jointly-controlled entity, net profit of Bt 9.0 million from investment in West Coast Engineering Co., Ltd. (“WCE”), which is expanding its Engineering & Maintenance Service Business to external customers both domestic and overseas, and net profit of Bt. 11.1 million from Prachuap Port Co., Ltd (“PPC”), a Deep Sea Port Business,. Apart from this, SSI realized net loss of Bt. 691 million from investment in Sahaviriya Steel UK Ltd (“SSI UK”).
Mr. Win said that SSI set the second half sales target to grow by 40% from first half, at 1.2 million tons equal to the second half of 2010, under the positive business outlook attributing from the new government’s pro-growth policy, the government’s definitive measures against dumping of hot-rolled coil from China and prompt response on investigation of boron-added hot-rolled coils dumping from China, and rapid recovery of auto industry which was previously affected by tsunami disaster. Also the Company is confident that rolling spread in Q3/2011 will return to normal because market situation has stabilized.
“Q2/2011 was a truly difficult business environment for all Thai steel manufacturers and SSI managed to pass it with minimum impact. Now, the second half of this year looks very positive considering: 1) the new government will drive pro-growth economic policies and launch several major infrastructure projects, 2) the Ministry of Commerce’s definitive measures against HRC dumping from China have been enacted on August 11, 2011 to enforce 30.19% anti-dumping duty, and prompt response on investigation of boron added hot-rolled coil, which is likely to result in an emergency measure soon to be enacted, 3) demand from downstream industries such as automobiles and electronics after earthquake disaster has already recovered to near-peak levels” Mr. Win said.
Mr. Win further revealed about Sahaviriya Steel Teesside plant in United Kingdom, the integrated iron and steel making facility which SSI acquired from Tata Steel Group on March 24 and now operates under its 100%-owned subsidiary Sahaviriya Steel Industry UK Ltd (“SSI UK”). In Q2/2011, SSI UK had revenue of Bt. 1.677 billion from coke sales and coke toll manufacturing service. The company’s coke production is running as normal while iron & steel production is yet to start, therefore there are pre-operating fixed cost and selling & administration expense burden which the company had already anticipated. Preparation works for production restart have progressed substantially and the steel slab production is slated to commence in December 2011. The company decided to bring forward the blast furnace reline activity, which originally was scheduled for 2017. The reline activity will instead be implemented now to take advantage of the current shutdown status, rather than to shut down again in the future. In so doing, the blast furnace will start with a new campaign and can operate continuously with a 15-20 years’ life, running at lower production cost and stable production rate at 3.6 million tons per year, higher than the original plan of 3.2 million ton per year. This will lower the business risk and enhance SSI competitiveness, particularly in premium-grade steel to support the growing economy and key industries. The business integration between SSI and SSI UK will provide a platform for further growth and higher capability to respond to the market and customers’ requirements, and create the largest integrated steel producer and the first global steel company in ASEAN.
To invest in the blast furnace improvement as mentioned above, SSI UK has to raise additional investment amount of US$ 140 million, comprising of US$ 90 million financial institution loan and around US$ 50 million capital injection from SSI.
In order to strengthen its financial stability and raise capital to invest in SSI UK, SSI plans to issue convertible unsecured subordinated debentures at not above 5-year term, bearing interest not above 5% per annum, and with conversion premium around 10 — 30% at a maximum amount of Bt. 2.25 billion. It plans to do a right offering of these debentures to the existing shareholders, at the ratio of 11,000 existing shares to 1 debenture, and may offer any remaining debentures to institutional investors through a private placement.
For more information, please contact Public Relations Department
Sahaviriya Steel Industries Public Company Limited
Khun Rungkan, Khun Numphung and Khun Sarawut
Tel 02-238-3063 Ext.1327, 1302 and 1320
About SSI
Sahaviriya Steel Industries PLC or SSI is Southeast Asia’s largest fully integrated producer of hot rolled steel sheet in coils (HRC), with 4 million ton annual capacity, and focuses on the development and production of high-grade steel sheets to cater to the regional growing demand in various sectors such as automobile, energy, transportation and construction sectors. SSI recently invested 100% in Sahavirya Steel Industry UK Limited (“SSI UK”), a full iron-steel making facility located at Teesside in the northeast of UK. SSI UK can produce slap which is the upstream raw materials of SSI at the capacity of producing 3.6 million tons per year. In addition, SSI has joint-venture investments in downstream plants - namely Thai Cold Rolled Steel Sheet PLC (“TCRSS”) - Thailand’s first and largest cold roll mill, and Thai Coated Steel Sheet Co Ltd (“TCS”) - Southeast Asia’s first and largest electro-galvanizing line. All SSI’s plants in Thailand are located on a world-class coastal industrial site in Bang Saphan, Prachuap Khirikhan Province, 400km south of Bangkok on the western peninsula of Thailand, where they are efficiently integrated with its privately-owned deep-sea port (Prachuap Port Co Ltd or PPC), which allows import of raw materials and export of finished products on a large economy of scale. SSI extends its engineering capabilities into its wholly-owned subsidiary, West Coast Engineering Co Ltd or WCE, which specializes in engineering, maintenance, spare parts production, fabrication, erection and commissioning service. Our people’s passion and energy is captured in the Company’s vision statement - “innovate premium value steel products and services for customers; generate consistent profit and sustainable value for stakeholders.”
For further information, please visit the Company’s website at http://www.ssi-steel.com