PTT Global Chemical PCL (SET:PTTGC) Chief Executive Officer, Dr. Kongkrapan Intarajang discusses the company’s strategy and outlook in The Executive Talk (TET) by ShareInvestor.com.
TET: What are GC’s current business execution strategies? What is the rationale behind the expansion towards the downstream industry?
GC’s strategies are based on 3 major strategies. The first is “Step Change”, emphasizing on strengthening our home base by gearing more towards the downstream businesses to enhance the competitiveness and flexibility, being able to capitalize on diverse feedstock, while at the same time ensuring that our costs are globally competitive, with the notion of horizontal and vertical integration applied to the business.
The horizontal and vertical concepts involve our production lines from upstream all the way to downstream businesses, which can be further developed into different types of chemical products, and can serve as fundamental feedstock for various industries such as packaging, garments, communication and electronics devices, automotive, construction, engineering plastic, and agricultural equipment. This also serves to diversify business risks, expand product offerings, and add values to them.
The next strategy “Step Out” capitalizes on GC’s being the largest petrochemical operator in Southeast Asia, with 12 production sites across the globe. Our purpose is to build a genuinely global business. We have begun to invest in the USA more intensively. The Step Out strategy emphasizes on 2 components; merger and acquisition or M&A and the downstream business to secure global footprint, as well as investing in the petrochemical business; our core business, in Ohio, where polymer feedstock cost is very competitive.
The third strategy “Step Up” focuses on Sustainable Development, or SD; the matter that GC takes as an important part of the business, not just as CSR (Corporate Social Responsibility) activities. In this regard, the Step Up strategy is multi-dimensional. In terms of scale, GC has expanded collaboration with our alliances both domestically and internationally in a larger scope, based on the concept of the circular economy to create awareness, from waste collection, management, sorting, transportation, and recycling, which is different from before when it was purely mechanical recycling, but now we are implementing chemical recycling, as part of the ‘Step Up’ initiative both in terms of scale and scope.
TET: Based upon the determination to operate the business in a sustainable manner, what are the tangible outcomes resulting from such endeavor?
GC has recently been ranked the first in the world in the Dow Jones Sustainability Indices: DJSI for the second consecutive year in the chemicals sector. We are also in the top 10 ranks of DJSI World and Emerging Markets for the eighth consecutive year, reflecting our determination in our ESG intent. This goes to show the Company’s support and alignment with the global Sustainable Development Goals; SDGs that GC has been abiding by and actively executing for a long time.
Not only that, GC is the first and only Thai company that has been granted A level assessment (Leadership Level), which is the highest level in climate change and water security management, under the assessment of the globally trusted sustainability evaluation institute ‘Carbon Disclosure Project (CDP)’ in 2020.
We intend to play a part in solving the problems and alleviate the impact of climate change, transitioning into the low carbon society, following the objective of the Paris Agreement and the United Nations’ Sustainable Development Goals (SDGs), as well as the emphasis on maximum effectiveness on the use of water resources, reflecting the environment-conscious operations.
With our goals to reduce the emission of greenhouse gas (scope 1 and 2) by 20% from normal business operations in 2030, compared to the base year (2012). The organization’s greenhouse gas emission account has been developed, with the plan to expand the operational scope to the value chain (scope 3) in an integrated manner. Furthermore, the water management goals have been developed both internally and externally to ensure measurable outcomes and sustainable leadership position in an international arena.
TET: What are GC’s directions in ensuring the organization’s financial health?
We need to increase the quality of earnings. In the past, our major source of income has been from commodity products. GC has intended to increase high value products, performance products and green chemical portfolios by 2030. It is expected that the profit generation from these products will contribute 20% of the Company’s total profits.
However, sustainability is the significant determinant of the Company’s financial strength. If shareholders look at it on a short-term period, this may not be the key objective. We wish for our shareholders to grow together with us, generating capital gain that can pay out dividend and remain competitive in the market. Hence, quality and stability are more important. In this regard, the downstream business is less volatile with around 10% EBITDA margin, which is less likely to drop to a single digit.
TET: What is the outlook of the petrochemical industry?
If we look at the petrochemical industry from the commodity side, there might be a certain extent of oversupply over the next 2-3 years, depending on each product. But from our projection, the situation should be better than in 2020, when things should have already bottomed out in the second and the third quarters of 2020, caused by missing demand. Now we have begun to see signs of improvement in the fourth quarter and we are of the view that the situation in 2021 should be considerably more improved than in 2020.
TET: What are the strengths that differentiate GC from other players, both in the regional and global levels?
Even though our products are more advanced in many aspects, there are certain points that others are doing better than we are. Nevertheless, our number one strength is our sustainability performance, where we have been ranked the world’s number one in the chemicals sector by DJSI. We have been able to reduce costs resulting from the adjustment of business execution processes that allow for energy saving and reduction of greenhouse gas emission, which will be the key component in the cost structure in the future. It might not have yielded tangible benefits today, but when the law becomes effective in the future, we will always be ready. It will also serve to enhance business opportunities, since global partners all place emphasis on this matter, while many competitors may not have this in place yet or may not be as good at this as we are. Meanwhile, sometimes customers will come to us because we have invested so much in sustainability and investors are also very interested in the matter of sustainability as well.
TET: What is the most significant challenge faced by GC and the petrochemical industry?
The challenge is when people are starting to doubt the viability of this industry. Many people might not notice the tangible difference between petroleum and petrochemical businesses. The petroleum business has been viewed by many that the return on capital is on the downside. The petrochemical business, on the other hand, if the portfolio is well-managed, I think that this industry has a promising future because petrochemicals are always part of many people’s lives.
Therefore, the challenge is how to maintain or build the competitiveness, by way of keeping the cost of the commodity market low, while ensuring that new businesses can accommodate several industries, for instance, EV, construction, electronics, depending on the strategies of each company. In this regard, we believe that the challenge is not different from what we faced in the past, the only difference is the prevalence of the COVID-19 pandemic.
TET: How do you see GC 5 years from now?
Strength must be borne from within, so we emphasize greatly on transformation. We execute organizational and digital transformation alongside one another. Though we have not been affected by the digital disruption today, I believe we must start now for future growth, for instance, cost reduction, modernization of work processes by adopting the technology. Thus, there should be several changes in our organization such as change of the organizational culture, which has progressed quite a lot because we work fast and get serious. We have initiated the work and will have to meet the desired goals. We also need to adjust and strengthen our product portfolio and enhance the quality of earning, as well as overseas investment, whereby our long-term goal is to increase margin contribution from overseas investment from 10% to 30%.
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