Cost-cutting Strategy Blooms SCCC’s Billion Profit in 2Q18

A cost-cutting strategy of company’s operation of Siam City Cement Public Company Limited or SCCC, known as “Insee Cement” during users recovering state from less demand, starts to bear fruit.  A result from 2Q18 financial statement shows 1 billion baht of net profit. An increase of 316% from 245 million baht from the same quarter in 2017. A net profit margin also increase from 32% to 37%

 

SCCC aims to reduce 1.1 million baht of operation cost by following these processes:

1) Increase production capability and reduce the cost by 180 million baht.

2) Improve logistic procedures and reduce the cost by 140 million baht.

3) Improve procurement process and reduce the cost by 370 million baht.

4) Improve general management process and reduce the cost by 450 million baht.   

 

Though the cost-cutting strategy still has not reached all four goals, SCCC’s 2Q18 financial statement proves that the company is on the right track.

Besides the cost-cutting strategy, SCCC also improves their business and marketing plan along the way. These improvements include:

1) Raise domestic sales price by 50-100 baht per ton.

2) An increase from international sales in cement business that the company owned.

3) Coal cost management by making a future exchange.

 

The domestic sales are slowing down by 3% (15.6 mt (million ton) in production capacity). Vietnam’s market starts to recover in June by gaining 8% (6.3 mt in production capacity). Bangladesh’s market also gains 10% (0.5 mt in production capacity), and Sri Lanka’s market declines 10% (2.3 mt in production capacity). It is clear that SCCC is growing fast internationally.

What not to overlook is SCCC’s construction materials replacement business. SCCC gains 1,832 million baht in 2Q18 revenue by this, which is a 164% increase from 694 million baht of the same quarter in 2017. Though this accumulates to only 10% of SCCC’s revenue, it has a great potential of making more profit to the company.

The improvement of SCCC during this slowdown in cement market comes from vertical integration strategy, which is focusing in construction materials, then develops to merchandises and services in construction material sections along with the cost management and cost-cutting strategy.

However, SCCC’s plan differs from their parent company, The Siam Cement Public Company Limited or SCC, that works toward horizontal integration strategy focusing on creating new business segments, for example, a full-ahead on petrochemicals business, paper and packaging business expansion, and logistics business as diversification.

By the look of it, the parent and the subsidiary seem to walk on a different path, however, they share the same goal, which is to acquire a long last “profit”

Will someone get “lost” along the way? This is something that we will have to wait and see.