Bangkok--Dec 25--TRIS
The Rating and Information Services (TRIS) announced Thursday, 25
December 1997 that it has downgraded the rating of Thai-German Ceramic
Industry PLC's (TGCI) 2,500 million baht senior debentures to "BB+" from
"BBB". The lower rating reflects TGCI's continuously lower profitability,
the intense price competition affecting its market position and the
prolonged tile glut aggravated by a sluggish real estate market. In
addition, the effectiveness of its export expansion to improve its
profitability still raises concern. However, the rating is offset by its
competitive cost structure and production efficiency. A large portion of
cash on hand also reflects its high financial flexibility which is very
important during Thailand's current economic and financial difficulties.
With all producers increasing their capacity to improve their
economies of scale, the ceramic tile glut has been inevitably prolonged.
The situation has also been aggravated by decreased demand from the
sluggish real estate industry. For the past few years, the glut has
accelerated competitive pricing strategy affecting the tile producers'
operating performance. Although TGCI put much effort into improving
operating and production costs to compete in the price war, aggressive
price cutting of some peers caused its market share to shrink from 28% in
1995 to 25% in 1996. In addition, with the acquisition of the Sosuko
group by the Thai Ceramic Industry of the Siam Cement group, TGCI will
slip from being the first to become the second largest tile manufacturer.
Expecting prolonged economic difficulty and perceiving the current
market position, TGCI adjusted its corporate strategy to seek new market
expansion and improve operating efficiency. While continuously slowly
down involvement in real estate by divesting its stake in City Scape, the
company has improved its core business by adding a new product line to
serve new domestic market segment and export market expansion. The
company expects to improve profit margin with its new products such as
wood and rustic design to be launched next year. The company postponed
several projects to maintain cash flow adequacy and carefully selected to
invest in some projects only for improving its production efficiency. In
1996, TGCI joined with Industrial Finance Corporation of Thailand (IFCT)
and a foreign technical expert to establish an affiliate, International
Stampi (Thailand) Co., Ltd., engaging im molding technology development.
In addition, the company will invest a total of 750 million baht in
electricity co-gerneration at its Rangsit plant and a new tile factory at
Nongkhae in 1998 and 1999. With integrated results, the company expects
the new facilities designs to provide good production yield at top
efficiency compared to peers.
In 1996, TGCI's financial profile continuously deteriorate due
mainly to intense price competition affecting its profitability. Operating
profit margin decreased from 26.6% in 1995 to 10.6%. Cash flow protection
and interest coverage also declined. For the first nine months of 1997
its profitability remained low. With the recent economic sluggishness,
its low profitability is unlikely to recover in the near future and still
raises concern. However, a huge amount of cash on hand reflects its
financial flexibility and moderately supports its financial position
during the country's economic and financial difficulties. Its capital
structure has also been satisfactory at around 40%.
Note: Thai-German Ceramic Industry PLC (TGCI) TRIS's rating
TGCI# 1:2,500 mb sr debs due 1999 Downgrades to BB+ from BBB
End.
The Rating and Information Services (TRIS) announced Thursday, 25
December 1997 that it has downgraded the rating of Thai-German Ceramic
Industry PLC's (TGCI) 2,500 million baht senior debentures to "BB+" from
"BBB". The lower rating reflects TGCI's continuously lower profitability,
the intense price competition affecting its market position and the
prolonged tile glut aggravated by a sluggish real estate market. In
addition, the effectiveness of its export expansion to improve its
profitability still raises concern. However, the rating is offset by its
competitive cost structure and production efficiency. A large portion of
cash on hand also reflects its high financial flexibility which is very
important during Thailand's current economic and financial difficulties.
With all producers increasing their capacity to improve their
economies of scale, the ceramic tile glut has been inevitably prolonged.
The situation has also been aggravated by decreased demand from the
sluggish real estate industry. For the past few years, the glut has
accelerated competitive pricing strategy affecting the tile producers'
operating performance. Although TGCI put much effort into improving
operating and production costs to compete in the price war, aggressive
price cutting of some peers caused its market share to shrink from 28% in
1995 to 25% in 1996. In addition, with the acquisition of the Sosuko
group by the Thai Ceramic Industry of the Siam Cement group, TGCI will
slip from being the first to become the second largest tile manufacturer.
Expecting prolonged economic difficulty and perceiving the current
market position, TGCI adjusted its corporate strategy to seek new market
expansion and improve operating efficiency. While continuously slowly
down involvement in real estate by divesting its stake in City Scape, the
company has improved its core business by adding a new product line to
serve new domestic market segment and export market expansion. The
company expects to improve profit margin with its new products such as
wood and rustic design to be launched next year. The company postponed
several projects to maintain cash flow adequacy and carefully selected to
invest in some projects only for improving its production efficiency. In
1996, TGCI joined with Industrial Finance Corporation of Thailand (IFCT)
and a foreign technical expert to establish an affiliate, International
Stampi (Thailand) Co., Ltd., engaging im molding technology development.
In addition, the company will invest a total of 750 million baht in
electricity co-gerneration at its Rangsit plant and a new tile factory at
Nongkhae in 1998 and 1999. With integrated results, the company expects
the new facilities designs to provide good production yield at top
efficiency compared to peers.
In 1996, TGCI's financial profile continuously deteriorate due
mainly to intense price competition affecting its profitability. Operating
profit margin decreased from 26.6% in 1995 to 10.6%. Cash flow protection
and interest coverage also declined. For the first nine months of 1997
its profitability remained low. With the recent economic sluggishness,
its low profitability is unlikely to recover in the near future and still
raises concern. However, a huge amount of cash on hand reflects its
financial flexibility and moderately supports its financial position
during the country's economic and financial difficulties. Its capital
structure has also been satisfactory at around 40%.
Note: Thai-German Ceramic Industry PLC (TGCI) TRIS's rating
TGCI# 1:2,500 mb sr debs due 1999 Downgrades to BB+ from BBB
End.