Overseas Investment: Threats & Opportunities Rattakrai Limsiritrakul July 16, 2014 1

1 2 3 4 5 AGENDA Overseas Investment Source of Competitiveness Where to invest? AEC 4 SCG’s Investment 5 Challenges 2

1 1 Overseas Investment

1 2 3 4 5 Why to invest overseas? Increase of Labor Cost Limited Resources 3 Limited Industrial Areas (Zoning Issue) 4 Laws and Regulations 5 Market Maturity 4

Low consumption per capita in ASEAN Opportunities from regional growth Low consumption per capita in ASEAN Note: as of Dec 2012

Source of Competitiveness 2 Source of Competitiveness

1 2 3 4 Sources of Competitiveness Price & Non-Price Competition Cost Excellence? Sustainability? 3 Changes in Technology 4 Changes in Customer Behavior 7

Sources of Competitiveness Marketing & Technology will play increasingly important roles, compared to production. Cost Leadership Value R&D HVA Branding Technology Production Marketing Business Activity

3 1 Where to Invest? AEC? 9

ASEAN Economic Community (AEC) 2015 AEC Blueprint Free flow of Goods: Single Market Free flow of Services: Service Liberalization Free flow of Investment: Open Investment Freer flow of Capital: Greater Capital Mobility Free flow of Skilled Labor: Mobility of Labor AEC Attractiveness 600 1.8 Free flow of Goods: Single market for goods will facilitate the development of production network in ASEAN and enhance its capacity to serve the region Free flow of Services: Service Liberalization/Substantially remove all restriction to trade in services Free flow of Investment: Free and open investment in 5 Sectors (Manufacturing, Agriculture, Fishery, Forestry, Mining) Freer flow of Capital: Strengthening ASEAN Capital Market Development and Integration, and allowing Greater Capital Mobility. Free flow of Skilled Labor: Mobility of Labor Mobility or facilitated entry for the movement of persons engaged in trade in goods, services and investments, according to the regulations of the receiving country. 7 professional categories: Engineers, Architects, Medical Doctors, Dentists, Nurses, Accountants and Surveyors AEC หมายถึงโอกาสที่เพิ่มขึ้น ประชากร ASEAN 600 ล้านคน > EU (500 ล้านคน) GDP 1.8 trn USD: 6 เท่าของไทย (0.3 trn USD) เกาหลีใต้ (1 trn USD), อินเดีย (1.7 trn USD), CN (6 trn USD), EU (16 trn USD) มูลค่าการค้าระหว่างประเทศ 1.6 trn USD = 6 เท่าของไทย FDI 50 bn USD = 60% ของจีน (CN 20 % of world inward direct investment flows) นักท่องเที่ยวต่างชาติ 65 ล้านคน = อันดับ 2 ของโลก (รองจากฝรั่งเศส)

AEC: Opportunities to Come… Single market and production bases Improve business environment Increase global linkage Joint production to create synergy FDI opportunity ASEAN + 3 (China, Japan, Korea) Logistics and transportation network throughout the region ASEAN + 6 (ASEAN+3 + India, Australia, NZ) Trade expansion Lower cost of capital due to the deregulation and financial market development ASEAN + 8 (ASEAN+6 + US, Russia: on process), etc. Encourage to do FTA

Country Competitiveness Value added Raw material & Labor Raw material & Labor Vietnam Cambodia Myanmar Laos Production Base Thailand Malaysia Indonesia Vietnam Technology Singapore Malaysia Thailand Ref: Department of Trade Negotiations

Low consumption per capita in ASEAN Opportunities from regional growth Low consumption per capita in ASEAN Note: as of Dec 2012

3 SCG’s Investment

By 2015, SCG as ASEAN Sustainable Business Leader SCG Vision By 2015, SCG as ASEAN Sustainable Business Leader Role Model in Corporate Governance & Sustainable Development Innovative Workplace of Choice 600

HVA Products & Services Innovation & Technology, Brand, Social Media, SCG Competitive Landscape HVA Products & Services Innovation & Technology, Brand, Social Media, Green Initiatives The New Playing Field The Old Playing Field Territory Domestic ASEAN Product Commodity-based Focus Cost Leadership

Malaysia & Singapore (1996) Regional Operations - Assets in ASEAN Latest update, total ASEAN assets = $2.1 billion (64,400 MB) (15% of Total Assets) #3 #2 Vietnam (1996) Total Assets 19,000 Mil THB Myanmar (1996) - Cement-Building Materials Total Assets 130 Mil THB - Chemicals - Cement-Building Materials - Paper Philippines (1993) Laos & Cambodia (1994) Total Assets 7,600 Mil THB - Paper Total Assets 4,700 Mil THB - Cement-Building Materials - Cement-Building Materials #1 Malaysia & Singapore (1996) Indonesia (1996) Total Assets 670 Mil THB Total Assets 32,300 Mil THB - Packaging Paper - Chemicals - Cement-Building Materials - Cement-Building Materials

Segments: Export Segments: Export Destinations in H1/13 ASEAN destinations were 45% of the total exports sold from Thailand. ASEAN destinations were 45% of the total exports sold from Thailand.

Three countries (Indonesia, Myanmar, Vietnam) accounted ASEAN Drivers in H1/13 Three countries (Indonesia, Myanmar, Vietnam) accounted for 58% of SCG’s exports into ASEAN, while Sales from ASEAN operations increased 22% y-o-y.ASEAN destinations were 45% of the total exports sold from Thailand.

Latest M&A Updates Cement – Building Materials: Chemicals: Paper: Cement plants: (Myanmar-Indonesia-Cambodia) 4.5 MT (28,900 MB or $965 M). Ceramic Tiles (Vietnam): 85% stake M&A, 75 Mill sqm. (7,200 MB or $240 M). Precast concrete: two precast plants by mid –2015 (2,500 MB or $80 M). Sanitary ware and fitting assets: for majority stake (2,600 MB or $90 M). MG Stone Slabs: 400,000 sqm. green-field (1,500 MB or $50 M). Roofing:  purchase shares from Monier Group (650 MB or $22 M). JV in temperature-controlled logistics with Nichirei Logistics Group.     .     Chemicals: Increase stake in BST: from 26% to 49% (8,028 MB or $260 M). Debottleneck of Chandra Asri (Indonesia): Ethylene capacity increased up to 43% by 2015. LDPE coating grade (HVA) of 60,000 tons, totaling 152,000 tons per year, by mid-2016 in Thailand. Paper: Fibrous chain: Nippon paper’s 30% stake in SCG Paper’s Fibrous chain. Packaging chain: Box plant - Indonesia: 90% stake M&A, 37,000 tons (395 MB or $13 M). - Thailand: 75% stake M&A, 121,000 tons (888 MB or $30 M). Packaging paper in Thailand: 400,000 tons brown-field (6,700 MB or $220 M). 20

Modernize SCG Brand     Now Past .     21

HighValueAdded HVA Strategy to … INNOVATION

Moving toward HVA, especially in Thailand by focusing on R&D and Innovation 1. HVA’s Revenue from Sales $4,560m $4,850m (MB) 136,762 149,924 117,992 85,768 $200m 54,865 59,461 38,837 7,783 HVA as a % of 4% 17% 19% 25% 29% 32% 34% 35% Revenue from Sales 2. R&D Spending $70m $48m (MB) 1,430 2,068 1,111 880 921 720 $1m 370 40 3. R&D and Product Design Team (staffs / Dec/13) 364 (Ph.D. 9) 1,262 (Ph.D. 73) 23

Commitment in R&D: Shifting from Commodity to HVA HVA = High value added products and services 5-10% higher margin An element of brand, technology, or service bundled Cement & Building Materials Chemicals Paper “ EU-certified PE water pipe” “ Color rendered mortar” “ Lightweight packaging solution” “Less paper-Same strength” “Up to 25% lighter” “Roofing solution” “ Medical grade plastic” 24

HVA JV with Advanced Technology Partners HVA… A Viable New Offering PP Compound for Automotive: JV with PRIME Polymer Machine Glaze Paper: JV with Nippon Paper Performance Solution SCG Heim: JV with Sekisui Chemical HVA Cold Chain: JV with Nichirei to deliver good taste and Freshness Service High-End Porcelain Tile manufactured by FLORIM, Italy under COTTO Italia Brand Brand 25

SCG’s Collaboration with Universities University Industry Co-Research Lab: For researchers & students Extended research facility Industrial experienced students Faculty of Engineering, Chulalongkorn U. Green Building Faculty of Architectural & Planning, Thammasart U. Marine Cement: Cement composition that resist against chloride ingress from external marine environment Sirindhorn International Institute of Technology Organic fertilizer: Utility of waste material from paper for agricultural usage - Reducing landfill Improving plant growth Lowering cost of chemical fertilization Faculty of Agriculture, Kasetsart U

eco = ecology + economy value SCG eco value: eco products In 2012, 48 products (sales $1.8 billion);14% of total sales eco = ecology + economy The balance of environment, society and economy towards sustainable growth SCG eco value เกิดขึ้นจากการที่ SCG ยึดหลักการดำเนินธุรกิจอย่างยั่งยืน โดยให้ความสำคัญกับการอนุรักษ์สิ่งแวดล้อม ซึ่งที่ผ่านมาได้มีการบริหารจัดการด้านสิ่งแวดล้อมอย่างจริงจัง ทั้งในกระบวนการผลิตสินค้าและการให้บริการ การฟื้นฟูและปรับปรุงทรัพยากรธรรมชาติ และในวันนี้ ขอแนะนำฉลาก SCG eco value ซึ่ง SCG จัดทำขึ้นเพื่อรับรองนวัตกรรมของสินค้าและบริการที่เป็นมิตรต่อสิ่งแวดล้อม ทั้งนี้เพื่อเป็นการสร้างมูลค่าให้แก่ผู้บริโภค และผู้ใช้บริการ โดยคำนึงถึงการอนุรักษ์ธรรมชาติและสิ่งแวดล้อมควบคู่กันไป ปัจจุบันผลิตภัณฑ์ที่เป็นมิตรต่อสิ่งแวดล้อมได้รับความสนใจและเป็นที่ต้องการในตลาด โดยเฉพาะในต่างประเทศ มีการออกฉลากรองรับผลิตภัณฑ์เพื่อสิ่งแวดล้อม เช่น กลุ่มประเทศ EU มีสัญลักษณ์ EU Flower สหรัฐอเมริกา มีสัญลักษณ์ Green Seal หรือ ญี่ปุ่น มีสัญลักษณ์ Eco Mark สำหรับประเทศไทย ก็มีฉลากเขียว บริษัทผู้ผลิตชั้นนำที่มีชื่อเสียงระดับโลกก็สามารถรับรองผลิตภัณฑ์ของตนเองได้เช่นกัน เช่น Panasonics, Philips, Apple, Adidas เป็นต้น value Value for stakeholders, society and environment received from innovative products and services 27 27

eco Products eco Processes SCG eco value: eco products Waste water reuse system Use Less Water Green Carton “Consume Less Paper” Elephant Cement: Corrosion Resistance Cement “Reduce CO2 7%” Waste heat to electricity Release Less CO2 30% eco fiber in Idea Green Paper Cut Less Tree Cool Roof System “Save 40% Energy Consumption”

Establishing Brand and Relationships Finding Effective Local Partners Investment Practice 1 Pre-Marketing By exporting products to target countries 2 Establishing Brand and Relationships 3 Finding Effective Local Partners 4 Expanding Operations into the target countries by 2 options M&A is a Priority 2) Greenfield 29

By exporting products to target countries SCG’s Investment Practice 1 Pre-Marketing By exporting products to target countries 30

Establishing Brand and Relationships SCG’s Investment Practice 2 Establishing Brand and Relationships 31

Finding Effective Local Partners SCG’s Investment Practice 3 Finding Effective Local Partners 32

Expanding Operations into the target countries via 2 options SCG’s Investment Practice 4 Expanding Operations into the target countries via 2 options M&A is a Priority 2) Greenfield Greenfield 33

1 2 3 4 5 Why M & A? Speed of Cash Generation Opportunities Access to market and technology 4 Market Competitiveness 5 Rules and Regulations 34

1 2 3 4 5 4 4 Share or Asset Deal? Licenses Transaction Costs Loss Carry Forward 4 Liability and Risk 5 Tax Planning 4 4 35

1 2 3 4 M & A Practice Feasibility Study Cross Functional Team Due Diligence 4 Post-Merger Integration 36

5 34 4 Challenges

Challenges from Regional Expansion Cross-cultural diversity & How to prepare and encourage Thai staff to go overseas Challenge 1 Training and development New HR practice & mindset Attractive compensation package What we do

Local Staff Engagement Challenges from Regional Expansion Local Staff Engagement Challenge 2 Training and development Country HR Committee Career advancement What we do

Local Community Concerns Challenges from Regional Expansion Local Community Concerns Challenge 3 Corporate Social Responsibility “SCG Sharing the Dream” - More than 1,000 scholarships per year - Vietnam, Philippines, Indonesia, Myanmar What we do 40

We are a part of community SCG Sharing the Dream Project Scholarships - in Vietnam and Philippines since 2007 - more than 2,500 scholarships granted Playground - Hong Van Thu Park, in HCMC, Vietnam Disable Children’s School Renovation in Baria Vong Tau, Vietnam Vietnam 2007-2010 = 350 per year 2011 = 400 Philippines 2007-2011 = 100 per year Indonesia 2012 = 200 Myanmar 2012 = 99

We are a part of community SCG Sharing the Dream Playground in Vietnam

Sustainable Development To be Sustainable Thailand, together we can. The Next Move of Thai Business Moving towards becoming… Branded HVA Country R&D and Innovation Sustainable Development To be Sustainable Thailand, together we can. 43

Q & A

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