BCP expanding towards a sustainable future
Bangchak Corporation Public Company Limited President and Chief Executive Officer, Mr. Chaiwat Kovavisarach discusses the company's strategy and outlook in The Executive Talk by ShareInvestor.com.
TET: How has BCP evolved from a pure refinery company to the diversified energy business it is today?
In the past BCP was a pure refinery company which is a tough business to operate in given the volatility of margins dictated by the global markets and we are the smallest player in the country as well. So in order for us to be more sustainable we looked into ways to diversify and stabilize our sources of revenue and income which resulted for us to expand into green energy.
This began with our first foray into solar energy with 118 MW via BCPG Public Company Limited and we have continued expanding further within the renewable energy sector into wind, biomass, and geothermal. Following on from this we began making investments both onshore and offshore into high-value added Bio-base products, and resource businesses that we believe have a strong long term outlook and will differentiate what BCP offers to the market.
Finally for our marketing or service stations, when I first joined the company three years ago, surveys indicated that "Bangchak" is a strong brand in the market however customers could not always find our stations. So we have been expanding the number of stations, revamped the design to attract new customers and we aim to provide more to our customers in terms of products, restaurant types, convenience stores and supermarkets at each location. Thus in a broader sense we are more diversified today with 45-55% of EBITDA from the refinery, 20-25% from the marketing, 20-25% from BCPG Plc and the remaining from the emerging businesses groups.
TET: Despite the shift to becoming more diversified the refinery business has been performing very well, what are the reasons for this?
I have to give credit to the team that is managing the refinery business. Five years ago BCP was operating at only 75-80,000 barrels per day and today we are consistently over 100,000 barrels per day and pushing 111,000. Also the decline in crude oil prices has been beneficial to us and other refineries globally as our gross refinery margins benefit from this.
Being located in central Bangkok has both disadvantages and advantages. The disadvantage is that large tankers cannot sail directly to our plant but the advantage is that we are then located directly near our customers. Now being the smallest refinery implies that scale may be an issue so we are focusing on debottlenecking to increase the crude run to 130,000 and to increase the flexible product yield to capture demand of higher margin products. In addition to these steps, we noticed two years ago that the trend of automobile owners and taxi's switching to LPG and CNG had reversed and that resulted in fuel demand skyrocketing at double digit growth even though the country's GDP growth was only 3% thus we took steps to ensure that BCP will be able to service this additional demand from our refinery and marketing station.
So today our EBITDA from the refinery business is 5 to 6 billion baht and we expect after the debottlenecking that it will increase to 7-8 billion baht, thus even though the contribution of this business may decline as a percentage to the group we are focused on increasing its absolute value.
TET: Earlier you mentioned that steps were taken to ensure the marketing or fuel service stations would capture the growth in fuel demand, can you explain how BCP has been pro-active with this business?
There are several ways that we have become more pro-active with the fuel service stations by revamping the image of the stations with new formats to include the retail business to enhance customer experience.
Today we have over 1,000 fuel service stations which are a combination of company owned and operated, dealer owned and operated and co-operatives. To enhance our customer experience we focused on both the big picture and minor details, at our stations we have restaurants such as Lemon Kitchen or A&W and own our coffee cafe called inthanin Garden which only uses organic arabica beans and even the cups are biodegradable.
Recently we have also begun a partnership with Spar International. In the past we had an exclusivity agreement with BigC, however we ended the agreement as we wanted to expand at a faster rate and after talking the multiple domestic and international groups we met Spar International. We learnt that they share a lot of BCP's spirit in terms of working together, bringing prosperity to the community and sharing profits to each of their members. Our flagship station that highlights these efforts is the Bangchak Ratchpruek station as it includes restaurants such as A&W and Lemon Kitchen, inthanin Garden and convenience store Spar. Positively, that Spar store was shortlisted as one of the top 10 world's best convenience stores. Initially we projected that the flagship station would sell 600,000 litres per month, slightly better than the market average of 450,000 litres per month, because of its size and location but today it is averaging 1.2 million litres per month.
And as a result of our expansion into more non-oil experiences for customers we are seeing other stations reaching the 1 million litres per month as well resulting in BCP being the only major player to see an increase in market share this year. Our aim is for non-oil to reach 30% of the division's EBITDA which will be achieved by expanding the retail to 300 sites. A few years ago we were achieving 1.5 billion baht EBITDA, today it is 3 billion and we want to see it grow to 5 billion baht in a few years through expansion of the number of stations mainly dealer operated as we want to assist SMEs and potentially expand to our neighbouring countries.
TET: BCPG is your push into renewable energy, initially with solar power and now to other renewables, how do you see the company progressing?
BPCG was our first move into renewable energy and we were awarded 118 MW for solar plants in Thailand with the original 8 baht adder. The positive aspect with this first move is that it is rich in cashflow generation and the next decision was whether to be satisfied with staying with this project only or expanding further. So we decided upon an ambitious target of achieving 1 GW in renewable energy which is an ambitious target but the team has been delivering very well.
Since going public we have acquired the solar power assets in Japan from Sun Edison's which is 193 MW of which 40 MW are built and the remaining to be built, then we acquired a 40% stake in a wind farm in the Philippines, and recently 33.33% in the world's largest geothermal, Star Energy Group Holdings in Indonesia, which is 181.50 MW and now BCPG holds 585 MW of existing, secured and potential projects. We project that their EBITDA will grow from 2.5 billion baht to 4-5 billion baht in five years time.
TET: BCPG has also been expanding into bio-based, resources and innovative products, what is the strategy here?
We are making a push with bio-based products and it is part of the government's Thailand 4.0 strategy.
Firstly with ethanol in the past our ethanol was only made from cassava and that meant we could not be competitive in the long term price cycle and we solved this by partnering with KSL Public Company Limited to secure molasses as feed stock and to utilise the capital saved from captive use to be reinvested into high value - added projects. Ethanol to us is a commodity product so we are looking to expand to products that are value added and specialty products for both Thailand and the region.
With resources we just made an investment in Lithium Americas which owns 50% of the one of the world's largest least cost producers. It has enough lithium reserve for the next 50 years. Together with Ganfeng which is China's second largest battery producer and miner we believe that we have mitigated the risks and that it will be a good investment for us with the plant operational in 2019 and an expected IRR of 25-30%.
TET: What are the biggest risks facing your business?
As BCP is expanding into new businesses and industries it is necessary to ensure that we have the right people to cope with this expansion. Currently our team's are doing an excellent job managing the existing businesses but with products and ventures that are new to Thailand we are actively looking to ensure that we have the right talent to ensure the success of these ventures.
TET: Where do you see BCP in five years from now?
Before we would try to excel in operations which is still our aim today, our vision is to develop innovative green businesses that are sustainable. We are keeping our minds open to the projects that we will pursue. Internally we are targeting to be a carbon neutral company in four years time which is achievable with the progress that has been made with BCPG Plc. We will also look for more collaborative works with start-up incubators in Silicon Valley and partnering with Universities to develop the products that will be value added to our customers. Source: ACN PWKD12092017