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Management Explanation and Analysis
Overall Group Operating Performance in 2015

Fiscal 2015 truly marked the beginning of a new growth cycle for KCE’s business. Phase 1 of the new plant successfully started operations on January 2, 2015. In the final quarter of the year, the Company commenced Phase 2 by completing the transfer of operations from the old plant. The Company’s operating performance improved significantly in the second half of the year as the new plant's capacity utilization rate ramped up as a result of new orders and the continuous transfer of capacity from the old plant. Shutting down most of the operations at the old plant led to a reduction in factory costs, and running production at only one plant facility also resulted in higher economies of scale at the new plant. The higher manufacturing efficiency at the new plant was the key to the better operating performance. A summary of the Company’s operating performance in 2015 and 2014 is shown in the following table:

(Amount: Baht Million)

  2H2015 1H2015 Change
(2H vs. 1H)
FY2015 FY2014 Change
(2015 vs. 2014)
Sales Revenue, BHT
[Sales Revenue, USD
6,519.2 5,929.5 + 9.9% 12,448.7 11,284.3 +10.3%
Cost of Sales 4,347.7 4,160.3   8,535.0 7,717.6  
Gross margin, (percentage) 32.9% 29.8%   31.4% 31.6%  
Selling & Administration 805.2 715.2   1,520.4 1,682.5  
Operating Profit* 1,232.7 959.5 +28.5% 2,192.2 1,798.1 +21.9%
(percentage)       17.6% 15.9%  
Consol. Net Profit 1,238.8 1,001.3 +23.7% 2,240.1 2,109.8 +6.2%

Operating profit* excludes foreign exchange rate effects, insurance compensation and profit from business combination

Revenues Analysis

Sales and service income

Consolidated sales revenue rose from Bt11,284 million in 2014 to Bt12,448 million in 2015, representing growth of approximately 10% in Baht terms. The increase was primarily due to higher production volumes supported by additional capacity of the new plant expansion phase 1 & 2.

Quarterly sales revenue

Sales reached a new high record and the quarterly revenues from sales in dollar terms were as follows:

(Unit: USD Million)

  2015 2014 2013 2012
Quarter 1 88.7 79.2 67.4 43.6
Quarter 2 92.0 80.8 76.0 48.4
Quarter 3 94.0 87.9 81.0 56.3
Quarter 4 90.2 77.5 79.0 61.2
  364.9 325.4 303.4 209.4

(* Floodwater inundation in October 2011)

Sales by layer count proportion was as follows:

(% Sq ft)

  2015 2014 2013 2012
Double-sided PCBs 26.6% 29.0% 28.9% 29.7%
4 Layer PCBs 51.7% 51.6% 51.4% 55.1%
6+ Layer PCBs 21.7% 19.5% 19.7% 15.2%

Sales distribution by territory was as follows:

(Unit: % to Total Sales)

  2015 2014 2013 2012
Europe 55.1% 55.5% 54.7% 62.0%
United States 18.6% 18.6% 20.7% 16.7%
Asia 20.3% 20.6% 19.9% 17.8%
Local 6.0% 5.2% 4.7% 3.5%


Compensation from insurance claim - Flooding

A subsidiary, KCE Technology (KCET), shut down its operation from October 12, 2011 due to the plant being inundated with floodwater. The company had All Risks and Business Interruption Insurance with full replacement value of insured assets, ensuring adequate compensation for flood damage.

In fiscal years 2011- 2014, the accounts for the company and its subsidiaries included the following compensation from insurance claims for flooding:

(In Baht Million)

  Total 2014 2013 2012 2011
Compensation from claims:          
KCET 3,206.5 154.0 694.3 740.6 1,617.6
Other companies 30.0     30.0 0.0
  3,236.5 154.0 694.3 770.6 1,617.6
Less Asset/Expense write-off (2,507.5) 23.0 (662.0) (274.9) (1,547.6)
Compensation from claims - net 729.0 131.0 32.3 495.7 70.0

The Claim for property damaged was finalized with the insurance company in the fourth quarter of 2013 and the claim was fully paid in early 2014, while the Business Interruption claim (BI) was finalized and fully paid in the third quarter of 2014. Cash in-flow from the insurance claim help strengthened the financial position of KCET, as well as overall for the Group.

Other income

Other income was as follows:

(Unit: Baht Million)

  2015 2014 2013 2012
Sales of scrap materials 24.5 42.7 39.0 28.7
Gain from Forex and Hedging 47.9 95.5 89.3 159.0
Other miscellaneous income 10.0 15.7 17.9 43.2
Total other income 82.4 153.9 146.2 230.9


Cost of Sales / Gross Margin Analysis

In 2015, cost of sales slightly increased to an average of 68.6% of sales, from 68.4% in 2014, resulting in the gross profit margin declined from 31.6% to 31.4% on average in 2015. This is due to a low utilization rate at the new plant during the first half of the year, as the operations has just started. However, after completing the transfer of operations from the old plant to the new plant, the gross profit margin reached a record-high 33.8% in 4Q15. The improvement was largely due to better economies of scale following the increase in production capacity at the new plant and improved manufacturing efficiency. Intensive cost control measures and better management in materials sourcing also contributed.

Sales and Administrative Expenses Analysis

Selling expense was 4.4% of total sales, or Bt552 million in 2015, compared to 5.2% of total sales, or Bt582 million in 2014. As much as 80% of the total selling expense grew at the same proportion as sales, including freight and insurance costs, sales commissions for overseas sales representatives, carton and packaging costs, and other costs that are variable and linked to sales. The remaining 20% accounted for other fixed expenses – sales staff costs, product liability and recall insurance premiums, sample products, reject/returns and sorting costs, and miscellaneous sales office expenses.

Another factor that caused the decrease in selling expense was that after the Company merged with KCE Singapore (KCES) in the end of 2014, and KCES has become the Company's subsidiary, according to the accounting practice, KCES's financials will be consolidated with the group company's. In accounting priciple, all intercompany trasactions will be eliminated in the consolidated financial statement. In this case, the commission income and expense were eliminated, this resulted in a decrease in selling expense.

Administrative expense covers mostly fixed expenses, i.e., administrative staff costs, staff welfare and benefits, general repair and maintenance costs, contracted software maintenance, utilities costs, security and safety expenses, traveling expenses, communication expenses, transportation costs, legal consulting and auditing fees, property and all-risk insurance costs, and R&D expenditure. It also includes depreciation cost (on non-production assets), allowances (reversal) for doubtful accounts, and losses from fixed asset write-offs and other general administrative expenses.

In 2015, administrative expenses totaled Bt968 million, down from Bt1,100 million in the previous year. Administrative expense decreased as a result of lower ESOP expense and a lower impairment cost of machinery. In addition, the pre-operating expense for the new plant that was included in the prior year was charged to the cost of manufacturing in this year, after the new plant commenced operations. However, the administrative expenses also included expenses associated with a tax provision of a subsidiary.

Operating profit / Net profit

2015 was the record year of KCE for the highest level of profit earned. Normalized operating profit was Bt2,192 million, representing a Bt394 million, or 21.9%, increase over 2014. The increase was mainly due to revenue growth, better efficiency at the new plant and strong growth in profit margin, partially offset by higher finance costs. In addition, the shutdown of operations at the old plant helped saving in factory running cost.

The Group reported a consolidated net profit of Bt2,240 million for FY2015, or a 6% increase from Bt2,109 million in FY2014, due to extra income of insurance compensation for Bt131 million and Bt85 million profit from business combination (KCE Singapore) that was included in 2014. After adjusting for extra income, net profit increased about 18.3%. The development was primarily the result of the business expansion of the new plant and partly the effect of changing currency rates.

This resulted in an increase in basic earnings per share from Bt3.89 for 2014, to Bt3.93 for 2015.

Financial Status


According to KCE’s consolidated financial statement, total assets as of Dec. 31, 2015 amounted to Bt16,830 million, consisting of current assets of Bt6,936 million; property, plant and equipment of Bt9,216 million net; intangible assets of Bt354 million; goodwill of Bt117 million; investments in associates of Bt105 million; deferred tax assets of Bt36 million; and other non-current assets of Bt65 million.

The increase in total assets of Bt1,670 million from the previous year was due mainly to a rise of Bt908 million for the value of trade receivable and other receivable, Bt214 million of inventory as sales increased and Bt373 million for the value of property, plant and equipment acquired for the new factory (Phase 1 and 2). In addition, there was an increase of Bt210 million in cash at the end of the year.

Trade and other receivables – net

KCE customers include some of the world’s leading electronics companies. Total trade and other receivables increased from a net Bt3,632 million in 2014 to Bt4,540 million in 2015, driven by an increase in sales revenue. Average days receivables was 127 in 2015. KCE’s policy is that an allowance for doubtful accounts is assessed primarily on analysis of payment history and expectations of customer payment in the future. Bad debts are written off when incurred. There was no allowance for doubtful accounts established based on this policy as of Dec. 31, 2015.

Inventory – net

As of Dec. 31, 2015, the company had a net inventory of Bt1,683 million, up for Bt214 million in 2014, due to an increase in production to support customer orders.

KCE’s policy is to establish an allowance for diminution in value of inventory in accordance with the ageing of individual material types and an allowance for diminution in the value of finished goods to net realizable value (NRV). As of Dec. 31, 2015, KCE established allowances for diminution in value of inventory amounting to Bt64 million, and recorded a diminution value amounting to Bt59 million in cost of sales of 2015.

Inventory days declined to 33 days in 2015, from 37 days in the last year.


(Unit: Baht Million)

  2015 2014 2013 2012
Total Liabilities 8,729 8,771 7,173 7,178
Short-term borrowing 2,139 2,652 3,219 2,812
Long-term loan 4,123 3,177 1,622 2,690
Leasing 50 80 10 29
Total Debt 6,312 5,909 4,851 5,531
Total Debt-to-Equity (Times) 1.08 1.37 1.75 2.33

KCE’s debt/equity ratio continued to improve as the good operational results that were achieved, and resulted in an increase in cash flow. KCE Technology's long-term loan has almost paid out. However, the Company's long-term loans also increased due to construction of the new plant (Phase 1 & 2). In addition, shareholder equity has been growing as a result of the profitable operation, although this was offset by a dividend payment of Bt683 million during 2015.


With operational profit in 2015, KCE achieved a positive cash flow from operations totaling Bt2,590 million. Net cash used for investment activities, mostly for the new plant construction and for the purchase of equipment accounted for Bt1,808 million. Cash used in financing activities was Bt584 million; cash balance as of Dec.31, 2015 increased by Bt673 million.

As of Dec. 31, 2015, the current ratio had improved from 0.98 to 1.38, the result of higher current assets, while lower current liabilities – thanks to the increase in cash from operations. The Company was able to pay suppliers on the due dates and service its debt on the agreed terms. Total liquidity at year-end included cash and unutilized credit facilities.

Capital Structure

(Unit: Baht Million)

  2015 2014 2013 2012  
Debt 6,312 5,909 4,851 5.531  
Equity 8,073 6,388 4.110 3,064  
Non-controlling interests 27 26 20 13  
Total capital 14,412 12,323 8,981 8,608  
Gearing Ratio
(Interest-bearing debt only)
0.78 0.92 1.18 1.80 Times

The capital structure has been reviewed and where possible debt has been restructured, with the gearing ratio gradually being reduced from a level of 2.09 in 2011 to 0.78 as of year-end 2015.

Capital Expenditure

Total capital expenditure (CAPEX) for 2015 amounted to Bt1,035 million, of which approximately Bt600 million was for KCE Electronics PCL’s new plant project - Phase 1 and 2 (total capacity of 1,300,000 sq.ft. a month); and Bt235 million was for the plant expansion project of a subsidiary (Thai Laminate Manufacturer Co., Ltd.). Other expenditures were for other subsidiaries, mostly to cover efficiency improvement projects and necessary equipment and facility improvements.

Exceptional Items

A subsidiary, KCE Technology (KCET), shut down its operation from October 12, 2011 due to the plant being inundated with floodwater. In the 2011 consolidated financial statement, the company and subsidiaries recognized insurance recovery totaling Baht 1,618 million, and assets totaling Baht 1,548 million written off, resulting in a net compensation of Baht 70 million.

In the 2012 consolidated financial statement, the company and subsidiaries recognized insurance recovery totaling Baht 771 million, and assets and expenses totaling Baht 275 million were written off, resulting in a net compensation of Baht 496 million.

In the fiscal year 2013, the insurance claim for the property damaged was finalized; the consolidated financial statement of the Company and subsidiaries recognized insurance recovery totaling Baht 694 million, and assets and expenses totaling Baht 662 million were written off, resulting in a net compensation of Baht 32 million.

In the third quarter of 2014, the Business interruption insurance was finalized, the subsidiary recognized insurance recovery totaling Baht 154 million, and expenses totaling Baht 23 million, resulting in a net compensation of Baht 131 million.

On November 1, 2014, KCE Electronics PCL acquired an additional share of 51% of the total issued and fully paid up shares of KCE Singapore Pte Ltd, the former associate company. As a result, the Company's proportion of share holding increased from 24.5% to 75.5%; and the group's total shareholding of 100% of total shares of KCE Singapore; KCE Singapore has changed its status to a subsidiary of the Company. According to the Accounting standard (TFRS #3), regarding the Business combination, the accounting transactions were recorded in the consolidated finacial statement and the effects were as follow:

(Baht Million)

Effect in the statements of conprehensive income:
Booked Gain on previously-held interest
Effect in the statements of financial position:
Booked Identifiable assets acquired - net
Booked Goodwill

During 2015, there was no exceptional transactions occurred

Looking forward

KCE continues to focus on advanced technology development and quality performance in order to keep pace with increasing functionality requirements and to capture the growing industry of automotive PCB.

KCE goes forward with enhanced levels of efficiency that will continue to improve and support profit growth. The company will build a strong foundation for the future by leveraging KCE’s expertise in the automotive electronics sector, increasing R&D in high-tech PCBs, and enlarging the company’s customer base, targeting high growth groups in the Asian market to accelerate business expansion.

A new plant facility located in the Latkrabang Industrial Estate that will eventually have a production capacity of 2 million sq.ft. a month, is expected to support the increased volumes required for new and existing customers. The construction of Phase 1 of that project started in 4Q13, and the plant was ready for operation at the start of 1Q15 with an initial production capacity of 700,000 sq.ft. a month. Work on Phase 2 of the project was scheduled to start in 3Q15, with the existing production facilities to be transferred to the new location when construction was complete. The additional capacity will thus match the original plant’s 600,000 sq.ft. a month. Phase 3 of the expansion is planned to start up in 3Q16, with only additional investment in new machinery required. This phase will add capacity of 700,000 sq.ft. a month. The factory should thus reach the maximum manufacturing utilization rate of 2 million sq.ft. a month in 2018; and sales growth for the group is targeted to average 20% a year during 2015 to 2018.

The operation was successfully implemented as planned. Phase 1 of the new plant started operations in the beginning of 2015 and increasingly used higher production capacity. Phase 2 of the new plant implemented in the 3Q15 as planned, and completed the transfer of operations from the old plant in the middle of 4Q15. By running production at only one plant facility, resulted in higher economies of scale at the new plant, and help reducing cost of manufacturing significantly and increasing profit.

Phase 3 of the new plant is planned to launch in 3Q16, however several factors will be reconsidered carefully before making any further investments. Those points to be considered will include: the progress and operation results of the phase 2 new plant, market environment, world economy situation, the growth of customers' business and forecasted future demand, the Company's financial status, including available human resource and other operation supports.