Vision
To be one of the leading global producers with key focus on people and processes thus making INDORAMA one of the most admired companies in the world.
Mission
Continuously upgrade quality of products and services through people involvement and world class processes to attain customer delight thus becoming a preferred supplier and institutionalise people learning as a key factor for business growth.
Values People First We believe that people are our core strength, be it our employees, suppliers, customers, shareholders and stakeholders. Their involvement and satisfaction are the key drivers for our success and growth. Customer Delight We believe we exist because of our customers. We focus our activities to achieve customer delight and loyalty for a long lasting relationship. Social Responsibility We believe in being responsible and caring for society; maintaining as well as enhancing the environment around us. Corporate Governance We believe i n transparency, accountability and e thics. W e aim to achieve t he h ighest degree o f governance i n accordance with best practice.
2
Indorama Ventures PCL
Contents Performance Highlights
4
Chairman’s Message
6
Group Chief Executive Officer’s Message
8
Company and Subsidiaries Information
12
Organization Structure
18
Board of Directors
19
Major Shareholders
24
Dividend Policy
25
Core Business
26
Business Operations
27
Risk Factors and Risk Management
39
Related Party Transactions
45
Management Discussion and Analysis
49
Corporate Governance Report
57
Human Resources & Corporate Social Responsibilities
67
Report of Audit Committee
74
The Board of Directors’ Report
75
Financial Statements
76
Performance Highlights (Baht Million)
2009
2008
Growth
Net sales
79,994
53,332
50%
Cost of sales
67,666
48,178
40%
Gross profit
12,328
5,154
139%
Selling and adminsitration and others expenses
4,852
2,883
68%
Operating profit
7,476
2,271
229%
CONSOLIDATED INCOME STATEMENT
Other (income) expense Profit before tax and minority Income tax
903
(905)
n.a.
6,573
3,176
107%
554
53
945%
Profit before minority
6,019
3,123
93%
Minority interest
1,195
467
156%
Net profit after tax and minority interest
4,824
2,656
82%
10,636
3,838
177%
Total Current Assets
23,566
18,835
25%
Property, plant and equipment
EBITDA CONSOLIDATED BALANCE SHEET
49,505
49,642
0%
Other Assets
1,189
1,291
-8%
Total Assets
74,260
69,768
6%
Total Current Liabilities
25,785
23,779
8%
Long term loans - net of current portion
25,331
27,981
-9%
678
301
125%
Other liabilities Total Liabilities
51,794
52,061
-1%
Issued and paid-up capital
3,352
3,352
0%
Share premium
4,443
4,443
0%
Retained earnings and reserves
9,384
5,000
88%
Minority interest
5,287
4,912
8%
22,466
17,707
27%
Gross margin
15.4%
9.7%
EBITDA margin
13.3%
7.2%
7.5%
5.9%
Total shareholders equity FINANCIAL RATIOS
Net margin before minority Earnings per Share
1.44
0.79
Return on equity
30.0%
26.0%
Return on capital employed
13.8%
6.7%
Net gearing
62.6%
69.7%
1.7
2.3
Net debt - equity
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Indorama Ventures PCL
Growth Continues SALES (Baht Million)
EBITDA (Baht Million)
80,000
11,000
60,000
8,250
40,000
5,500
20,000
2,750
0
0 2008
2009
Profit before Minority (Baht Million)
2008
2009
Gross Margin (% )
7,000
16.0
5,250
12.0
3,500
8.0
1,750
2.0
0 2008
2009
Earnings per Share (Baht)
0 2008
2009
Return on Equity (%)
30
1.50
1.25
25
0.75
20
0.37
15
0 2008
2009
10 2008
2009
AnnualReport Report2009 2009 Annual
55
Chairman’s Message Every time a prospect comes up in the IVL domain, we frame the right questions and contemplate a smart business move The firmest strides of growth and progress have often stemmed from a readiness to adapt and evolve. Such firm strides have been the cornerstone of Indorama Ventures Limited (IVL Pcl) since it came into being. Demonstrating its readiness, is the company’s most prolific step of restructuring IVL, and subsequently making it public in 2009. This move is both astute and timely. Organizational momentum usually encourages the continuation of thriving practices and habits, particularly in successful organizations. Our principles at IVL have guided us through triumphs in every conceivable market condition. Today, as we work to enact well conceived, balanced business reforms for our business, these principles are as important as ever. Through every business cycle, IVL has always been about responsiveness to our customers and providing the highest level of business to satisfy needs. The IVL way is synonymous with stability, which we believe gives us our competitive advantage. We continue to experience strong global demand across our product groups. This demand reflects the underlying indispensability of our products, which has proved robust across the economic cycle. The PET plant in Lithuania, UAB Orion Global PET received a gold medal with an embedded plaque conferring our product ‘Ramapet N1’ as “Lithuanian Product of the Year”, signed by the President of the Confederation of Lithuanian Industrialists. Such awards are symbolic of the rigorous operational excellence and that enhances the performance of our business. IVL is working on an incredible range of activities in business articulation with mutually reinforcing performance goals organized around our focus areas: our people, our business model, and our Governance. Speaking of Corporate Governance, the IVL Board continues its responsibility with the goal of sustainably increasing the company’s intrinsic value and achieving defined corporate objectives. We are in an era where we need to be more and more aware of our Board Governance and we at IVL are very glad to see more interest in setting high standards of transparency. Indorama Polymers Pcl (IRP), a subsidiary of the Company that was listed in the SET up until February 2010, received a Corporate Governance Scoring of ‘Excellent’ last year, a step up from “Very Good” the previous year. This early effort to promote and develop good corporate governance practices will be continued by IVL. On the organizational side, there has been a major enrichment with the infusion of quality manpower. Despite this year’s revolving-economic door, we saw no layoffs of our employees but actually employed an additional 370 people (approx.). We have witnessed huge recruitments and had fruitful training sessions for our employees. I believe this stability speaks well for our company and only makes us feel more empowered. At IVL we have been working with leadership teams and employees that transition from strength to strength. Our industry focus is the predicate to everything we know. We have broadened our horizon and are keeping in sight the indicators poignant for our core businesses and industry. The world of petrochemicals is not instantaneous. The challenge is to make successful headway into new domains and extract the best out of the traditional domains. Our strategy remains to focus on large, low cost methods capable of delivering superior returns across all economic cycles. We are fortunate to have a geographical portfolio weighted towards large, mature as well as growing economies. Neverthless, our quest does not end at the current portfolio. We want to be in alignment with our ethos- Grow Profitably! With this sponsoring thought, we are towards ambitious ventures. This year will have IVL expanding into hitherto unexplored plants.
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Indorama Ventures PCL
The set of ambitious and important endeavors that the management is planning should more than keep me busy as IVL’s chairman for the foreseeable future. In fact, this is the path I wish to walk to much advantage. This is the opening Annual Report for IVL and the Chairman’s message should traditionally convey all the reasons why one should invest in the company. But I feel the company’s rich history, a dynamic present, and a promising future speaks for itself. Today we are a bigger family and just as strong. We have had a great year, and we owe thanks to many people for their dedication, confidence, trust and conviction. It is the unflagging support and belief of our shareholders, customers and equally important, the loyalty of our employees that has ensured a successful and gratifying year for us. I thank my colleagues and Board members for their able advice and direction. We extend our deepest gratitude to all of you. This year the Directors and I, hope to build on the momentum we have worked to establish. Our ability and your conviction will together create value that gradually rises to a crescendo.
S.P.Lohia Chairman of the Board
AnnualReport Report2009 2009 Annual
77
Group Chief Executive Officer’s Message One question for all of you – What do you think of mega changes in business structuring, brought about with good strategy and thought? The World isn’t changing, it is exchanging. That’s what is said by some and that’s what I believe. Our intention to go public with Indorama Ventures reiterates this belief. Indorama is a metaphorical story that’s evolving all the time. At IVL we all want to believe that we are a piece of something bigger. Companies that manifest that sensibility in their employees and shareholders invoke immense passion. But passion alone is not good if there is no sense of direction and flexibility. We at Indorama know that passion needs to dovetail with a clear grasp of operational needs.I am writing this message today at a significant turning point in the history of Indorama Ventures, Public Company Limited (IVL), with a foreshadowing of such operational needs and singularity of purpose. 2009, leading into 2010 has been a pivotal year for the company against the then poor economic backdrop. It was quite eventful and contributive in making growth more synchronous with our vision, mission and goals. Our entrepreneurial momentum is going strong and we see greater vibrancy in our business environment today. The stage is set for us to be the Google of polyester value chain sector. Indorama Ventures Limited is constantly in a forward motion mapping a world of PET, Polyester and PTA production and has a unique name for itself in these industries. And I deem nothing triggers a more receptive attitude among potential stakeholders than visibly strong growth. One team, one brand, one strategy IVL is now a ubiquitous brand. Today our business is a lot different from what people knew of us. The difference comes from the business strides we have taken over the years. A significant stride was bringing each of our businesses under the flagship of Indorama Ventures as a single operating structure. Effectively integrating all the individual operations is now better differentiating us in the marketplace and also enabling us to deliver returns, under one brand, defined by a common strategy. The integration improves our economies of scale, combines the talent and creates various common platforms that can be used to improve overall efficiency and costs such as IT, logistics, and raw material. Convergence has been the buzzword and IVL is now strongly positioned to leverage this convergence. Given the size of Indorama Ventures, it is more challenging to be entrepreneurial and also be a Public Limited Company. What we try to do is balance a corporate thought process with a strategic approach but embed it with an entrepreneurial spirit. One of the most critical components is the innate understanding of the industry we bring on. Our operational excellence has been able to balance the corporate view with the entrepreneurial spirit and ensure it doesn’t get diluted. Buoyed by a searing growth, IVL pedaled its way into a plan of being the biggest company to be listed in the Stock Exchange of Thailand in the last three years. We see this move as one that can help propel IVL’s profile to a level yet unseen. From talking the talk, 2009 saw us being on the fast track to operationalize. In Today’s marketplace there are many opportunities but you have to be bold. Our challenge is to make the most of this opportunity by doing what we do, but doing it better by capitalizing on our traditional strengths. The establishment of a comprehensive business restructuring plan by consolidation of Indorama Polymers into IVL through a share swap offer and a tender offer to delist Indorama Polyester Industries Plc. is an interesting and important step that we have taken. IVL became pcl on 25th September 2009 and got listed on 5th February 2010.What distinguishes this restructuring is not only its scale and acuteness, but the size and speed of the business and people response. While it was a challenging decision, the opportunity we see is breathing room to further refine our core business strategy across a triple bottom line of economic, environmental and people performance.
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Indorama Ventures PCL
From the period since IVL became a public listed company we have been able to further broaden our strategic and commercial relationship and we look forward to developing this going forward. Development is only meaningful if it is inclusive and sustainable. Going public with IVL, maintains and reaffirms our focus and commitment to the future of the Polyester segment. Strong performance in 2008 bode well for 2009 The ecosystem of any company, any strategy and thought needs to shift from perpetuating the status quo to being a catalyst of change. To me, the greatest sign of hope is that this is beginning to happen for IVL. We have seen significant investments each year through expansions that help us stay more relevant to the marketplace. By tapping into challenging moves in our business stream and leveraging the thought leadership coming out of our internal think tanks—we bring to our stakeholders the most beneficial and boldest business returns from across our global organization. This year marked the fortification of our business in the main business segments of PTA, Pet Resins and Polyester after a number of acquisitions in Thailand and Europe in year 2008. We entered into the PTA business in 2008 for integration and it has been a major successful move with record production, sales, profits and cash flow in 2009. It has provided us an excellent platform to enable more growth and provide superior value. The acquisitions we had done in 2008 demonstrate the full gambit of how we communicate the big picture in a global context. As a company we have always had a proven track record of successfully implementing intensive projects as well as selecting attractive acquisition opportunities and successfully improving the operations and profitability of acquired businesses. The successes of 2009 are evident of this. All the major capex and investment projects undertaken in year 2008-9 completed successfully. AlphaPet, our state-of-the-art plant with latest technology in USA, successfully commenced Line 1 operations in 2009 and is all set to begin Line 2 in the first half of 2010. During the past year, the organization’s dialogue on moving forward intensified, driven by strategies for expansion and change. We added a new paradigm when IVL made an initial public offering of its new shares; made a tender offer for all shares of Indorama Polymers (IRP Pcl) held by other shareholders by swapping them with its new shares and subsequently delisted IRP. At the heart of the delisting is the recognition that it’s not enough to continue to do the same thing. Businesses become more productive by standing apart and serving the market place and investors with a truly unique offering. That’s exactly what IRP depicts through its delisting and continues to remain one of the most exciting members of the IVL family. IVL’s endeavor towards the IPO, shows the kind of force, resilience, and drive that stretches and pushes a business to all possible limits even after seemingly having seen and done most of it all. The idea of IVL going public was a strategic decision with a double aim: to allow the shares to be freely exchanged on the organized market and to give flexibility to the Group to enable it to manage its own funds and to access capital markets with a view to future growth. The quest for value accretive expansion has always been part of the IVL ethos. The industry rationalization has accelerated in the current environment as the high cost; non-focused players have begun to exit the market. This is expected to continue over the coming years creating additional growth potential for focused players such as IVL that continue to invest in the industry. Because our products are resilient to recession and IVL has a global distribution platform, increase in volumes and utilization rate was experienced. We achieved higher returns on a larger equity and capital base in year 2009 and saw margin improvement from upward integration with PTA. Certitude that our Business Warrants We have remained true to our growth strategy and maintained a steadfast focus on our sector. Value is the very essence of our “Monozukuri” – combination of technology and operations to include development and production. Our seven strategic imperatives, in place, continue to guide our actions. • • • •
Raw Material Security & Captive Consumption- Security of PTA supply for our PET and Polyester operations Common Buying Platform for MEG- Our PET and Polyester divisions leverage their buying bargaining power for MEG procurement Partnering, acquiring and investing to accelerate the implementation of our strategy and focus our resources on core business Focusing relentlessly on growth markets
Annual Report 2009
9
• Cost Savings Through Synergistic Asset Positioning & Integration - Cost savings through co-locations due to reduction of logistics costs and the sharing of common services • Going to market as one team, under a common brand, executing a single strategy • Investing in internal capabilities to build a high-performance culture and efficient operation, best practices and benchmarking Our focus in this industry is not only for passion for this sector but also because of better understanding of the key success factors for individual businesses. We also thrive on more efficient allocation of capital and human talent, ability to make quick management and commercial decisions. Reduction in overheads needed to manage a diverse set of operations and addition of more value due to the similarity of the businesses is yet another factor. The pursuit of reinforcing brand presence in the market place, is, keeping in mind, its overarching relevance to the industry. This year we designed our new Indorama logo which unequivocally defines the strong foundation on which the company is built upon. It depicts our dependability, dynamism, sustainability and encapsulates all activities by the company. The rationale behind the design and choice of colors is that we want our shareholders, new and old, to associate with. Financials The notable financial performance of IVL, in the face of fluctuating economic environment reflects the full strength of our significant consolidation of business units. Financial highlights (Baht million): Year 2009
Year 2008
Net sales
79,994
53,332
50%
EBITDA
10,636
3,838
117%
EBITDA margin
Growth
13.3%
7.2%
Profit before tax and minority
6,573
3,176
107%
Net profit after tax and minority
4,824
2,656
82%
Issued and paid-up capital
3,352
3,352
1.44
0.79
*Earnings per Share
*Based on issued and paid-up capital at end of year and par value Baht 1 per share People and Practices Augur Well for us I attribute the company’s momentum to the dexterity with which our people have worked. Even in unsettled global marketplaces, trust, not uncertainty dominated our conversations at IVL. I have always believed that the role of a leader is often not to force the outcome, but to command execution. Managing that command falls largely to seasoned management that we have. 2009 was an intense but very productive year. Yet again our people have demonstrated their solidarity and dedication to the company. Our employees continue to devote their energies to confirming whether our business really is going the way it should. Their perseverance animates my being and instructs our energies. Indorama’s development, in my humble opinion, is the sine-qua-non of our people. Not many executives have a better vantage point on the industry we operate in like ours. After winning national accolades, IVL’s Quality Circles (QC) initiatives soared international in 2009. One of our QC Groups was awarded “Best QC Group” by the QC head quarter of Thailand. Furthermore the group also was selected for International Convention on Quality Control Circle for the International Exposition for Team Excellence (IETEX) 2009 at Singapore. Another group was selected for the International competition in China. In 2009 we also received the Environment Good Governance Reward named “Green Star on White Flag”. One of our PTA plants received this excellent reward on environment good governance from the Industrial Estate Authority of Thailand Governor.
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Indorama Ventures PCL
Businesses are an instrument of society and governance. IVL’s demonstration of transparent, fair and equitable corporate governance practices depicts its responsibility towards the same. IRP, a subsidiary of IVL receiving an “Excellent” CG Scoring from the Institute of Directors, “IOD” survey for listed companies is an empirical proof of our good practices. As we take steps today, we know, these are steps towards tomorrow IVL is uniquely positioned to take advantage of the industry, thanks to its strong portfolio, larger market cap and liquidity, high growth industry, secured PTA feedstock through integration, favorable raw material (PX and MEG) supply scenario, human capital and conversion costs. We are prepared to enter next phase of growth through acquisitions and Brownfield /Greenfield expansions. With this in mind, our way forward has always been very clear. Our ability to retain effective margins is our measure for our success. Also, whatever measures we take in the short –term, we never sacrifice our ability in the long term. Excess is not my scene. I like the play of clear vision. And that’s what I think IVL and its subsidiaries are going to be all about. Today we see ourselves at the front line of the World Polyester Producers. We want to grow faster than the market. We want to be, as in the world, recognized as the leader in the polyester value chain industry. I’m excited today about the opportunities that exist out there for IVL. Thank you for your belief in Indorama and my sincerest gratitude to all our suppliers, customers, employees and stakeholders. Coming back to my question of Mega changes in business – I believe these Mega changes will bring us Giga returns.
Mr. Aloke Lohia Group CEO
Annual Report 2009
11
Company Information Listed Company Information : Indorama Ventures Public Company Limited (IVL) : Holding Company : 75/102 Ocean Tower 2, 37th Floor, Soi Sukhumvit 19 (Wattana), Asoke Road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand Company’s Registration Number : 0107552000201 : +66-2-661-6661 Tel. : +66-2-661-6649, 02-661-6664 Fax. www.indoramaventures.com Web site Baht 5,082,000,000 divided into 5,082,000,000 ordinary Registered Share Capital shares each of Baht 1 par value Baht 4,334,271,047 divided into 4,334,271,047 ordinary Issued and paid-up Capital shares each of Baht 1 par value Name Type of business Head Office
Subsidiary Companies Information PET Business 1. Indorama Polymers Public Company Limited (Direct Subsidiary) Type of business Head Office
Tel. Fax. Plant
Tel. Fax. Web site Registered Share Capital Issued and paid-up Capital Percentage of Investment
: PET Polymers Production : 75/102,103 Ocean Tower 2, 37th Floor, Soi Sukhumvit 19 (Wattana), Asoke road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand : 02-661-6661 : 02-661-6649, 02-661-6664 : 72 Moo 11, Bang-Nga Tha-Klong Road, Khaosamorkhon Sub-District, Thawung District, Lopburi 15180, Thailand : 036-489164-5 : 036-489115 www.indoramapolymers.com Baht 1,450,000,000 divided into 1,450,000,000 ordinary shares each of Baht 1 par value Baht 1,382,197,870 divided into 1,382,197,870 ordinary shares each of Baht 1 par value : 99.08%
2. Petform (Thailand) Limited (Indirect Subsidiary) Type of business Head Office
Tel. Fax. Plant
Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
12
Indorama Ventures PCL
: Preforms, Bottles and Caps Production : 85 Moo 11, Bang-Nga Tha-Klong Road, Khaosamorkhon Sub-District, Thawung District, Lopburi 15180, Thailand : 036-489164-5 : 036-489115 : 85 Moo 11, Bang-Nga Tha-Klong Road, Khaosamorkhon Sub-District, Thawung District, Lopburi 15180, Thailand : 036-489164-5 : 036-489115 : Baht 75 Million : Baht 75 Million : 60.00% (Indirect)
3. Asia Pet (Thailand) Limited (Indirect Subsidiary) Type of business Head Office
Tel. Fax. Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: Amorphous Chips Production : 75/102, Ocean Tower 2, 37th Floor, Soi Sukhumvit 19 (Wattana), Klongtoey Nuer Sub-District, Wattana District, Bangkok 10110, Thailand : 02-661-6661 : 02-661-6649, 02-661-6664 : 61/1 Moo 11, Khaosamorkhon Sub-District, Thawung District, Lopburi 15180, Thailand : 036-489164-5 : 036-489115 : Baht 450 Million : Baht 450 Million : 99.99% (Indirect)
4. StarPet Inc. (Indirect Subsidiary) Type of business Head Office Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: PET Polymers Production : 801 Pineview Road, Asheboro, North Carolina 27203, USA : 801 Pineview Road, Asheboro, North Carolina 27203, USA : +1-336-6720101 : +1-336-6721904 : USD 25 Million : USD 12 Million : 100.00% (Indirect)
5. AlphaPet Inc.(Indirect Subsidiary) Type of business Head Office Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: PET Polymers Production : 1301 Finley Island Road, Decatur, Alabama, AL35601, USA : 1301 Finley Island Road, Decatur, Alabama, AL35601, USA : +1-256-3081180 : +1-256-3405722 : USD 50 Million : USD 44 Million : 100.00% (Indirect)
6. Indorama Polymers (USA) Inc. (Indirect Subsidiary) Type of business Head Office Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: Holding Company for AlphaPet Inc. : 1301 Finley Island Road, Decatur, Alabama, AL35601, USA : +1-256-3081180 : +1-256-3405722 : USD 50 Million : USD 44 Million : 100.00% (Indirect)
Annual Report 2009
13
7. UAB Orion Global Pet (Indirect Subsidiary) Type of business
: PET Polymers Production
Head Office
: Metalo g.16, LT-94102, Klaipeda, Republic of Lithuania
Plant
: Metalo g.16, LT-94102, Klaipeda, Republic of Lithuania
Tel.
: +370-46-300815
Fax.
: +370-46-314323
Registered Capital
: Litas 77,688,000
Paid-Up Capital
: Litas 77,688,000
Percentage of Investment
: 100.00% (Indirect)
8. Indorama Polymers Rotterdam B.V. (Indirect Subsidiary) Type of business Head Office
: PET Polymers Production : Markweg 201, 3198 NB Europoort, Harbour Number 6347, Rotterdam, the Netherlands
Plant
: Markweg 201, 3198 NB Europoort,
Tel.
: +311-81-285438
Harbour Number 6347, Rotterdam, the Netherlands
Fax. Registered Capital Paid-Up Capital Percentage of Investment
: +311-81-285596 : EUR 90,000 : EUR 18,000 : 100.00% (Indirect)
9. Indorama Polymers Workington Limited (Indirect Subsidiary) Type of business
: PET Polymers Production
Head Office
: Siddick, Workington, Cumbria, CA14 1LG, United Kingdom
Plant
: Siddick, Workington, Cumbria, CA14 1LG, United Kingdom
Tel.
: +44-1900-609300
Fax.
: +44-1900-609341
Registered Capital
: GBP 100
Paid-Up Capital
: GBP 1
Percentage of Investment
: 100.00% (Indirect)
10. UAB Indorama Polymers Europe (Indirect Subsidiary) Type of business
: Holding Company for Indorama Polymers Rotterdam B.V. and Indorama Polymers Workington Limited
Head Office
: Metalo g.16, LT-94102, Klaipeda, Republic of Lithuania
Tel.
: +370-46-300815
Fax.
: +370-46-314323
Registered Capital
: Litas 72,508,800
Paid-Up Capital
: Litas 72,508,800
Percentage of Investment
: 100.00% (Indirect)
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Indorama Ventures PCL
PTA Business 1. Indorama Petrochem Limited (Direct Subsidiary) Type of business Head Office
Tel. Fax. Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: PTA Production : 75/93 Ocean Tower, 35th Floor, Soi Sukhumvit 19, Sukhumvit Road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand : 02-661-6661 : 02-661-6649, 02-661-6664 : 4 Moo 2, Asia Industrial Estate, Tambon Banchang, Amphur Banchang, Rayong, 21130 Thailand : 038-689081-5 : 038-689090 : Baht 4,727,820,420 : Baht 4,727,820,420 : 100.00% (Direct)
2. TPT Petrochemicals Public Company Limited (Direct Subsidiary) Type of business Head Office
Tel. Fax. Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: PTA Production : 54 BB Building, 20th Floor, Sukhumvit 21 Road (Soi Asoke), Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand : 02-203-6900 : 02-260-8018 : 3, I-7 Road, Map Ta Phut Industrial Estate, Amphur Meuang, Rayong 21150 Thailand : 038-683288 : 038-683300 : Baht 6,903,000,000 : Baht 4,925,000,000 : 54.60% (Direct)
3. Indorama Holdings Rotterdam B.V. (Indirect Subsidiary) Type of business Head Office
Tel. Fax. Registered Capital Paid-Up Capital
: PTA Production : Markweg 201, 3198NB Europoort, Rotterdam, the Netherlands : Markweg 201, 3198NB Europoort, Rotterdam, the Netherlands : +31-181-285-455 : +31-181-285-405 : Euro 90,000 : Euro 18,000
Percentage of Investment
: 100.00% (Indirect)
Plant
4. UAB Indorama Holdings Europe (Indirect Subsidiary) Type of business Head Office Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: : : : : : :
Holding Company for Indorama Holdings Rotterdam B.V. Metalo g.16, LT-94102, Klaipeda, Republic of Lithuania +370-46-300815 +370-46-314323 Litas 117,395,200 Litas 117,395,200 100.00% (Indirect)
Annual Report 2009
15
Polyester Fibers, Yarns & Wool Business 1. Indorama Polyester Industries Public Company Limited. (Rayong) (Direct & Indirect Subsidiary) Type of business Head Office
Tel. Fax. Plant
Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: Polyester Fiber, Yarn and PET Chips Production : 75/92 Ocean Tower 2, 35th Floor, Soi Sukhumvit 19 (Wattana), Asoke Road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand : 02-661-6661 : 02-661-6649, 02-661-6664 : 6, I-2 Road, Map Ta Phut Industrial Estate Tambon Map Ta Phut Amphur Meuang Rayong, Rayong 21150, Thailand : 038-683870 : 038-683884 : Baht 2,226,220,000 : Baht 2,202,850,000 : 64.94% (Direct) and 34.61% (Indirect)
2. Indorama Polyester Industries Public Company Limited. (Nakhon Pathom), formerly Indo Poly (Thailand) Limited* (Direct & Indirect Subsidiary) Type of business Head Office Tel. Fax. Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: Polyester Fiber and Yarn Production : 35/8 Moo 4, Khun Kaew Sub-district, Nakhon Chaisri District, Nakhon Pathom 73100, Thailand : 034-222191 : 034-324169-70 : 35/8 Moo 4, Khun Kaew Sub-district, Nakhon Chaisri District, Nakhon Pathom 73100, Thailand : 034-222191 : 034-324169-70 : Baht 700,000,000 : Baht 700,000,000 : 98.85% (Direct & Indirect)
* Indo Poly (Thailand) Limited was dissolved on August 3, 2009 and is being liquidated, which we expect to be completed by mid 2010
3. Indorama Holdings Limited (Direct Subsidiary) Type of business Head Office
Tel. Fax. Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
16
Indorama Ventures PCL
: Holding Company and Production of Wool Yarn : 75/64,65 Ocean Tower 2, 28th Floor, Soi Sukhumvit 19 (Wattana), Asoke Road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand : 02-661-6661 : 02-661-6649, 02-661-6664 : 63 Moo 11 Bangngha-Thaklong Road, T. Kaosamorkorn A. Thawung Lopburi -15180 : +663 6489116-7 : +663 6489115 : Baht 774,468,000 : Baht 774,468,000 : 97.93% (Direct)
4. Indorama Textiles (Thailand) Limited. (Indirect Subsidiary) Type of business Head Office Tel. Fax. Plant Tel. Fax. Registered Capital Paid-Up Capital Percentage of Investment
: Wool Tops Production : 75/64,65 Ocean Tower 2, 28th Floor, Soi Sukhumvit 19 (Wattana), Asoke Road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok, Thailand : 02-661-6661 : 02-661-6649, 02-661-6664 : 61 Moo 11 Bangngha-Thaklong Road, T. Khaosamorkorn A. Thawung Lopburi-15180 : 036-489116-7 : 036-489115 : Baht 51,000,000 : Baht 51,000,000 : 95.10% (Indirect)
Other Information Listing on Stock Exchange
The Stock Exchange of Thailand The Stock Exchange of Thailand Building, 62 Rachadapisek Road, Klongtoey, Bangkok, 10110, Thailand Tel. +662-229-2000 Fax. +662-359-1009-11 www.set.or.th
Shares Registrar
Thailand Securities Depository Company Limited The Stock Exchange of Thailand Building, 62 Rachadapisek Road, Klongtoey, Bangkok, 10110, Thailand Tel. +662-596-9302-12 Fax. +662-359-1259 www.tsd.co.th
Auditors
KPMG Phoomchai Audit Limited 50th - 51st Floors, Empire Tower 195 South Sathon Road, Yannawa, Sathon Bangkok 10120, Thailand Tel. +662-677-2000 Fax. +662-677-2222
Legal Counsel
Weerawong, Chinnavat & Peangpanor Ltd. 22nd Floor, Mercury Tower 540 Ploenchit Road, Lumpini Pathumwan, Bangkok 10330, THAILAND Tel. +662-264-8000 Fax. +662-657-2222
Company Contact
Company Secretary & Legal: 1) Mr. Souvik Roy Chowdhury 2) Ms. Thamonwan Woraphongjirakarn e-mail: souvikroy@indorama.net thamonwan@indorama.net Investor Relations: 1) Mr. Richard Jones 2) Mr. Ashok Jain e-mail: richard@indorama.net ajain@indorama.net Company Address: 75/102,103 Ocean Tower 2, 37th Floor, Soi Sukhumvit 19 (Wattana), Asoke Road, Kwaeng Klongtoey Nuer, Khet Wattana, Bangkok 10110, Thailand Tel. 02-661-6661 Fax. 02-661-6664
Annual Report 2009
17
Organization Structure
Board of Directors
Group Chief Executive Officer Audit Committee Internal Audit Department Head of Accounting
PTA Business
PET Business
Polyester Fiber and Yarn & Wool Business
President
Chief Executive Officer
President
Chief Operating Officer
Chief Operating Officer
Chief Operating Officer
Board of Directors
Name/Surname: Mr. Sri Prakash Lohia Position:
Chairman of the Board
Age:
57
Education:
Bachelor of Commerce
Delhi University, India Work Experience 2009 - present 2009 - present 2009 - present 2009 - present 2006 - present 2006 2006 2006 2005 -
present present present present
2004 - present
(5 years past and present) : Chairman Indorama Ventures PCL Director Indorama Group Holdings Limited Director Indorama Corporation Pte. Ltd. President Director PT Surya Sakti Investment President Director Indorama International Limited, Dubai Chairman Eleme Petrochemicals Co., Ltd. Director Indorama Petro Limited Director Indorama Shebin Textiles Co SAE Director Indorama Petrochemicals (Nigeria) Limited President Commissioner PT Indo-Rama Synthetics Tbk Director Indorama Petrochem Limited Director Indorama Iplik Sanayi ve Ticaret AS President Director PT Indorama Industries Director Isin International Pte Limited Director Indorama Lanka Pvt Limited
2003 1998 1997 1991 1991 -
present present present present present
20
Indorama Ventures PCL
Name/Surname: Mr. Aloke Lohia Position: Vice Chairman and Group Chief Executive Officer (The director who is authorized to sign on behalf of the Company) Age: 51 Education: Bachelor of Commerce Delhi University, India Director Certification Program (DAP) Class 65/2007, Thai Institute of Directors (IOD) Work Experience 2009 - present Present 2009 - present Present 2009 - present 2008 - present 2008 - present 2008 - present 2008 - present 2008 - present 2007 - present 2007 - present 2007 - present 2007 - present 2007 - present 2007 - present 2007 - present 2007 - present 2004 - present 2004 - present 2004 - present 2004 - present 2003 - present 1997 - present 1996 - present 1995 - present 1994 - present 1994 - present 1991 - present 1987 - present 1986 - present 1985 - present
(5 years past and present) : Vice chairman Indorama Ventures PCL Director TPT Utilities Company Limited Chairman Indorama Resources Limited Director Aviante International Ltd. Director Indorama Petrochem Limited Chairman TPT Petrochemicals PCL. Director Indorama Polyester Industries PCL. Director Indorama Ventures Limited, Jersey Chairman Beacon Chemicals Ltd. Director Indorama Ventures S.A. Luxembourg Chairman Cryoviva (Thailand) Ltd. Chairman UAB Indorama Holdings Europe Chairman Indorama Polymers Rotterdam B.V. Chairman Indorama Holdings Rotterdam B.V. Chairman Indorama Polymers Workington Ltd. Chairman UAB Indorama Polymers Europe. Chairman Indorama Polymers (USA) Inc. Chairman AlphaPet, Inc. Chairman UAB Orion Global PET Chairman StarPet Inc. Chairman Asia Pet (Thailand) Limited Director Canopus International Limited Director Florrie Ltd. Director V.O.X. Investment Limited Director Petform (Thailand) Limited Vice chairman Indorama Polymers PCL Chairman Indo-Rama Textiles (Thailand) Ltd. Chairman Indorama Holdings Ltd. Chairman Habitat Estate Development Co., Ltd. Chairman Aurus Speciality Co., Ltd. Chairman Winforce Trading (HK) Ltd. Chairman Autumn Investment (HK) Ltd.
Name/Surname: Mrs. Suchitra Lohia
Name/Surname: Mr. Sashi Prakash Khaitan
Position:
Director (The director who is authorized to sign on behalf of the Company)
Position:
Age:
45
Education:
Bachelor of Commerce
Director and President Polyester fibers and Yarn & Wool Business (The director who is authorized to sign on behalf of the Company)
Age:
61
Delhi University, India Work Experience (5 years past and present) : 2009 - present Director Indorama Ventures PCL 2009 - present Director Indorama Resources Limited Present Director TPT Utilities Company Limited 2009 - present Director Indorama Petrochem Limited 2008 - present Director TPT Petrochemicals PCL. 2008 - present Director Indorama Ventures Limited, Jersey 2008 - present Director Indorama Polyester Industries PCL. 2008 - present Director Beacon Chemicals Ltd. 2007 - present Director UAB Indorama Holdings Europe 2007 - present Director Indorama Polymers Rotterdam B.V. 2007 - present Director Indorama Holdings Rotterdam B.V. 2007 - present Director Indorama Polymers Workington Limited 2007 - present Director UAB Indorama Polymers Europe. 2007 - present Director Indorama Polymers (USA) Inc. 2007 - present Director Alpha Pet Inc. 2004 - present Director UAB Orion Global PET 2004 - present Director StarPet Inc. 2004 - present Director Asia Pet (Thailand) Limited 2004 - present Director Canopus International Limited 2004 - present Director Aviante International Ltd. 2003 - present Director Florrie Ltd. 1997 - present Director V.O.X. Investment Limited 1996 - present Director Petform (Thailand) Limited 1995 - present Director Indorama Polymers PCL 1994 - present Director Indo-Rama Textiles (Thailand) Ltd. 1994 - present Director Indorama Holdings Ltd. 1987 - present Director Aurus Speciality Co., Ltd. 1986 - present Director Winforce Trading (HK) Ltd.
Education:
Bachelor of Science St. Xavier College, Kolkata, India
Work Experience (5 years past and present) : 2009 - present Director Indorama Ventures PCL Present Director Indorama Ventures Limited, Jersey Present Director Indorama Ventures S.A.,Luxembourg 2008 - present Director Indorama Polyester Industries PCL. 2004 - present Director Indorama Holdings Ltd. 2004 - present Director Indo-Rama Textiles (Thailand) Ltd.
AnnualReport Report2009 2009 Annual
21 21
Name/Surname:
Mr. Amit Lohia
Position:
Director
Age:
35
Education:
Bachelor of Economics and Finance Wharton School of Business, USA
Work Experience (5 years past and present) : 2009 - present Director Indorama Ventures PCL Present Director Indorama Polyester Industries PCL. Present Director TPT Petrochemicals PCL. 2009 - present President Director PT Indo-Rama Synthetics TBK 2009 - present Director Indorama Corporation Pte. Ltd. 2009 - present Director Indorama Petrochemicals (Nigeria) Limited 2008 - present Director Indorama Group Holdings Ltd. 2006 - present Vice Chairman Indorama Shebin Textiles Co SAE 2006 - present Director Eleme Petrochemicals Company Limited 2006 - present Director Indorama Petro Limited 2006 - present Director Indorama Investments Limited 2006 - present Director Indorama International Limited, Dubai 2004 - present Director Isin International Pte Limited 2004 - present Director Indorama Lanka Pvt Ltd 2004 - present Director Indorama Energy Pte Ltd., Singapore 2003 - present Director Indorama Petrochem Limited 1999 - present Director Indorama International Finance PLC. 1998 - present Director Indorama Iplik Sanayi ve Ticaret AS
22
Indorama Ventures PCL
Name/Surname: Mr. Rathian Srimongkol Position: Independent Director and Chairman of the Audit Committee Age: 50 Education: Bachelor of Medical Science, Mahidol University Medical Degree (Siriraj Hospital), Mahidol University Master of Business Administration, Thammasat University Certificate in Politics and Governance in Democratics Systems for Executives Course (Class 9), King Prajadhipok’s Institute Diploma, National Defense College, The Joint State - Private Sectors Course Class 21 Director Certification Program (DCP) class 8/2001 and Role of the Chairman Program(RCP) class 19/2008, (IOD) Work Experience (5 years past and present) : 2009 - present Director Indorama Ventures PCL 2008 - present Senior Executive Vice President Siam City Bank Pcl. 2008 - present Director State Enterprise Director Nomination Committee , Ministry of Finance 2008 - present Director TOT PCL. 2004 - present Performance Agreement Subcommittee, Organization Management (Internal Audit and Internal Control) State Enterprise Policy Office, Ministry of Finance 2001 - present Performance Agreement Subcommittee (Energy sector) State Enterprise Policy Office,Ministry of Finance 2007 - 2009 Adviser Siam City Securities Ltd. 2004 – 2008 First Executive Vice President-Siam City Bank PCL 2004 – 2008 Chairman The Zoological Park Organization 2008 - 2008 Chairman Industrial Estate Authority of Thailand 2003 - 2007 Chairman and Chairman of Executive Directors Siam City Securities Ltd. 1999 - 2003 Chairman of Audit Committee and Director Matichon Pcl. 2004 - 2005 Director Thailand Privilege Card Co., Ltd. 2005 - 2005 Independent Director TOT PCL. 2001 – 2004 Executive Vice President Siam City Bank PCL
Name/Surname: Position: Age: Education:
Mr. William Ellwood Heinecke Independent Director and Director of Audit Committee 60 Honorary Doctoral Degree of Business Administration in Management, Yonok University, Lampang International School of Bangkok Director Certification Program (DCP) class 64/2005 (IOD)
Name/Surname: Mr. Chakramon Phasukavanich Position: Age:
61
Education:
Bachelor’s Degree in Economics, Chulalongkorn University M.A. (Economics), California State University, Northridge, U.S.A.Certificate,
Work Experience (5 years past and present) : 2009 - present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present Present
Director Indorama Ventures PCL Chairman and Chief Executive Officer, Minor International PCL Chairman and Chief Executive Officer, Minor Corporation PCL Chairman Minor Food Group PCL Director Rajadamri Hotel PCL Director S&P Syndicate PCL Director Everest Worldwide Ltd. Director Serm Suk PCL Chairman Minor Hotel Group Co.,Ltd. Chairman Royal Garden Plaza Ltd. Chairman Royal Garden Entertianment Ltd. Chairman MSpa International Ltd. Chairman MSpa Venture Ltd. Chairman MSpa Enterprise Management (Shanghai) Ltd. Chairman Hua Hin Resort Ltd. Chairman Hua Hin Village Ltd. Chairman Royal Garden Development Ltd. Chairman RNS Holding Ltd. Chairman RGE (HK) Ltd. Director Chao Phaya Resort Ltd. Chairman Samui Village Ltd. Chairman Samui Resor & Spa Ltd. Chairman Samui Beach Residence Ltd. Chairman Baan Boran Chieng Rai Co., Ltd. Chairman Maerim Terrace Resort Ltd. Chairman Rajadamri Residence Ltd. Chairman MI squared Ltd. Chairman Coco Plam Hotel & Resort Ltd. Chairman Phuket Beach Residence Ltd. Chairman Minor Information Technology Ltd. Chairman Coco creation Ltd. Chairman Coco Residence Ltd. Director Swensen (Thai) Limited Director Minor Cheese Limited Director Minor Dairy Limited Director Minor DQ Limited Director RGR Food Service Limited Director Catering Associate Limited Director Berger (Thailand) Limited Director The Pizza Restaurant Limited Director SLRT Ltd. Director BEIJING LEJAZZ FOOD & BEVERAGE CO.,LTD Director THAI EXPRESS CONCEPTS PTE. L Chairman Chao Phaya Resort & Residence Ltd. Chairman Maifad Beach Resort Limited Chairman The Coffee Club (Thailand) Ltd
Independent Director and Director of Audit Committee
Senior Executive Development Program class 12 The National Defense College of Thailand (Class 39) DAP 20/2004, FND 13/2004, ACP 14/2006, DCP 71/2006, RCP 20/2008, R-CIS 1/2008, R-Forum 1/2009 , (IOD)
Work Experience (5 years past and present) : 2009 - present
Director Indorama Ventures PCL
Present
Independent Director and Chairman of Nomination
Present
Committee Member, Monetary Policy Committee
Present
Member Council of state
Present
Member Council of Burapha University
Present
Member Economic Policy Advisory Committee
Present
Chairman Civil Service Commission Sub-committee
PTT PCL. Bank of Thailand
of The Office of The Prime Minister on job Qualification and Post Classification for Senior Executives of Ministry of Public Health, Ministry of Science and Technology, and Nation Intelligence Agency 2007 - 2008
Chairman Electrical and Electronic Institute
2007 - 2008
Director Civil Service Commission
2006 - 2008
Member National Legislative Assembly, Thailand
2005 – 2009
Director Thai Oil PCL.
2005 – 2008
Chairman Small and Medium Enterprise Development Bank of Thailand
2004 – 2008
Permanent Secretary Ministry of Industry
2004 – 2008
Chairman Thailand Productivity Institute
2004 – 2008
Chairman Thailand Automotive Institute
2004 – 2008
Chairman Thailand Textile Institute
2004 – 2006
Chairman AVIVA (Thailand)
2002 – 2008
Director Thai Asset Management Corporation
Annual AnnualReport Report2009 2009
23 23
MAJOR SHAREHOLDERS as at 31 December 2009* No.
Name
No. of shares
% Holding
1.
Indorama Resources Ltd.
3,112,562,720
92.8
2.
Bangkok Bank PCL.
167,509,150
4.99
3.
DEG-Deutsche Investitions-Und Entwicklungsgesellschaft MBH.
29,536,240
0.88
4.
Bangkok Insurance PCL.
25,300,000
0.75
5.
Nederlandse Financierings-Maatschappij Voor Ontwikkelingslanden N.V.
16,635,780
0.49
6.
Mr. Aloke Lohia
10
0.00
7.
Mr. Anuj Lohia
10
0.00
Remarks:
* Before IVL listed in the SET
MAJOR SHAREHOLDERS as at 2 March 2010 No.
Name
No. of shares
% Holding
1.
Indorama Resources Ltd.
3,073,262,520
70.91
2.
Bangkok Bank PCL.
206,082,850
4.75
3.
Indorama Synthetics (India) Ltd.
128,029,200
2.95
4.
Citibank Nominees Singapore Pte Ltd. - Thai Focused Equity Fund Ltd.
68,743,247
1.59
5.
Thai NVDR Ltd.
47,183,210
1.09
6.
Mr. Kamlesh Chandumal Daswani
43,157,500
1.00
7.
Morgan Stanley & Co. International Pcl.
38,536,739
0.89
8.
The Bank of New York (Nominees) Ltd.
33,919,500
0.78
9.
DEG-Deutsche Investitions-Und Entwicklungsgesellschaft MBH.
29,536,240
0.68
10.
Goldman Sachs & Co
23,769,546
0.55
11.
K Equity 70:30 LTF
22,918,000
0.53
SOURCE: Thailand Securities Depository Co., Ltd.
24
Indorama Ventures PCL
Dividend Policy The Company has a policy to pay a total dividend of not less than 30% of our net profit after tax and after the appropriation of the reserve. However, our Board of Directors may amend the dividend policy at any time to take into account the availability of funds to be used as a reserve for debt repayment, capital investment for production expansion, to react to changing market conditions or as required to manage the company’s future cash flows. The policy of Indorama Polymers PCL, a core company, is to pay a total dividend of not less than 30% of its net profit after tax and after the appropriation of the reserve. However, the Board of directors of Indorama Polymers PCL may amend the dividend policy at any time to maximize shareholder’s wealth such as a reserve for debt repayment, capital investment for production expansion, reaction to changing market conditions or as required to manage its future cash flows. In 2009, other subsidiaries, excluding Indorama Polymers PCL, do not have a dividend policy. Dividend distributions of our subsidiaries are subject to the approval of our Board of Directors and/or our subsidiaries’ shareholders, at an annual general meeting. Each subsidiary company is reviewing and setting out its future dividend policy.
Annual Report 2009
25
Core Business PET – Thinking Global The core business of IVL is PET resins which is held through its subsidiary Indorama Polymers Public Company Limited “IRP”. IRP owns and operates plants in Asia, Europe and North America to produce PET resins. The presence in three continents provides it the ability to service global customers in each continent. The presence in three key global regions offers the advantage of fast and efficient delivery with a constant effort to lower logistical costs and to enhance the global distribution network. All plants use a range of shipping options to provide the best and lowest-cost delivery: road, rail, and sea. The assets are top end assets in terms of size, scale, economics and global positioning. Mr. Dilip Kumar Agarwal
PET resins capacity by region:
CEO, PET resins Business 2007
2008
2009
Thailand
180,000
180,000
180,000
USA
225,000
225,000
657,000*
Europe
198,000
553,000
553,000
Total
603,000
958,000
1,390,000
*Includes 432,000 tons per annum of capacity in AlphaPet Inc. USA IRP has established lasting customer relationships that involve close cooperation in formulations and applications development. IRP has diversified its product offering of different grades to meet the needs of customers in Asia, Europe, NAFTA and others. IRP and its subsidiaries have a marketing team in Thailand, USA and Europe which is focused on sales in respective regions. Further, it is supplemented by agent network in export markets. With different distribution bases, transportation costs are lower and the threat of trade barriers is less, thus, increasing the stability of the system, a major strength IRP offers. The general market segmentation of plants in IRP: Company Indorama Polymers
Location
Market
Thailand, Asia
Domestic market, Asia-Pacific, Middle East and Africa
StarPet and AlphaPet UAB Orion Global Pet Indorama Polymers Rotterdam Indorama Polymers Workington
26
Indorama Ventures PCL
USA,
USA, Canada, Mexico and South
North America
America
Lithuania, Europe
Greater Europe, EU and Non-EU, UK,
Netherlands, Europe
Russia and CIS
UK, Europe
Business Operations
Business Operations Description of Indorama Ventures’ Business Indorama Ventures Public Company Limited (IVL) is one of the world’s leading producers in the polyester chain industry, in terms of capacity and level of integration.
fib er /fi la m
en ts
Figure 1 : The Polyester Chain
Crude oil
Naphtha
Paraxylene
PTA
PET Melt
bo ad gr
ettl in
s re
Upstream raw materials
e
Indorama Ventures part of the chain
About 99% of our revenues come from the sale of products in the polyester value chain. IVL produces two major polyester polymer types, PET resin and polyester fibers and yarns, and some specialist polyester types such as film grade chips. In March 2008 we began to produce PTA, a feedstock essential to the production of polyester polymers. The major products are all intermediates between the oil and petroleum industry and fast moving consumer goods producers. This lends itself to less volatility than those producers further up-stream and consistent demand from those customers downstream from us. Contracts with customers are for long term volumes, however the pricing is adjusted each month to take into account the rise and fall of raw material supplies. This means that we are able to pass through price movements to customers. Crude oil prices have very little effect on global producers of carbonated soft drinks. For instance, the actual crude oil cost in a two liter PET bottle is around 2-3%, so IVL can pass on fluctuations in price with little or no effect to customers for whom volume sales are more important. Figure 2: The Polyester Chain is Driven by the Fast Moving Consumer Goods Industry
28
Indorama Ventures PCL
Description of business segments Why Polyester? The IVL Group is solely focused on the global polyester market. Polyester products act as an intermediary between large petrochemical companies, which provide the feedstock used in the manufacture of polyester, and Fast Moving Consumer Goods (FMCG) / Apparel Companies, which drive the demand for polyester products. Because of this central position between commodity petrochemical products and consumer end markets, polyester products do not exhibit the same kind of volatility as the olefins and aromatics sectors. Polyester demand and pricing show resilience that olefins and aromatics products do not as it is the material of choice for both packaging and fiber applications, with a strong substitution effect on competing materials in the consumer packaging space. Polyester products have some compelling attributes, such as versatility, convenience, affordability, high performance, comfort, and eco-friendliness that make it increasingly indispensible for use in a broad range of everyday applications. We currently operate 13 manufacturing facilities in five countries located in Asia, North America and Europe. Figure 3: Indorama Venture’s Global Reach
Our operations have increased significantly since 2003, principally through acquisitions. This geographic reach means that IVL is the only producer with operations in Asia, North America, and Europe and this allows us not only to be close to our end customers but to be able respond quickly to their needs. From a cost perspective, this geographic reach allows us to compete as local players, avoiding high logistical costs and government-imposed import restrictions. It also allows us to switch from a market that has trade barriers to another, more efficient market if necessary. Competitive Strengths In summary, IVL’s strengths are its industry focus and leading market positions; its global sales and manufacturing footprint; its integrated business model; its strong cost position; and expe-rienced management team with a proven track record of growing and managing the business. Supply/Demand Dynamics for Polyester The global demand for PET resin, polyester fiber as well as PTA has been consistently growing .
Annual Report 2009
29
Raw Materials The two main feed stocks for PET and polyester fiber are PTA and MEG, with paraxylene, or PX, an important raw material for the production of PTA (see figure 1 above). The overall capacity increases for PX and MEG will provide sufficient raw materials for PET and polyester fiber requirements. Since 2008 for instance, the global PX industry has shifted from a situation of balanced capacity to overcapacity with about 1.1 million tons of PX capacity added in 2008 and about 8.7 million tons of capacity currently under development and estimated to come on-stream by 2012. Similarly, since 2008, the global MEG industry has shifted from a situation of balanced capacity to significant overcapacity with about 1.4 million tons of MEG capacity added in 2008 and about 7.4 million tons of capacity currently under development and estimated to come on-stream by 2012. Polyester Industry Rationalization The past two years have been marked by the acceleration of industry rationalization with 0.4 million tons and 0.2 million tons capacity estimated closed in 2008 and 2009 respectively and 0.6 million tons capacity shutdown in the USA and Canada in 2008 and 4.0 million tons capacity closed in Asia, especially China, which is 9.0% of the regional capacity, in 2009. This industry rationalization has occurred as high cost, non-focused players have begun to exit the market. New capacity additions are now lagging behind plant closures and thereby provide an opportunity for stronger companies to further boost capacity utilization.
PET The PET (polyethylene terephthalate) business segment primarily comprises the manufacture and sale of PET, a plastic polymer resin primarily used for beverage containers and food, pharmaceutical and household product packaging and in industrial packaging applications. PET resin is produced from polyester polymer which is a mixture of Purified Terephthalic Acid (PTA) and Monoethylene Glycol (MEG). PET is one of the most widely-used packaging materials worldwide. From 2000 to 2009, global PET resin production grew at a CAGR of 8.25%, from 7.5 million tonnes in 1997 to 15.3 million tonnes in 2009. This growth has been driven by increasing consumer spending, population growth and the substitution by PET resin of traditional packaging materials and the increased use of PET resin in other products. Description PET can be semi-rigid to rigid, depending on its thickness, and very lightweight. PET bottle recycling is more practical than many other plastic applications. Plastic carbonated soft drink bottles and water bottles are almost exclusively PET, which makes them easier to identify for recycling. PET has a resin identification code of 1. Installed Capacity Our aggregate PET installed capacity is 1,282,000 tonnes per year as of December 31, 2009 (excluding the 216,000 tonnes capacity for the second line being installed at our PET plant in Alabama, USA). We have two PET plants in Thailand, three PET plants in Europe (the Netherlands, the United Kingdom and Lithuania) and two PET plants in the United States (North Carolina and Alabama). PET Segment Financial Performance Our PET business segment accounted for Baht 44,456 million, or 55%, of our total revenue from the sale of goods in 2009. The 98%, increase in PET operating EBITDA at the end of 2009 from the end of 2008, was primarily due to an increase in our PET gross margin through increased sales volumes, integration into PTA and decreased our per unit production costs resulting from lower energy prices.
30
Indorama Ventures PCL
Importance of Spreads to PET Producers A determinant of the financial performance of a PET resin producer is the price spread that is earned on product sales relative to the cost of the main raw materials PTA and MEG. IVL was able to achieve slightly better than the market average due to its business strategies and intrinsic strengths, which are explained in more detail below. Demand for PET for packaging Demand for PET resin is predominantly driven by the growth in demand for end use products, for which PET resin is used as the primary packaging material, such as water and carbonated drinks. This growth is predominantly influenced by population growth, disposable income and consumer trends. PET is currently a substitute for traditional packaging materials such as aluminum, glass, tetra pack and other polymers made from PET resin due to its ability to retain carbonation and freshness, chemical inertness, recyclability and cost. Moreover, demand has been created by the development and enhancement of PET resin packaging, which provides a high oxygen barrier, prevents oxygen seepage and increases product shelf-life. The end-use products which are susceptible to spoilage by oxygen leakage include beer and fruit juices. Figure 4: Demand drivers for PET resin 2009
2013F R eal (1) G lob al G DP
= +3. 4% C AG R ’09 E -’13 F European Union European Union
Central Europe
Central Europe
North America
15.3Mt Middle East & Africa
North America Middle East & Africa
20.5Mt
South America
South America
P E T R es in Dem and (2)
C AG R ’09E -’13 F = +7.6 %
Asia
Asia 1. 2.
Real GDP, US$-based, Constant 1998 Prices. Source SBA-CCI (February 2010)
: IMF
Geographic demand drivers for PET Demand for PET resin is still expected to post positive growth across all regions from 2009 to 2012F although at a slower rate than previously. This phenomenon is in some cases due to the maturity of markets like North American and Europe, the more common use of less PET resin per bottle or “light weighting” and post-consumer recycling, or PCR. Supply to reflect demand As demand is largely coming from developing regions and nations, the increase in global capacity for PET resin is expected to be mainly in Asia, primarily driven by China whose capacity additions are expected to service the growing domestic demand. In contrast, North America and the European Union are expected to see a lack of capacity additions and some capacity rationalization. Substitution There is currently no commercially attractive or practical alternative to PET resin in packaging. While there could be other polymers which may be substitutes for PET resin in packaging materials, these other polymers are currently expensive to manufacture, require raw materials necessary for polymerization that are limited and therefore expensive, are unsafe for food products, difficult to mass produce or have limited production capacity.
Polyester Fiber and Yarn and Wool Indorama Ventures polyester fiber and yarn and wool businesses constitute one business line of the company. The business embraces the manufacture and sale of a variety of polyester fibers, yarns and worsted wool.
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Product Description Polyester is one of the most widely used synthetic fibers in the world and is a versatile material with wide-ranging textile and industrial applications. Fabrics woven from polyester thread or yarn are used extensively in apparel and home furnishings, from shirts and trousers to jackets and hats, bed sheets, blankets and upholstered furniture. Industrial polyester fibers, yarns and ropes are used in tire reinforcements, fabrics for conveyor belts, safety belts, coated fabrics and plastic reinforcements with high-energy absorption. Polyester fiber is used as cushioning and insulating material in pillows, comforters and upholstery padding. Polyester fiber is classified as either a commodity or non-commodity polyester fiber, based on the end use application. Commodity polyester fibers are sold in bulk with little differentiation between suppliers and generally at lower margins than noncommodity polyester fibers. Non-commodity polyester fibers are produced in smaller volumes. They are generally custom made, have a higher unit value and a customer base that has low price sensitivity. The production of commodity polyester fibers tends to be dominated by large producers with economies of scale, whereas the production of non-commodity fibers tends to be dominated by producers with fit-for-purpose assets and cost efficient and flexible operations. Installed Capacity IVL has two polyester plants in Thailand with a total capacity of 244,800 tonnes per year (excluding the 108,000 tonnes per annum converted to PET production at our polyester plant in Rayong) and one wool plant in Thailand with a capacity of 5,900 tonnes per year. Gaining an Advantage in the Industry A competitive advantage in the commodity polyester fiber segment of the business is gained through market share, economies of scale and low raw material and logistics costs. In the non-commodity polyester fiber segment, the competitive advantage is achieved through product differentiation, customized service, industry experience and operational excellence. Customers are looking for reliability, cost and flexibility. Production Methods Polyester fiber is produced from a mixture of PTA and MEG to produce polyester polymer. There are two polyester polymer production processes which may be used to produce polyester fibers: the batch process and the continuous process. In the batch process, polymerization yields polyester chips which are further processed into polyester fiber. In the continuous process, however, polyester fiber can be extruded directly from polymerization to direct spinning. For the production of commodity polyester fiber, the continuous process is favored because it is more economical for it creates less waste and has lower energy and labor costs than the batch process technology. For the production of non-commodity polyester fiber, batch processing is preferred because the producer has more flexibility to produce different types of polyester fibers with minimal losses of intermediate products. Demand for polyester fiber There is growth in demand for conventional end-use products, such as clothing, upholstery, home furnishing and floor covering, in which polyester fiber is used as the primary material. This is further influenced by population growth, disposable income and consumer trends. Polyester is causing the substitution of existing fibers such as cotton, nylon and acrylic due to its versatility and favorable cost-performance characteristics. Another demand driver is the development and enhancement of applications in which polyester adds value, such as those in the non-woven industry, including geotextiles where permeable fabrics are typically used in civil engineering to separate, filter, reinforce, protect, or drain roads and embankments etc. Another industry that uses polyester is the automotive industry, which uses it in airbags, seatbelts and tires.
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Figure 5: Demand drivers for Polyester Fiber 2009
2013F R eal (1) G lob al G DP
= +3. 4% C AG R ’09 E -’13 F
North America
European Union
European Union
Central Europe
North America
Central Europe
31.9Mt
Middle East & Africa
Asia
Middle East & Africa
44.2Mt Asia
South America P olye s ter F iber G loba l Dem and (2)
South America
C AG R ’09E -’13 F = +8.5 %
1. 2.
Real GDP, US$-based, Constant 1998 Prices. Source SBA-CCI (February 2010)
: IMF
The Polyester Fiber Industry The polyester fiber industry is typically viewed as comprising two main product segments: polyester staple fibers and polyester filament yarns. Polyester staple fibers are bundles of strands cut into short lengths, which are primarily used in apparel and home textiles and are often blended with cotton or other natural and synthetic fibers. Another form of polyester staple fibers, fiberfill, is used as stuffing for toys and pillows and as insulation and padding for bedding and furniture. Polyester filament yarns are continuous strands of fiber, which are used in apparel, home textiles, and industrial end use markets. In 2009, 60.7% of total global polyester fiber was used in the production of polyester filament yarns and the remaining 39.3% was used in the production of polyester staple fibers. There is steady demand growth for polyester fiber in markets such as North America and the European Union, growing at approximately 4.3% and 2.1%, respectively. Asian demand is rising on average by 7.0% a year, mostly driven by China and India (+8.3% and +8.2% respectively) due to low per capita consumption, disposable income growth and population growth. The developed regions of North America and the European Union have a per capita consumption of 10.3 kg and 10.1 kg, respectively. In comparison, the developing regions of Central Europe, Asia, South America, and the Middle East & Africa, have lower per capita consumption of 6.4 kg, 4.6 kg, 4.1 kg, and 1.2 kg, respectively. Therefore, given the large gap of per capita consumption between the developed and the developing regions, there is ample scope for growth, most notably in Asia. Asia is both the largest producer and consumer of polyester fiber and is a net exporter of polyester fiber. China is by far the largest regional producer and consumer of polyester fiber, accounting for 72.9% of the regional capacity and 64.0% of the regional consumption. China is also the largest net exporter of polyester fiber, which can be considered as a potential competitive threat to producers in Asia, in particular, and the rest of the world. Apart from China, the other major producing countries in the region are India, Indonesia, Taiwan, Korea and Thailand, collectively representing 22% of the regional capacity, while the major consuming countries in the region are India, Japan, South Korea and Thailand, collectively representing 22% of the regional consumption. The major net exporters in the region are Taiwan, South Korea, Indonesia and Thailand and the major net importers in the region are Japan, the Philippines, Bangladesh and Australia. Substitution of Competing Fibers Over the past decade, polyester fiber has been increasingly replacing other fibers such as cotton, nylon, acrylic, and other fibers. Polyester fibers are more economical to produce than other man-made fibers including nylon and acrylic. In addition, the substitution of nylon as well as acrylic fibers with polyester fibers has gathered significant momentum over the last two decades. As a result significant investment in polyester fiber production capacity and the lack of correspondingly sizeable investments in acrylic and nylon fibers have changed the economies of scale in the synthetic fiber industry. It is unlikely that such dynamics will be reversed.
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Polyester vs. Cotton In the past decade, polyester fiber has gained market share against cotton. In 2003, polyester fiber surpassed cotton as the most widely used fiber in the world. Unlike cotton, man-made polyester fiber production is not impacted by the elements and there is no “crop” to harvest. Polyester fiber is less expensive to produce than cotton (therefore energy costs are lower and its carbon footprint smaller) and can be used in a wide range of end use products ranging from apparel to industrial products. Competitive Factors In the polyester fiber industry, companies compete on a variety of factors such as price, product quality, performance or specifications, continuity of supply, customer service and breadth of product line. The competition among existing players is varied and is predominantly dependent on which sector the producer is focused on: commodity polyester fiber or non-commodity polyester fiber. For a commodity polyester fiber producer, the main pricing drivers are the raw material cost and supply/demand balances, wherein prices are public and based on cost-related formulas. For a non-commodity polyester fiber producer, however, price is a reflection of the value added to the customer and that value is decoupled from the raw material cost cycle. In general, there is a high level of competition for the commodity polyester fiber products and moderate to low level of competition for the non-commodity polyester fiber products.
Wool IVL’s wool business segment comprises the processing of wool into worsted wool yarn. We have a worsted wool spinning mill in Thailand with an installed capacity of 5,900 tonnes per year. Raw wool is imported from Australia, processed in to worsted yarns. Polyester Fiber, Yarns and Wool Operational Performance A determinant of the financial performance of a polyester fiber producer is the price spreads that are earned relative to the cost of raw materials. The spread is the difference between the product selling price and the cost of raw materials used in the production of polyester fiber, namely PTA and MEG. Total revenues from polyester fibers and yarns and wool grew 87% from 2008 to 2009 as the impact of IVL’s acquisition of Tuntex (Thailand) Public Company Limited in 2008, and later renamed Indorama Polyester Industries Public Company Limited (IPI) commenced with a phased start up of operations in Q1/09 culminating in full operations in Q4/09. Accordingly, the operating EBITDA of the business line improved 128%. Integration into PTA and a switch to natural gas based utilities at IPI in the fourth quarter of 2009 also helped to lower production costs. In 2010, IVL will see the first full year of full utilization of this plant and should benefit accordingly.
PTA Our PTA business segment comprises the manufacture and sale of PTA, an organic acid in the form of fine, white powder principally used as a precursor or raw material in the production of polyester products. Manufacturers of PTA can be classified between merchant producers and integrated PTA producers. Merchant producers manufacture and supply PTA to third parties, whereas integrated PTA producers manufacture PTA for their own captive consumption. Competitive Environment As PTA is a commodity product, competition is based mainly on price and, to a lesser extent, on product quality and lead times to product delivery. As IVL has recently moved to integrate PTA into its business, it will continue to take advantage of economies of scale and provide low cost manufacturing due to lower logistics costs together with security of its raw material supply.
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Importance of Utilization An important influencing factor on the profitability of a PTA plant is capacity utilization. Down-stream integrated PTA producers can maintain higher capacity utilization due to captive PTA consumption as compared to merchant PTA producers. It has never been IVL’s intention to become a merchant producer – the company is seeking vertical integration to secure its feedstock. Our PTA business segment supports our PET and polyester business segments and forms part of our strategy of vertically integrating our operations. Our aggregate PTA installed capacity is 1,590,000 tonnes per year as of December 31, 2009. We have two PTA plants in Thailand and a PTA plant in the Netherlands. Between 2008 and 2009, utilization of these factories rose from 93% to 100%.
PTA Demand and Supply Demand for PTA is primarily driven by the growth in demand of polyester fiber, PET resin and film and specialties. Global PTA demand has been growing consistently and is expected to continue to grow at steady rates. The increase in global PTA demand is expected to be driven primarily in Asia and mainly in China. However, such has been the competition by major PTA suppliers to enter China that margins there have suffered. Diversifying PTA Markets There had been talk of China protecting its domestic PTA industry in 2009 and it was no surprise that in early 2010, China imposed anti-dumping duty on imports of PTA from South Korea and Thailand at a rate of 18 5% - 18 9%. By that time, IVL had already started to diversify its customer base to other markets in Asia and less than 10% of sales are now to China, all to the re-processing areas for re-exports which are not affected by the new duties. PTA requirements in North America and the European Union are expected to decline or remain stable as a result of the slowdown in new capacity additions and the industry rationalization in the PET resin and/or polyester fiber industry discussed above. The reduction reflected in demand for PTA in Europe is primarily attributed to the lack of new capacity additions and continued industry rationalizations in the PET resin and polyester fiber industries. PTA Operational Performance Our PTA business segment in the first full year of operations in 2009, post acquisition in 2008, saw a 907%, increase in PTA EBITDA at the end of 2009 from the end of 2008, primarily due to an increase in production volumes of 197% and in our PTA gross margin. This was because we increased our sales volumes but decreased our per unit production costs resulting from lower energy prices. Investors should be aware that we are an integrated producer of PTA and we allo-cate earnings from this business to our PET and polyester businesses on a pro rata basis.
Financial Performance of product segments Contributions of each segment in 2009 55% of revenue and 53% of EBITDA comes from PET 15% of revenue and 13% of EBITDA from polyester and wool 30% of revenue and 34% of EBITDA from PTA Why IVL has performed well Management has a clear business strategy to become a leader in the polyester chain industry, and to lead its future consolidation. Strategy Summary As one of the only vertically integrated producers of polyester products, with its own captive PTA production, IVL is able to take advantage of lower logistics costs as the feedstock is delivered via pipe or barge and thus gain a larger part of the polyester chain spread. IVL then also becomes protected from volatility in the PTA market. The company, while maintaining its identity as a low
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cost producer, has invested in the best technology to increase efficiency and lower conversion costs where possible. In many parts of the world, we now compete against manufacturers with considerably older and less efficient technology. And finally, we can exploit these advantages in an industry that is growing at a multiple of approximately twice GDP growth. Over time we have sought and exploited opportunities to acquire and develop assets so as to capture market growth while at the same time differentiating ourselves to stay ahead of the competition. Business Objectives IVL’s objectives are to be the market leader in the polyester value chain in terms of scale and integration, profitability and return on investment, supported by a focus on delivering superior customer satisfaction and on corporate responsibility, thereby enhancing shareholders’ value. Our ongoing and future strategy has therefore been designed to help us continue achieving our objectives. How to get there To achieve these focused objectives, the company has to sustain and increase its market posi-tions through selective focused growth and investment. To create wider margins and lower volatility, IVL will also have to continue enhancing its vertical integration, and we will explain more about this below. The past has taught us that a business cannot rely too much on one market or one product, so IVL will continue diversifying the product and customer mix, developing our recycling capabilities and increasing use of recycled materials to ensure global acceptability of our products continues to grow. Net income growth will also come through additional margin expansions and cost savings initiatives in raw materials procurement, energy integration, more efficient logistical operations and continued financial discipline. We will strive to maintain an efficient capital structure as we grow to provide us sufficient flexibility in our operations and sufficient liquidity in our cash flow position. Management Track Record Any new shareholders of IVL would do well to look at management performance of its previ-ously-listed subsidiary Indorama Polymers Plc (www.indoramapolymers.com) as it will become clear that management has a track record of success in generating high returns for shareholders. Financial Discipline and Prudence IVL is committed to maintaining a continued emphasis on financial discipline and prudent investment decisions, evaluating each potential investment on the basis of stand-alone profitability and efficiency, in addition to potential synergistic contribution within the overall organization. IVL intends to continue to finance projects on a stand-alone basis, maintaining debt levels where cash flows from individual operations are sufficient to cover debt service requirements even during industrial downturns. Indorama Ventures is committed to maintaining a continued emphasis on financial discipline and prudent investment decisions, evaluating each potential investment on the basis of stand-alone profitability and efficiency, in addition to potential synergistic contribution within the overall organization. We strive to maintain an efficient capital structure as we grow to provide us sufficient flexibility in our operations and sufficient liquidity in our cash flow position. Integrated Business Model We expect vertical integration, either through asset ownership, co-location with third party assets or virtual integration through co-location with key raw material suppliers, to enhance our operational and logistical efficiency, cost competitiveness and raw material security. Integration through owned assets also enhances our ability to insulate ourselves from sector cyclicality and improve the quality and predictability of earnings. Moving forward, our strategy will focus on growing our PTA capacities in line with our downstream PET and polyester capacities, especially in markets that we identify to be important.
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During 2008, we entered the PTA segment of the polyester chain through the acquisition of three PTA production facilities, which provide raw material support for our downstream PET and polyester facilities. We intend to gradually consume an increasing quantity of PTA internally through our PET and polyester facilities, reducing quantities available for merchant sales. A significant proportion, 48% of our PTA production is used internally. What we integrate The key raw material for PET/Polyester production is PTA and MEG, with Paraxylene (PX) used to produce PTA. IVL is among the world’s largest buyers of PX and MEG. We are vertically integrated into PTA, either through our own co-located PTA production facilities, or through virtual integration with PTA piped in from adjacently located feedstock suppliers. There are opportunities for further real or virtual integration into PX and MEG, as well as energy integration by acquiring the utility assets of, or partner with, suppliers. By increasing supply chain efficiency the logistics cost for raw materials will come down. The key benefits of vertical integration As mentioned above, it is the security of PTA supply for our PET and polyester operations during periods of market fluctuations, specifically in periods of high PTA demand, that will allow us to make better cost planning and lower volatility. Integration means captive consumption for our PTA operations, resulting in the ability to maintain higher capacity utilization as compared to merchant PTA suppliers, even in periods of reduced PTA demand. Through PTA and PET and polyester site co-locations costs can be reduced due to the reduction of logistics costs and the sharing of common services. Also, there are cost savings due to the reduction of fixed costs associated with raw materials procurement, sales and marketing and administrative functions. Integration enhances operating efficiency, competitiveness and responsiveness to customers and market developments, as well as allowing stability in volumes and profits. IVL can secure a PTA supply for internal PET and Polyester operations during periods of market fluctuation, especially in periods of high PTA demand. In the current market environment, IVL also benefits from oversupply of our key raw materials, namely PX and MEG. This oversupply is driven by unprecedented recent capacity additions globally that will push supply to outstrip demand growth for both PX and MEG for the short and medium term. This will lead to downward pressure on PX and MEG prices, which in turn will benefit the polyester chain. Industry Focus as a strategy Indorama Ventures Plc is one of the few petrochemical companies that focuses on the polyester value chain, compared with other important players who are organized in large divisions that, in turn, consist of many different businesses. We believe that the key advantages of being a focused player are a better understanding of the key success factors for individual businesses; a more efficient allocation of capital and human talent; an ability to make quick management and commercial decisions; and the reduction of overheads needed to manage a diverse set of operations. We are solely focused on the polyester chain, with 99% of revenues coming from polyester products, whilst the majority of other important players are organized in large divisions, with polyester chain products being non-core businesses. This lack of focus often leads larger conglomerates to rationalize and divest if they are using older technology or are unable to maintain high utilization rates. It is because of this keen focus and commitment to the industry that since 2003 we have grown through expansions and acquisitions and by expanding our business portfolio and geographical presence. In future, we will look closer at Brazil, Russia, India and China as well as the Middle East and Europe, to invest in or acquire large scale, latest generation assets, including PET pro-duction facilities with an economic size, that will contribute to a sustainable and competitive position on the cost curve. We will continue to expand and debottleneck capacity at existing facilities. Global Sales and Manufacturing Footprint Leads to Success Indorama Ventures is a global company with 13 manufacturing facilities located in five countries, Thailand, the United States, Lithuania, the Netherlands and the United Kingdom, across three continents, namely Asia, North America and Europe, supplying products to customers worldwide. Indorama Ventures is the only PET resin producer with operations in Asia, North America and Europe, the three major PET resin regions. Our polyester business is located in Thailand and has a globally diversified customer
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base. Our PTA is manufactured in Thailand and Europe to provide the support to our downstream operations as well as to market to external customers worldwide. This global footprint enables us to capture volume growth and widen our customer base. By being closer to both customers and suppliers, we can increase our cost competitiveness and lower our logistical costs. As protectionism leads to trade barriers, globalisation means we benefit by avoiding existing trade barriers and reduce exposure and dependence on any single market. Moreover, we are able to operate our facilities at higher utilisation rates than the average in each region Economies of Scale IVL has large, efficient, production facilities in the PET resin and PTA industries. Our newest PET facility, the AlphaPet PET facility, is one of the largest in North America and employs the latest generation PET technology from Germany’s Uhde Inventa Fischer. These large-scale, modern and efficient facilities enable us to achieve a competitive cost position in the industries where economies of scale are critical. In the polyester business, where we focus on the production of niche products, we have invested in fit-for-purpose, flexible assets which are ideally suited for the production of niche and value added products. Manufacturing Efficiency This is achieved through running our facilities at high capacity utilization rates with optimal levels of manpower, low overhead costs, as well as energy and utilities cost savings. Cost competitiveness improved by building efficient utility plants using coal or gas as feedstock at most of our facilities and, where possible by selling excess electricity and steam to third parties to reduce our own cost of electricity and steam. We benchmark all of our facilities against each other in order to optimize performance. Diversifying the Product and Customer Mix Diversifying our customer mix, both geographically and through end-use applications (for some business segments), is an important aspect for our continued success in the polyester value chain. We plan to continue to enhance our marketing efforts to geographically diversify our customer base for our PET and PTA product lines. For our PET and polyester business segments, in addition to continued expansion of geographic reach, we also look to diversify our customers based on the end-use application mix. We believe this strategy will help insulate us from dependence on individual customers and/or an individual application base, providing us with protection against potential customer distress or industrial downturns in individual application sectors. In the polyester business, in addition to maintaining cost and price competitiveness, we seek to differentiate ourselves through value added products. This necessitates that we maintain a wide product range to be a “one-stop shop” for a customer’s requirements and maintain flexibility in our manufacturing processes to satisfy customer requirements on short notice. Focusing on Recycling to Protect the Future PET resin is a recyclable and energy efficient packaging material, easily recovered and reused by simple washing processes to regenerate clean washed polymer flakes or by chemical treat-ment to break down the PET resin into raw materials or intermediates which are converted into new PET resins. Recycled PET resin can be used to make many new products, including polyester fiber for carpet, apparel, luggage, upholstery, fiberfill for sleeping bags and winter coats, industrial strapping, sheet and film, automotive parts, such as luggage racks, headliners, fuse boxes, bumpers, grilles and door panels. IVL will focus on the development of our research and development capabilities to better serve our polyester polymer customers by developing products tailored to serve their requirements. Use of recycled materials within our standard processes will allow us to cater to changing customer objectives and proactively address environmental issues so that more people become aware of the environmental advantages of polyester and PET. Acquisitions at a Reasonable Cost Achieving a low capital cost structure has meant constructing large scale plants and acquiring assets at a discount to their replacement cost. Our Orion Global and AlphaPet PET production facilities benefit from a low capital cost per tonne because of their large scale. We have acquired our Thai PTA and polyester assets as non-performing assets at a discount to their replacement cost. Our European PET and PTA assets were purchased at lower than the replacement cost and turned around in one year through a high utilization rate, increasing sales volume, the integration of PTA into our PET production in Europe and lower conversion costs to create excellent profita-bility.
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Risk Factors and Risk Management The following describes some of the significant risks that could affect us and the value of our shares. All of these could affect our business, revenue, profit, assets and liquidity, or the Company’s source of fund.
Risks Relating to Our Businesses and Operations We operate in highly competitive industries and the actions of our competitors could impact our profitability and market share. High levels of price and other competition characterize the industries in which we operate. In addition, many of our products are commodity products, and it may be difficult to have product differentiation and pass on increased cost to customers. Other competitive factors include product quality, specifications or product performance, continuity and reliability of supplies to customers and sustaining long-term customer relationships. We principally compete with several large multinational companies in each of our business segments. We also compete with numerous regional and/or specialized producers in the markets for our polyester fiber products. Some of these competitors may have greater market presence and/or financial and other resources than us. In addition, margin pressure could arise from, among other factors, limited demand growth and overcapacity in a relevant market. For example, China, whose domestic demand for PET resin may fall short of the forecasted capacity increase), price reductions by competitors, new industry players, industry consolidation, the ability of competitors to capitalize on their economies of scale and create excess product supply and the access of competitors to new technology that we do not possess. The cyclical nature of the PTA, the PET resin, and polyester fiber industries could result in overcapacity. Our operating results reflect the historical cyclical pattern of the PTA, PET resin, and polyester fiber industries, with periodic overcapacity and resulting pressure on pricing. This cyclicality arises, in part, from investments made at the top of the cycle (when margins are high and funds are available), thereby shifting the balance of supply and demand by new capacity coming on stream in large quantities. Consequently, the industry has from time to time experienced periods of overcapacity, such as when new plants are built and become operational, and there can be no assurance that this will not recur. In the absence of sufficient economic growth to generate increased demand or the closure of facilities to mitigate the effect, new capacity can cause a period of regional or global overcapacity that may lead to downward margin pressure. Our inability to pass on raw materials price increases to customers could adversely affect our operating results. Any increase in raw materials costs without a corresponding increase in selling price would reduce our operating results. Our ability to pass on raw materials price increases is dependent upon market conditions and our relative cost position compared to competitors. There may be periods of time in which we may not be able to recover increases in the cost of raw materials fully due to contractual arrangements or to weaknesses in demand for, or oversupply of, our products. Our operations are dependent on the availability and cost of raw materials. Our operations are substantially dependent on the availability and cost of our primary raw materials: PTA (limited to merchant purchases primarily in USA) and MEG for our PET and polyester fiber and yarn businesses, and PX for our PTA business. PX, PTA and MEG are oil and natural gas derivatives, and are usually manufactured by large petrochemical companies. Thus, the costs of production of PTA, PET and polyester are affected by the international and domestic prices of crude oil, natural gas and refined petroleum products. Our financial condition and results of operations are thereby influenced by market prices for crude oil, natural gas and refined petroleum products, which are subject to the forces of international, regional and domestic supply and demand, as well as other factors beyond our control. The markets and prices for petroleum products may be influenced by aggregate demand for such products (which can fluctuate with changes in economic conditions and cycles, seasons and weather patterns), the level of domestic and regional production, the prices and availability of imports, the prices and availability of substitute fuels and the extent and nature of governmental regulation and taxation. Worldwide supply conditions and the price levels of crude oil may also be significantly influenced by
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international groupings, which control the production of a significant portion of the worldwide supply of crude oil, and by political developments, especially in the Middle East. In addition, factors such as domestic and foreign government regulations, weather conditions, and competition from other energy sources also have an impact on crude oil and petroleum product prices. Increases in our costs could adversely affect our operating results. As we are unable to influence commodity prices directly, our competitiveness and long-term profitability are, to a significant degree, dependent upon our ability to reduce costs and maintain low-cost and efficient operations. Our inability to maintain our cost structure and efficiently operate our manufacturing facilities may increase our costs and adversely affect our operating results. Certain non-controllable costs may increase due to external factors beyond our control, which may also reduce our operating results. Examples of non-controllable costs are energy costs, insurance costs, tax costs and pension costs. Over the past few years, we have experienced significant cost increases for energy sources. While we attempt to match energy price increases with corresponding product price increases. Ultimately, our ability to pass on increases in our costs to customers is dependent upon market conditions. In addition, production in our polyester fiber and yarn business is labor intensive. Consequently, inflationary pressures, changes in applicable laws and regulations or other factors resulting in increased labor costs. Shortages or disruptions of supplies to our customers due to unplanned production capacity decreases or shutdowns of production plants may reduce sales. Production at our manufacturing facilities or delivery of supplies to our customers could be adversely affected by technical failures, strikes, natural disasters, regulatory rulings and other factors. Unexpected events, such as manufacturing problems, unplanned shutdowns or loss of supplies, could lead to reduced sales. If the capacity of one or more material facilities is reduced or the manufacturing of material products is shut down for a prolonged period and we are unable to shift sufficient production to other plants or draw on inventories, or if we are unable to run our production facilities at our typical utilization rates because of a disruption to our raw material supplies, we may not be able to fulfill our product delivery obligations and we could be exposed to claims for damages and suffer reputational harm. The costs and difficulties of integrating future acquired businesses and technologies could impede our future growth and adversely affect our competitiveness. As part of our strategy, we may seek further growth through acquisitions of other PET, polyester or PTA companies in order to maintain a competitive position within the industries in which we operate and to enhance our position in our core areas of operations. This strategy entails risks including: •
unidentified or unanticipated liabilities or risks in the operations of the companies which we may acquire;
•
potential failure to achieve the economies of scale, synergies or other benefits sought;
•
greater than expected costs and management time and effort involved in completing and integrating the acquisitions;
•
inability to successfully integrate the services, products and personnel of the acquisitions into our operations or to realize any expected cost savings or other synergy benefits from the acquisitions;
•
inability to retain employees, customers and supplier relationships;
•
Lack of return on our investment.
We may not be able to identify attractive acquisition opportunities or make acquisitions on attractive terms, or obtain financing necessary to complete and support such acquisitions. Regulation of merger and acquisition activity by the European Union, the United States, Thailand or other national regulators may also limit our ability to make future acquisitions or mergers.
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Significant capital investments including future development of new facilities have been, and may in the future continue to be, necessary to achieve our growth plans, which carry project and other risks. Our growth plans have required, and may continue to require, significant capital investments to expand, renovate, convert or upgrade existing facilities, develop new facilities or make major acquisitions or investment. Projects that require significant capital expenditure carry risks including: • failure to complete a project within the prescribed project timetable and/or within budget; and • failure of the project to perform according to prescribed operating specifications following its completion. • In addition, any significant increases in costs unforeseen in the project plan and any inability to sell the products produced at volumes and/or price levels envisaged in the project plan could affect the success of our projects. Due to the significant amount of capital required and the long lead time between planning and completion of such projects, project delays could have an effect on our business and prospects. Our production facilities are subject to operating risks that may adversely affect our operations. We are dependent on the continued operation of our production facilities. These production facilities are subject to hazards associated with the manufacturing, handling, storage and transportation of chemical materials and products, including pipeline leaks and ruptures, explosions, fires, inclement weather and natural disasters, mechanical failure, unscheduled downtime, labor difficulties, transportation interruptions, remediation complications, chemical spills, discharges or releases of toxic or hazardous substances or gases, storage tank leaks and other environmental risks. These hazards can cause personal injury and loss of life, severe damage to, or destruction of, property and equipment, environmental damage, fines and liabilities. On January 8, 2010, Indorama Petrochem received a letter from the Industrial Estate Authority of Thailand (“IEAT”) informing it that, following an inspection of the Indorama Petrochem PTA facility, Indorama Petrochem is disposing of production waste by burning such waste using a thermal oxidizer without the requisite approval from the Department of Industrial Works (“DIW”). In addition, there were signs of chemical leakage at the thermal oxidizer, the nitrogen oxide and carbon monoxide emissions from the stack of the thermal oxidizer and the vent scrubber, respectively, exceeded applicable maximum permissible limits and a chemical odor originated from the facility. As a result, the IEAT ordered Indorama Petrochem to cease the treatment of waste using the thermal oxidizer immediately and make improvements to its air pollution treatment system by February 15, 2010. Indorama Petrochem has taken various steps to address the issues raised in the IEAT’s letter. IRPTA has undertaken and completed all the necessary requirements from IEAT and informed to them during their visit to the plant on February 15, 2010. In addition, some of our production facilities, such as our AlphaPet PET facility, our IRP Rotterdam PET and IRH Rotterdam PTA facilities, our Indorama Polyester Industries’ Map Ta Phut polyester facility and our TPT Petrochemicals PTA facility, are co-located at sites where our neighbors face the same operational risks and, in some cases, they provide critical supplies and/ or services, and any disruption in those supplies and/or services could affect our operations. Exchange rate and/or interest rate fluctuations may have a significant adverse impact on our business, financial condition, results of operations and prospects. As a result of the global nature of our business, changes in foreign currency rates could have an adverse impact on our business, financial condition, results of operations and prospects. Currency fluctuations affect us because of mismatches between the currencies in which operating costs are incurred and those in which revenues are received. We sell products that are typically priced by reference to prices in U.S. dollars or Euros, while a portion of operating costs are incurred in local currencies, including the Baht, Sterling pound and Lithuanian Litas. Our reported earnings may also be affected by fluctuations between the Baht, which is our reporting currency, and the non-Baht currencies in which some of our subsidiaries report their results of operations. As a result, for the year ended December 31, 2008, we incurred a net foreign exchange loss of Baht 523.8 million, and for the year ended December 31, 2009, we incurred a foreign exchange gain of Baht 567.7 million. In addition, our operating subsidiaries usually borrow in the principal currency in which they do their business to minimize currency risks. This exposes us to interest rate risks associated with these currencies, the principal ones being the Baht, the U.S. dollar and the Euro.
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Litigations 1. Eastman Chemical Company (“Eastman”) filed a complaint in the Delaware District Court against AlphaPet, IRP Rotterdam, IRP Workington, IRH Rotterdam and Indorama Polymers on December 18, 2009 in connection with commercial production at the AlphaPet PET facility. IRP Rotterdam, IRP Workington and IRH Rotterdam (the “European Defendants”) entered into a Technology License Agreement with Eastman in connection with our acquisition of Eastman’s north-west European PET and PTA businesses in March 2008, pursuant to which the European Defendants received a license to use licensed technology secrets to make certain commercial products as part of the acquired business. In the complaint, Eastman alleges that: •
AlphaPet infringes certain patents owned by Eastman;
•
the European Defendants breached the Technology License Agreement; and
•
the defendants misappropriated Eastman’s confidential and proprietary trade secret information under Delaware statutes.
We intend to defend ourselves vigorously against these claims. We have appointed our legal counsel Kirkland and Ellis LLP. The legal counsel is making initial investigations and preparing a response to be submitted in the courts. AlphaPet has purchased the plant and technology for its PET resins plant from Inventa Fischer, a plant and technology supplier. The audited financial statements have disclosed the lawsuit as a contingent liability and at this time not possible to quantify impact. However, litigation of this nature can take a long time to resolve and we cannot predict when these legal proceedings will be completed. Eastman’s complaint includes an allegation that the European Defendants breached the Technology License Agreement, as described above. If the court were to find that the European Defendants had materially breached the Technology License Agreement, Eastman may be able to terminate the agreement and all licenses granted thereunder. In that event, the European Defendants would be required to either renegotiate the terms of the license with Eastman or implement suitable substitutes to continue operation of the plants, which could result in the suspension of operations until new terms were negotiated with Eastman or a suitable substitute technology was implemented. We believe that alternative technologies are readily available in the market for a relatively low cost; however, we cannot assure you how long it would take to implement any new technologies at these plants. 2. On June 19, 2009, two Thai NGOs and a number of people living in Map Ta Phut, Ban Chang and Meuang District, Rayong Province filed a lawsuit in the Thai Central Administrative Court against various Thai Ministers and governmental entities. The claimants alleged that the respondents breached Thai constitutional and other laws by approving the construction or operation of 76 projects without complying with the relevant procedures specified under such laws. One of the projects named in the lawsuit is the Indorama Petrochem PTA facility, located in Ban Chang, Rayong. On September 29, 2009, the Thai Central Administrative Court issued an injunction ordering the respondents to procure the temporary suspension of operations of the 76 projects until final judgment. The Thai Attorney General and a number of industrial operators, including Indorama Petrochem, filed an appeal against such injunction to the Supreme Administrative Court. On December 2, 2009, the Supreme Administrative Court stated that its preliminary consideration of the type or nature of the projects or activities that were subject to the injunction led them to the view that certain projects or activities were unlikely to have a material impact on the local community because they focused on the control or treatment of, or the installment of additional equipment to control or treat, pollution. Therefore, the Supreme Administrative Court ruled that the Indorama Petrochem PTA facility was one of the 11 projects that would no longer be subject to the injunction. Changes in laws and regulations relating to beverage containers and packaging could reduce demand for such end use products Legal requirements have been enacted in various jurisdictions in the United States and elsewhere requiring that deposits or certain eco-taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. Other proposals relating to additional beverage container deposits, recycling, eco-tax and/or product stewardship have been or may be introduced in various jurisdictions in the United States and elsewhere. Consumers’ increased concerns and changing attitudes about solid waste streams and environmental responsibility and related publicity could result in the adoption of such legisla-
42
Indorama Ventures PCL
tion or regulations. This has encouraged some of our PET customers to reduce the amount of PET resin they use in their bottle production process. This process, known as light weighting, has reduced the amount of PET resin used in each bottle and has affected the demand for PX, PTA and PET resin. Environmental regulations may cause us to incur costs and liabilities. Our operations are subject to environmental laws and regulations by central and local authorities in the countries in which we operate. These include laws and regulations pertaining to pollution, the protection of human health and the environment, air emissions, wastewater discharges, occupational safety and health, and the generation, handling, treatment, remediation, use, storage, release and exposure to hazardous substances and wastes. These requirements are complex, subject to frequent change and have tended to become more stringent over time. We have incurred, and will continue to incur, costs and capital expenditures in complying with these laws and regulations and in obtaining and maintaining all necessary permits. We have procedures in place to allow us to comply with environmental laws and regulations; however, there can be no assurance that we will at all times be in compliance with all of our obligations in the future or that we will be able to obtain or renew all licenses, consents or other permits necessary to allow us to continue to operate our businesses. Any failure by us to comply with such laws and regulations could subject us to fines, penalties and other liabilities. We have activities in certain countries that are subject to sanctions in the United States and elsewhere and such activities could trigger these sanctions under relevant legislation. The U.S. Department of the Treasury’s Office of Foreign Assets Control, or OFAC, administers certain laws and regulations that impose penalties upon U.S. persons and, in some instances, foreign entities, for conducting activities or transacting business with certain countries, governments, entities or individuals subject to U.S. economic sanctions, or U.S. Economic Sanctions Laws. As a globally operating organization, we conduct business with customers (either directly or indirectly through traders and agents) in various countries including Iran, Syria, Myanmar and the Ivory Coast. Our activities with customers in these states, which are predominantly sales of PET resin, polyester fiber and yarn and wool, are insignificant when compared to our entire business. We seek to comply fully with international sanctions to the extent they are applicable to us and will continue to do so. Our international presence exposes us to macro economic, political, legal and regulatory risks in the markets in which we operate and to other challenges. International operations present challenges related to operating under different business cultures and languages. We may experience increased difficulty in the collection of accounts receivable, including longer collection periods; we may have to comply with inconsistent, or unexpected changes in, foreign laws and regulatory requirements which could negatively impact our operations and ability to manage our global financial resources; export controls or other regulatory restrictions could prevent us from shipping our products into and from some markets; quota requirements, including quotas regulating the composition of our employee base or promoting local sourcing of raw materials, could have an adverse effect on our production costs; changes in currency control, tax regulation and international tax treaties could impact the financial performance of our international operations and their contributions to our overall financial performance. Similarly, events beyond our control, such as political instability or social unrest, could affect consumer demand in general and increase volatility in price of raw materials and other costs. We could be affected by the application of antitrust laws and anti-dumping and anti-subsidy duties. In recent years, antitrust investigations and actions have been launched in a number of jurisdictions against companies in industries in which we are active, indicating that the sector in which we operate may face continuing regulatory scrutiny. Therefore, we face the risk that our business could be adversely affected by the application of U.S., European Union or other national competition laws to any agreements or practices in which we have been engaged or is a party to. In addition, anti-dumping and anti-subsidy duties have been imposed by the European Union on Asian imports of PET resin. These anti-dumping and import duties make it more difficult for imported PET resin to compete with locally produced PET resin. These anti-dumping and import duties give PET resin producers in Europe a competitive advantage over Asian importers of PET resin. However, there is no
Annual Report 2009
43
guarantee that the European Union will continue to maintain such anti-dumping and import duties on imported PET resins. In February 2010, China imposed anti-dumping duties on imports of PTA from Thailand and South Korea. Our business depends, in part, on our informal relationships with other Indorama group entities in Indonesia and India. We are a part of an informal Indorama Group, which consists of three independently managed associate groups, namely ourselves, the S.P. Lohia Group Indonesia and the O.P. Lohia Group India. The Indorama Group was founded by Mr. M.L. Lohia in 1976 in Indonesia, and each of the groups is currently managed by one of Mr. M.L. Lohia’s sons. The Indorama name does not belong to us, and we have a non-exclusive license for its use pursuant to a License Agreement with Lohia Global Holdings Limited, a company controlled by Mr. M.L. Lohia. The S.P. Lohia Group and the O.P. Lohia Group also use the Indorama name. We do not control how the S.P. Lohia Group and the O.P. Lohia Group use the Indorama name and cannot assure you that their actions will not adversely affect the reputation associated with the Indorama name. The Company is a holding company and is dependent on the receipt of dividends to make dividend payments on our shares As a holding company, the Company is dependent on the receipt of dividends from its subsidiaries and associated companies. Payment of these dividends will depend on their future financial performance, which in turn depends on successfully implementing their strategies, and on financial, competitive, regulatory, technical and other factors; general economic conditions; demand and selling prices for their products and other factors specific to their respective industries or specific projects, many of which are beyond our control. The ability of our direct and indirect subsidiaries to pay dividends to their shareholders, including the Company, is subject to applicable law. Although we intend to pay dividends our ability to pay in the future will depend upon the decision of the Board of Directors and/or the approval of the shareholders at a general meeting, our results of operations, cash flows, financial condition, contractual restrictions and restrictions imposed by applicable law and other factors the Board of Directors deems relevant.
[For details: Please refer to Section on Risk Factors in Form 56-1]
44
Indorama Ventures PCL
Related Party Transactions The related party transactions of IVL occur in the normal course of business and the pricing is akin to market prices that would normally be charged to/ by any other customer/ supplier with comparable and reasonable terms and conditions. The following is a summary of such transactions as at 31 December 2009 with the rationale for each: I. Normal Business Transactions Type of
Rationale
Pricing Method
Outstanding Amount (MB)
Transaction Sale of Preforms, Closures and Bottles 1) Petform (Thailand) Ltd. sales to Sermsuk PCL. Sale of Purified Terephthalic acid 1) Indorama Petrochem Ltd. sale to Indorama Syn thetics India Ltd.
Sermsuk PCL is Petform’s major customer, buying preforms, closures and bottles for blowing/ filling Pepsico products.
Pricing is negotiated with Sermsuk PCL periodically reflecting prevailing market prices.
702.50
Indorama Synthetics India Ltd. is a Polyester manufacture and uses PTA as a raw material.
Negotiated per market rate as applicable to other customers.
926.99
Since IPI started operations after closure of the plant for more than 3 years, sales transactions were undertaken in order to test and establish quality of the product.
On applicable market rate basis
52.66
Some of these chemicals and additives were required on an urgent basis for the start up operation of the plant
On market rate basis
0.82
Sale of Polyester Fibers and Yarns 1) Indorama Polyester Industries PCL. sales to P.T. Indorama Synthetics Tbk Ltd, Indonesia Purchase of Additive & Chemicals 1) Indorama Polyester Industries PCL. (“IPI “) purchase from P.T. Indorama Synthetics Tbk Ltd, Indonesia
II. Rental/Lease (not exceed 3 years) without any indication of General Trading Condition Type of Transaction
Amount (MB)
Rationale
Pricing Method
Pacific Resources owns dormitory near the factory site of IPI measuring 7,577 Sqm which IPI required to rent for their factory staff.
Rent and service charge based on
Dormitory Rental at Rayong 1) Indorama Polyester Industries PCL. Payment to Pacific Resources Ltd.
2.70
fair market value of property with a return of 7% – 8%.
Annual Report 2009
45
Type of Transaction
Rationale
Pricing Method
Amount (MB)
Office Space Rental at Ocean Tower 2, Bangkok 1) Indorama Polyester Industries PCL. Formerly Indo Poly (Thailand) Limited. Payment to Pacific Resources Ltd. 2) Indorama Holdings Limited. Payment to Pacific Resources Ltd.
Pacific Resources, owner of 28th floor at Ocean Tower 2, Bangkok, has rented out office space of 1,457.88 Sqm to Indorama Polyester Industries Pcl for their use.
As per prevailing rent in
Pacific Resources owner of 28th floor at Ocean Tower 2, Bangkok has rented out office space of 857.73 Sqm to Indorama Holdings for their use.
As per prevailing rent in
Indorama Polyester Industries formerly named Indo Poly (Thailand) Ltd. owner of the factory office building at Nakhon Pathom has rented out office space of 630 Sqm to Cryoviva (Thailand) Ltd. for their use.
The rental charge is based
Rationale
Pricing Method
3.45
Ocean Tower building
1.80
Ocean Tower building
Office Space Rental at Nakhon Pathom 1) Indorama Polyester Industries PCL. formerly Indo Poly (Thailand) Limited. Received payment from Cryoviva (Thailand) Ltd.
0.94
on comparable market rates in that area
III. Financial Assistance Type of Transaction
Amount
Long Term Loan
(MB)
1) Canopus International
Canopus lent USD 10 Million loan
Ltd. provides to Indorama
to IVL as financial support for the
Ventures Limited
restructuring of IRPTA
Interest free
24.47
Relationship with Related Parties Related parties are those parties linked to the Group and the Company as shareholders or by common shareholders or directors. The relationships for the above transactions are as follows: Name of entities
Country of incorporation
Nature of relationships
Petform (Thailand) Ltd.
Thailand
Indirect Subsidiary, joint venture company between Indorama Polymers PCL. Serm Suk PCL.
Serm Suk PCL
Thailand
Major Shareholder of Petform (Thailand) Ltd., holding 40%, one common director
Indorama Petrochem Ltd.
46
Indorama Ventures PCL
Thailand
Direct Subsidiary, 100% shareholding
Name of entities
Country of incorporation
Nature of relationships
Indorama Synthetics India Ltd.
India
Mr. O.P. Lohia, major shareholder of Indorama Synthetics India Ltd. is a blood brother of Mr. Aloke Lohia
Indorama Polyester Industries PCL.
Thailand
Direct Subsidiary, 99.55% shareholding
P.T. Indorama Synthetics Tbk Ltd.
Indonesia
One common director
Pacific Resources Ltd.
Thailand
Mr. Anuj Lohia, son of Mr. Aloke Lohia is the major shareholder of Pacific Resources Ltd.
Indorama Holdings Limited
Thailand
Direct Subsidiary, 97.93% shareholding
Cryoviva (Thailand) Ltd.
Thailand
One common director
Canopus International Ltd.
Mauritius
Ultimate shareholders
License Agreement and Royalty Fee Agreement, dated 16 November, 2009 The Board of Directors of IVL approved the above two agreements at its Board meeting no 2/2009 dated November 16, 2009 for the payment of Royalty fee to Lohia Global Holdings Limited, the owner of the name “INDORAMA” for the perpetual use of the said name by IVL or its subsidiaries as stated in the License Agreement and Royalty Fee Agreement. Relationship: Mr. M.L. Lohia is a major shareholder and a director of Lohia Global Holdings Limited and is a father of Mr. Sri Prakash Lohia and Mr. Aloke Lohia who are directors of the Company. Terms and Fees: IVL has to pay royalty fees at the rate of US$0.5 per tonne produced by IVL and its subsidiaries (excluding waste) .The payment of fees will be made quarterly effective from March 1, 2010. On the occurrence of the actual transaction, the same will be disclosed in the Financial Statements and reported to the Audit Committee and Board every quarter in the prescribed statement. IVL may in the larger interest/ benefit of the Company and the Group suitably amend the License agreement and Royalty fee agreement The Audit Committee Opinion on the Related Party Transaction The abovementioned related party transactions have been considered by the Company’s Audit Committee, which opined that said transactions are reasonable and necessary to the Company’s operations. Entering into those transactions, the Company has considered the best interest of the Company as a priority and there was no transfer of benefit between the Company and the persons who have a conflict of interest. Policy and Procedure to Approve Related Party Transactions In such event that the Company carries out any business with a related party who may have a conflict of interest with the Company, the Audit Committee will express its opinion regarding the necessity of such transactions. The Audit Committee will ensure that the terms and conditions of these transactions are consistent with market practice and that the prices charged are
Annual Report 2009
47
evaluated and comparable with market prices. In the event that the market price is not available, the Audit Committee must ensure that the price is reasonable and the transaction carried out in the best interest of the Company and its shareholders. If the Audit Committee is unable to evaluate a related party transaction due to lack of expertise in certain areas, the Company will arrange an independent expert to evaluate and give an opinion on such transaction. The Board of Directors or Audit Committee or the Company shareholders, as the case may be, will use this opinion from the independent expert as a supplement to form their own conclusion. Those directors who may have a conflict of interest with the Company are prohibited from voting on issues regarding related parties transactions. All Related Party transactions will be reported by the statutory auditors in their quarterly and audited financial statements and in Form 56-1 and Annual Report as per the SEC/SET guidelines. Policy on Entering into New Related Party Transactions For any new related transaction, Indorama Ventures PCL will ensure that such transactions are carried out in compliance with the SEC Act, rules, notifications and regulations of the Capital Market Supervisory Board, the SEC and the SET. In addition, the Company must also comply with the Thai GAAP on disclosure rules related to related party transactions and other requirements as specified by the Institute of Certified Accountants of Thailand and the policy of Indorama Ventures PCL As above, when proposing to conduct business with a related party, Indorama Ventures PCL will seek its Audit Committee’s opinion on the reasonableness of such transaction. In the event that the Audit Committee is unable to evaluate a related party transaction due to lack of expertise, the Committee may arrange an independent expert, such as independent appraiser, to evaluate and give an opinion on the transaction. The opinion of the Audit Committee or the independent expert will be used by the Company’s Board of Directors or shareholders to make a decision to ensure that these related party transactions are carried out without any conflict of interest and in the best interest of all shareholders. However, the Company and its subsidiaries may have related party transactions with their directors, executives or potentially connected persons. The Board of Directors meeting has approved in principle that the management is empowered to approve such transactions under reasonable, transparent and non-corrupt conditions, provided that such transaction is categorized as a transaction with the same commercial terms as those an ordinary person would agree with any unrelated counterparty under similar circumstances, on the basis of commercial negotiation (general trading conditions) and without any dependent interest resulting from the status of director, executive or related person as the case maybe.
48
Indorama Ventures PCL
Management Discussion and Analysis Indorama Ventures Consolidated 2009 Highlights
• - - - -
• - - -
Record consolidated sales and earnings in year 2009: Net sales for year 2009 of Baht 79,994 million, a growth of 50% EBITDA for year 2009 of Baht 10,636 million, a growth of 177% Profit before tax of Baht 6,573 million, a growth of 107% *Net profit after tax and minority of Baht 5,346 million (including minority interest for IRP considering on completion of tender offer IVL shareholding has increased from 69.29% to 99.08% on February 3, 2010), a growth of 68% Benefit from integration with PTA which is a key raw material for PET resins and Polyester fibers and yarns: Gross margin improved to 15.4% from 9.7% EBITDA margin improved to 13.3% from 7.2% Net profit before minority margin improved to 7.5% from 5.9%
• •
Earnings per share of Baht 1.44 per share and return on equity of 30%
•
Net debt reduced by Baht 3,152 million, resulting in net gearing ratio of 63% (before including IPO
• - -
Increase in free cash flow before capex and investments of Baht 7,404 million and free cash flow after capex of Baht 3,454 million proceeds which have been received in Q1, 2010) lower than 70% at the end of 2008 Completed major capital expenditure: Greenfield PET resin plant of 432,000 tons per annum located in Decatur, Alabama, USA. AlphaPet first line with capacity of 216,000 tpa started-up initial operations in October 2009 Phased restart of commercial operations in year 2009 at Indorama Polyester Industries (Rayong facility, Thailand) with a total capacity of 252,000 tons per annum of which Polyester fibers and yarns 144,000 tpa and PET resins 108,000 (converted a line to PET resins which started in Q4, 2009)
Year 2009 reflects the full year results of operations of major acquisitions completed in year 2008 within our product lines of PTA, PET resins and Polyester fibers and yarns. Despite the recessionary conditions in year 2009, our products saw positive growth in global demand reflecting of there consumer staple nature. PET resins and Polyester fibers and yarns are primarily used in daily necessity like food and beverage and clothing. The management emphasized on lowering of costs through integration, increase utilization rates to full capacity and take benefit of lower energy prices. *Net profit after tax and minority as per audited financial statements for year 2009 is Baht 4,824 million
Indorama Ventures Consolidated Performance OPERATIONS This section presents a summary of the key events observed in 2009 at each of IVL’s business groups. PET business reported sales of Baht 44,456 million a growth of 9% over the corresponding period. The increase in sales is from growth in sales volume by 32% to 1.02 million tons. Lower raw material prices led to lower selling prices. The sales volume increase came from full year sales from European assets acquired on March 31, 2008 and higher utilization rate of 101%. The PET business represented 55.6% of consolidated sales and 53.5% of consolidated EBITDA. Polyester fibers and yarns & Wool yarns business reported sales of Baht 11,668 million, a growth of 87% over the corresponding period. The increase in sales is primarily from 199% increase in sales volume in polyester fibers and yarns business contributed from the restart of Indorama Polyester Rayong facility which was restarted in phases for commercial operations in Q1, 2009 after acquisition on September 30, 2008. The Polyester fibers and Wool yarns business represented 14.6% of consolidated sales and 12.7% of consolidated EBITDA.
Annual Report 2009
49
PTA business reported merchant sales (excludes captive sales) for PTA of Baht 23,870 million, a growth of 318% over the corresponding period. The increase in sales is from full year operations of all 3 PTA plants acquired in year 2008 and higher utilization rate of 100%. 48% of PTA sales was for captive use to PET resins and polyester fibers and yarns business within the group. The PTA business represented 29.8% of consolidated sales and 33.8% of consolidated EBITDA. CONSOLIDATED FINANCIAL RESULTS IVL’s consolidated sales were Baht 79,994 million in 2009, increasing 50% from the previous year. These were driven by increases in sales volume of PET resins, Polyester fibers and yarns and PTA. The sales increase was mainly driven by full year operation of acquired business in year 2008 in Thailand and Europe in PET resins, Polyester fibers and yarns and PTA. The acquired plants were operating at full capacity by Q4, 2009. EBITDA, as a result of higher sales and cost improvements, jumped to Baht 10,636 million in 2009 which was 177% higher than 2008. EBITDA margin also improved significantly from 7.2% in 2008 to 13.3% in 2009. High EBITDA generation in 2009 resulted in free cash flow after capex of Baht 3,454 million which was used in reduction of debt. The net debt in the year 2009 decrease by Baht 3,315 million after draw down of additional debt for completion of AlphaPet project and for expansions and improvements in Indorama Polyester Rayong Facility. IVL posted profit before tax of Baht 6,573 million in 2009, increasing 107% from the previous year, on the back of the strong sales and operating income in the year. Tax expense was higher at Baht 554 million in the year 2009 compared to Baht 53 million in the previous year. The tax expense was 8.4% of profit before tax and was primarily on the earnings of subsidiaries in USA and Europe. IVL posted net profit after minority interest of Baht 4,824 million, increasing 82% from the previous year. In 2008, IVL recorded net profit after minority interest of Baht 2,656 million. Minority interest increased from Baht 467 million to Baht 1,195 million in year 2009 and the major components are minority shareholders in Indorama Polymers Public Company Limited “IRP” and TPT Petrochemicals Public Company Limited. For comparison to future results, considering IVL has increased shareholding in IRP from 69.29% to 99.08% on completion of share swap on February 3, 2010, the IVL net profit after minority interest (except IRP) was Baht 5,346 million, an increase of 68% over 2008. CAPITAL EXPENDITURES AND NET DEBT Total capital expenditure of IVL in year 2009 of Baht 3,785 million which was primarily in greenfield project for PET resins in AlphaPet for Baht 2,479 million and expansion and improvement projects in Indorama Polyester Rayong facility for Baht 665 million. The total capital expenditures in 2009, Baht 3,478 million was for investment/ expansion and Baht 307 million was for maintenance. The total capital expenditure in year 2008 was Baht 4,856 million which Baht 3,466 million was in the greenfield project for PET resins in AlphaPet Inc., USA. The total assets at the end of December 31, 2009 were Baht 74,260 million of which net fixed assets are Baht 49,505 million, equivalent to 67% of total assets. At the end of the year, IVL’s total net debt stood at Baht 37,540 million, an 8% decrease from the previous year. The company repaid debt from its high EBITDA generation and free cash flow after capex. Net gearing ratio went down from 70% in 2008 to 63% at the end of the year. The net debt consists of: Bank overdrafts and short term loans Current portion of long term loans
Baht
Long term loans net of current portion TOTAL Less: Cash and cash equivalents Net debt
10,004 million
Baht
4,692 million
Baht
25,404 million
Baht
40,100 million
Baht
2,560 million
Baht
37,540 million
[ NOTE: Please refer to Form 56-1 under Section Management Discussion and Analysis for additional details ]
50
Indorama Ventures PCL
IVL CONSOLIDATED IVL : REVENUES FY09
FY08
FY09 vs. FY08
Baht in millions
79,994
53,332
50%
USD in millions
2,331
1,600
46%
Thailand
15%
11%
Asia (excluding Thailand)
24%
11%
North America
16%
24%
Europe
38%
48%
8%
7%
Total revenues
Proportion of revenues by geographic
Rest of the World IVL : KEY FINANCIAL PERFORMANCE
FY09
FY08
FY09 vs. FY08
Baht in millions
10,636
3,838
177%
USD in millions
310
115
169%
13.3%
7.2%
Baht in millions
6,573
3,176
107%
USD in millions
192
95
101%
8.2%
6.0%
Baht in millions
*5,346
*3,182
68%
USD in millions
156
95
64%
6.0%
5.0%
EBITDA
Margin (%) Profit (loss) before tax
Margin (%) Net profit (loss) after tax and minority
Margin (%)
*including minority interest for IRP considering on completion of tender offer IVL shareholding has increased from 69.29% to 99.08% on February 3, 2010
Annual Report 2009
51
IVL : CASH FLOW Baht in millions
FY09
FY08
FY09 vs. FY08
Net working capital and others
10,636
3,838
177%
Net financial expenses
(1,084)
(1,290)
-16%
Income tax
(1,884)
(1,302)
45%
EBITDA
Free cash flow before Capex
(264)
(28)
843%
Capital expenditures
7,404
1,218
508%
Net (acquisitions) disposals of subsidiaries
(3,785)
(4,856)
-22%
Margin (%)
(165)
(14,194)
-99%
Free cash flow after Capex
3,454
(17,832)
n/a
Dividends
(182)
(136)
34%
0
4,025
-100%
(3,272)
13,943
n/a
Proceeds from issues of shares Changes in net debt
Note: The consolidated financials are based upon elimination of intra-company (or intra business segment) transactions reason which the total of each segment may not tally with consolidated financials.
IVL : FINANCIAL RATIOS
Current ratio (times) Net gearing ratio (%) Net operating gearing ratio Interest coverage ratio (times) ROE (%) ROCE (%)
FY09
FY08
0.9 63% 60% 6.7 30.0%
0.8 70% 67% 2.7 26.0%
13.8%
6.7%
BUSINESS SEGMENTS PET PET : CAPACITY AND UTILISATION (%) FY09
FY08
FY09 vs. FY08
Production capacity (in Tonnes)
1,012,000
869,250
16%
Production volumes (in Tonnes)
1,026,582
804,190
28%
101%
93%
Utilisation rate (%)
52
Indorama Ventures PCL
PET : REVENUES FY09
FY08
FY09 vs. FY08
Baht in millions
44,456
40,969
9%
USD in millions
1,295
1,229
5%
Total revenues
Growth in Baht revenues from:
Volume movement
32%
Price movement Proportion of revenues by geographic
-18%
Thailand
6%
6%
Asia (excluding Thailand)
3%
3%
North America
27%
30%
Europe
58%
54%
6%
8%
FY09
FY08
FY09 vs. FY08
Baht in millions
5,687
2,873
98%
USD in millions
166
86
92%
12.8%
7.0%
FY09
FY08
FY09 vs. FY08
Production capacity (in Tonnes)
333,080
100,000
233%
* Production volumes (in Tonnes)
318,582
109,651
191%
96%
110%
Production capacity (in Tonnes)
5,900
5,900
0%
* Production volumes (in Tonnes)
3,062
4,136
-26%
52%
70%
Rest of the World
PET : OPERATING EBITDA AND MARGIN Operating EBITDA
Margin (%)
POLYESTER & WOOL POLYESTER & WOOL : CAPACITY AND UTILISATION (%) POLYESTER FIBERS AND YARNS
Utilisation rate (%) WOOL YARNS
Utilisation rate (%) * volumes based on equivalent production
Annual Report 2009
53
POLYESTER & WOOL : REVENUES Total revenues Baht in millions USD in millions Growth in Baht revenues from: Volume movement Price movement Proportion of revenues by geographic Thailand Asia (excluding Thailand) North America Europe Rest of the World
FY09
FY08
FY09 vs. FY08
11,668 340
6,243 187
87% 82%
193% -37% 22% 45% 5% 14% 14%
37% 32% 3% 25% 3%
FY09
FY08
FY09 vs. FY08
1,353 39
593 18
128%
11.6%
9.5%
FY09 1,590,000 1,584,683 100%
FY08 572,500 534,260
POLYESTER & WOOL : OPERATING EBITDA AND MARGIN Operating EBITDA Baht in millions USD in millions Margin (%)
121%
PTA PTA : CAPACITY AND UTILISATION (%) Production capacity (in Tonnes) Production volumes (in Tonnes) Utilisation rate (%)
FY09 vs. FY08 178% 197%
93%
PTA : REVENUES Total revenues Baht in millions USD in millions Growth in Baht revenues from: Volume movement Price movement Sales to PET business Baht in millions USD in millions Sales to Polyester business Baht in millions USD in millions Total revenues after eliminations Baht in millions USD in millions PTA integration ratio (%) Proportion of revenues (after eliminations) by geographic Thailand Asia (excluding Thailand) North America Europe Rest of the World
54
Indorama Ventures PCL
FY09
FY08
FY09 vs. FY08
45,981 1,340
14,732
212% 203%
442
197% 5% 15,418 449
8,645 259
78% 73%
6,693 195
377
1675% 1624%
23,870 696 48% 28% 52% 0% 13% 8%
11
5,710 171 61% 20% 47% 5% 24% 4%
318% 306%
PTA : OPERATING EBITDA AND MARGIN *Operating EBITDA Baht in millions USD in millions Margin (%)
FY09
FY08
FY08
3,551 103 14.9%
353 11
907% 878%
6.2%
*Based on pro-rata allocation of earnings of PTA business calculated on intra-group sales to PET and Polyester fibers
IVL CONSOLIDATED STATEMENT OF INCOME Baht in millions Net sales Cost of sales Gross profit Selling and administrative expenses Realised foreign exchange gain (loss) Other income (expense), net EBITDA Depreciation and amortisation Operating income Unrealised foreign exchange gain (loss) Extraordinary items Interest income Interest expense Profit (loss) before tax Income tax expense Profit (loss) for the period Minority interest Net profit after minority interest Outstanding no. of shares (in Million) Annualized earnings per share (in Baht)
FY09
FY08
FY09 vs. FY08
79,994
53,332
50%
67,666
48,178
40%
12,328
5,154
139%
5,045
2,973
70%
98
(32)
n/a
95
122
-22%
10,636
3,838
177%
3,160
1,567
102%
7,476
2,271
229%
470
(492)
n/a
210
2,837
-93%
18
27
-33%
1,601
1,467
9%
6,573
3,176
107%
554
53
945%
6,019
3,123
93%
1,195
467
156%
4,824
2,656
82%
3,352
3,352
0%
1.44
0.79
82%
Note: The consolidated financials are based upon elimination of intra-company (or intra business segment) transactions reason which the total of each segment may not tally with consolidated financials.
IVL CONSOLIDATED BALANCE SHEET Dec-09
Dec-08
Dec-09 vs. Dec-08
Cash and current investments
2,560
1,435
78%
Trade accounts receivable
9,963
8,525
17%
Inventories
9,674
7,419
30%
Baht in millions Assets
Other current assets
1,369
1,456
-6%
Total current assets
23,566
18,835
25%
Property, plant and equipment
49,505
49,642
0%
879
968
-9%
Intangible assets Other assets
310
323
-4%
Total assets
74,260
69,768
6%
Annual Report 2009
55
Baht in millions
Dec-09
Dec-08
Dec-09 vs. Dec-08
Liabilities 10,004
11,205
-11%
Trade accounts payable
9,004
6,863
31%
Current portion of long-term loans
4,667
3,265
43%
25
73
-66%
2,085
2,373
-12%
Total current liabilities
25,785
23,779
8%
Long-term loans from financial institutions
25,331
27,507
-8%
0
474
-100%
73
77
-5%
605
224
170%
51,794
52,061
-1%
Share capital
3,352
3,352
0%
Share premium
4,443
4,443
0%
10,093
5,463
85%
(709)
(463)
53%
17,179
12,795
34%
5,287
4,912
8%
Total shareholder’s equity
22,466
17,707
27%
Total liabilities and shareholder’s equity
74,260
69,768
6%
Bank OD and short-term loans from financial institutions
Current portion of finance lease liabilities Other current liabilities
Long-term loans from related parties Finance lease liabilities Other liabilities Total liabilities Shareholder’s equity
Retained earnings Reserves Total equity attributable to shareholders Minority interest
Note: The consolidated financials are based upon elimination of intra-company (or intra business segment) transactions reason which the total of each segment may not tally with consolidated financials.
56
Indorama Ventures PCL
Corporate Governance
Annual Report 2009
57
Corporate Governance Report Indorama Ventures PCL (IVL) believes in striking a balance between economic and social goals by executing high standards of Corporate Governance and always strives to implement the Corporate Governance principles set by the Stock Exchange of Thailand. The Company firmly believes in transparency, accountability and ethical conduct in pursuit of its mission and acts in accordance with our framework for sound corporate governance to enhance Company’s competitiveness and best serve the interests of our many stakeholders – and our business. IVL has in place a written Corporate Governance Policy and the Policy follows the guidelines set out by SET. The Board and management are strongly committed to the implementation and practice of the Corporate Governance principles and this reflects our allegiance to doing what is fair, right and legal. Indorama Polymers Pcl (IRP), a subsidiary of the Company which was listed in the SET up until February 2010, received a Corporate Governance Scoring for the years 2007 and 2008 of ‘Very Good’ and ‘Excellent’ respectively. This early effort to promote and develop good corporate governance practices will be continued by IVL. It is the policy of IVL to uphold the core and relevant principles of corporate governance as hereunder:
Rights of Shareholders and Equitable Treatment of Shareholders It is the Company’s top most priority to protect Shareholders’ rights, irrespective of their shareholding, and encourage them to exercise those rights as spelt out in relevant laws. The Company recognizes the basic legitimate right of Shareholders to participate in Shareholders’ meetings; the right to appoint a proxy to participate and vote at the said meeting; the right to vote for the appointment or removal of individual directors; the right to vote on the annual appointment of statutory auditors and fix their remuneration and the right to vote on various other businesses of the Company. IVL will implement these rights of the shareholders at their first Annual General Meeting of Shareholders to be held in April, 2010. Shareholders rights also include eligibility to receive dividend payments, the right to give opinions and enquire into business matters of the Company during the Shareholders’ meeting. Apart from the above, IVL also recognizes the equal rights of all Shareholders to obtain accurate, adequate and timely information from the Company, for their decision-making and will always strive to provide the same.
General Rights and Equality IVL will provide the opportunity to minority shareholders to propose agenda items and to nominate qualified individuals to be elected as directors of the Company before the AGM, effective from the year 2010. IVL will continue to provide opportunities to the minority shareholders to participate in fundamental corporate decisions. In order to ensure that the shareholders receive the annual audited financial statements and the quarterly reviewed financial results on time, IVL shall continue and maintain the practice of disclosing the results the very next day of its approval by the Board of Directors through the website of the Stock Exchange of Thailand and also through its website - www.indoramaventures.com, both in English and Thai. IVL will also make regular disclosures through its website and also through SET about all relevant information like the Annual Report, Form 56-1, Shareholders’ meeting resolutions, important Board resolutions, analyst reports and press releases about the Company and its subsidiaries in an effort to keep the Shareholders informed.
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Indorama Ventures PCL
IVL will encourage shareholders to attend the AGM in person or by proxy. In case of proxy, Shareholders can either appoint their authorized person or any one of the two independent Directors nominated by the Company in this regard. The profiles of the Independent Director(s) will be attached to the notification of the meeting. To enable Shareholders to make decisions, IVL will provide adequate information in the Notice to the meeting on the agenda items.
Re-appointment of Directors and appointment of new Directors Profiles of the directors retiring and offering themselves for re-appointment will be provided, including name, age, type of director, educational background, working experience, positions held in other organizations, number of years as director of the Company and the opinion of the Board, in order to facilitate the voting of the Shareholders.
Approving Directors remuneration The total remuneration for the Independent Directors as proposed by the Board will be given in the Notice together with the amount approved and paid during the year. The Board will review the annual remuneration of the Directors with comparable listed companies.
Appointing the external auditor and approving the audit fee The name of the audit firm and the auditor’s names, independence of the proposed auditor, number of years as the company’s auditor, remuneration proposed for the year together with the opinion of the Board in order to facilitate the voting of the Shareholders will be given. For the year 2009, IVL and its subsidiaries paid an audit fee of Baht 30 million.
Payment of dividend The dividend policy of the Company, the amount paid in comparison with the policy and the amount paid in the previous year, if any and the opinion of the Board shall be given.
Shareholders Meeting It is IVL’s policy to conduct Shareholders meetings properly in accordance with the Articles of Association of the Company and related laws to allow Shareholders to exercise their rights fully and in an informed manner. The annual general meeting of the Company will be organized within four months from the closure of the financial year. For the financial year 2008, the AGM was held on April 30, 2009.
Internal Information and related party transactions The Company has in place a written policy on the use of confidential and/or internal information so as to prevent any illegal use. The statement is prominently displayed at the head office and at the offices and the working places of all its subsidiaries, for the knowledge of all employees. The code of conduct prohibits employees from buying, selling, transferring or accepting the transfer of Company securities by using confidential and/or internal information in any manner that may take advantage of outsiders by using inside information. All directors, senior management, auditors and employees having access to financial statements of the Company are required to make a declaration of their movement in shareholding including their spouse and minor children, to the Company Secretary who in turn presents a summary report to the Board. Also the directors shall file with the company a report, in the form as approved by the Board, on their interest or a related person’s interest in the company or its subsidiaries.
Reporting of and trading in IVL Securities The Company has in place a written policy on reporting of and trading in IVL Securities. As per this policy no director or executive shall directly or indirectly trade in IVL Securities during the period of 15 working days prior to and 2 working days subsequent to the date of filing with the SET of the quarterly and annual financial statements of the Company. Further if any director or executive trades, they must report to SET and the Company. They should also deliver a quarterly declaration to the Company Secretary listing all Trading in IVL Securities.
Annual Report 2009
59
Related party transactions The Company has in place a detailed policy on related party transactions. It very clearly defines who is a related party and what constitutes a connected party transaction and what procedures to follow when there is a related party transaction. The policy is circulated at the beginning of each year in order to remind all concerned about the compliance requirement on related party transactions. The Compliance Officer of the Company is responsible to ensure that all related party transactions follow the rules and regulations as prescribed by SEC/SET and the internal policy guidelines. Any new connected transaction is first brought to the notice of the Audit Committee. The Committee after reviewing the same recommends to the Board for their approval. Without the Board’s approval no new related party transaction is allowed to take effect. However, the Company and its subsidiaries may have related transactions with their directors, executives or potential connected persons. As a result, the Board of Directors Meeting approves, in principle, that the management is empowered to approve such transactions under reasonable, transparent and non-corrupt conditions, provided that such transaction is categorized as a transaction with the same commercial terms as those an ordinary person would agree with any unrelated counterparty under similar circumstances, on the basis of commercial negotiation (general trading conditions) and without any dependant interest resulted from the status of director, executive or related person, as the case may be. The internal audit department, every quarter carries out a check of the continuing transactions in order to ensure that they are following the approved principles. The internal audit department will give their report to the Secretary to the Audit Committee who in turn will report to the Audit Committee. The Audit Committee meeting considers and upon their satisfaction on the basis, reasonability of the transactions, recommends to the Board for their approval. Any Director who is directly or indirectly interested in any transaction abstains from discussions and voting. The Company also has in place a written Board and Audit Committee Charters, Code of Conduct for directors & employees, an Internal Audit Manual and Internal Audit Charter.
Role of Stakeholders IVL gives equal importance to all of its stakeholders both internal and external such as shareholders, personnel, business partners, customers, competitors, creditors, community, environment and society. The Company is fully aware that support from each stakeholder will sustain and reinforce its competitive advantage and profitability. It is the policy of IVL to safeguard their rights by strictly complying with applicable laws and regulations and to take into consideration their interests. Shareholders: IVL and its subsidiaries strive to conduct its business in a transparent and efficient manner with a view to enhancing shareholder value and returns. Customers: IVL and its subsidiaries will strive to maintain and strengthen its long-term and loyal relationships with its customers and is determined to ensure customer delight by providing high quality products and services that best fit customer needs at competitive prices, supported by a high standard of service and accurate information regarding our operations and products. The Company believes in and will strive to keep communication channels open for constant customer feedback. Personnel: All personnel of IVL and its subsidiaries are considered to be valuable assets, critical to the growth and profitability of the company and its subsidiaries, and strive to provide a conducive and quality oriented work environment with utmost emphasis on safety along with fair and equitable compensation compatible with similar businesses.
60
Indorama Ventures PCL
The Company gives importance to developing skills, knowledge and potential of its employees, and strives to build a work environment that is rich in diversity and will attract and retain high performance employees. Business Partners: IVL and its subsidiaries fosters symbiotic, long-standing and growing relationships with all its business partners, based on mutual benefit and guided by good business ethics. Creditors: IVL and its subsidiaries attempts to provide its creditors with all full and accurate information about the progress of the company, as required for smooth business dealings and to comply with all its obligations. Community, environment, & society: IVL and its subsidiaries cares about safety of its society, environment, and quality of life of people associated with all its operations and strives to comply with applicable laws and regulations. IVL and its subsidiaries try to actively participate in all activities that support and care for environment and society and promote the cultures in which the companies operate. IVL and its subsidiaries treat and dispose of waste in a manner that will have least impact on Society, environment and people. Competitors: IVL and its subsidiaries will act within the rules with respect to its competitors and employ best practices in dealing with them, as well as working towards market development and growth for the benefit of the industry as a whole.
Disclosure and Transparency It is IVL’s policy to deliver all-important information relevant to the Company, both financial and non-financial that may have an impact on the interests of the Shareholders or any decision to invest in or on the price of its shares. All such information will be disclosed sufficiently, accurately, on a timely basis and transparently through easy-to-access channels that are fair and trustworthy and all such information to comply with the relevant rules of SEC/SET. The communication channels used are the Annual Reports, Form 56-1, SET website, Shareholders meeting and Company’s own website. The designated executives that can disclose information about IVL is the Group Chief Executive Officer (Group CEO), and the Secretarial and Investor Relations Department. They provide information to interested parties on various occasions such as one-on-one meetings with Shareholders, creditors, analysts, quarterly meetings with analysts to discuss the recent financial performance, road shows and others. The Company gives utmost importance to its website, which is in English at present, and regularly reviews it to ensure all information provided is current and up-to date. The Company has taken effective steps to develop the website in Thai, which is expected to be completed in the first half of this financial year. The information of the following provided on the Company website is regularly updated: Vision, Mission, Value statements, financial statements, analyst reports, press releases, Annual report, IVL Board and management structure, shareholding structure and major shareholders. The company has a designated department / person for Investor relations for disclosing essential information to investors and financial reporting. An annual investor relations plan is established and the executive in charge is involved in various investor relations activities including but not limited to periodical plant visits for the benefit of shareholders, investors and analysts etc. Also regular investor meetings are organized.
Annual Report 2009
61
To contact the Company’s investor relations department, the general public may call (+66) 2 661 6661 or email richard@indorama.net or ajain@indorama.net. The details are provided on the Company website. A statement on the Board’s responsibility concerning the Company’s financial report is disclosed in the Annual Report which mentions among other things that the Company complies with generally accepted accounting principles and that accounting standards and practices used are appropriate and consistent to the nature of the business. It also states that all information presented in the financial reports are accurate, complete and adequate. The Chairman of the Board and the Group CEO sign the statement. The individual shareholdings of Directors, Senior Management, auditors and employees having access to financial information including their spouse and minor children for the period January 1, 2009 to December 31, 2009 is as follows: Name
Opening
Purchased
Sold
Mr. Sri Prakash Lohia
Balance
-
-
-
-
1*
-
-
10*
Mrs. Suchitra Lohia
-
-
-
-
Mr. Sashi Prakash Khaitan
-
-
-
-
Mr. Amit Lohia
-
-
-
-
Mr. Rathian Srimongkol
-
-
-
-
Mr. William Ellwood Heinecke
-
-
-
-
Mr. Chakramon Phasukavanich
-
-
-
-
Mr. Dilip Kumar Agarwal
-
-
-
-
Mr. Prem Chandra Gupta
-
-
-
-
Mr. Gopal Lal Modi
-
-
-
-
Mr. Satyanarayan Mohta
-
-
-
-
Mr. Ramesh Kumar Narsinghpura
-
-
-
-
Mr. Vikash Jalan
-
-
-
-
Mr. Anuj Lohia
-
1*
-
10*
Mr. Harsha V Reddy
-
-
-
-
Mr. Richard Jones
-
-
-
-
Mr. Aloke Lohia
* The par value of the shares has been changed from Baht 10 (Ten) to Baht 1 as approved by the Shareholders in the Extraordinary General Meeting held on September 28, 2009. None of the Auditors were holding any shares for the period January 1, 2009 to December 31, 2009.
Responsibility of the Board Board Structure The IVL Board during the year increased the number of Directors from 4 to 8 consisting of 3 Executive Directors, 2 Non-Executive Directors and 3 Independent Directors representing more than one-third of the total Board size. The Board structure is appropriate in relation to the size of the Company, number of executive, non-executive and independent directors and qualification in terms of knowledge and expertise and provides a fair balance of power and effective management monitoring. In the Directors’ profile, IVL discloses its director’s names, profiles, qualifications, experience, and shareholding in the Company to demonstrate the Board’s knowledge, competence, qualification and experience via the Annual Report and its website. It also mentions which Director is independent, executive and non executive and representative of a major shareholder. The profile mentions the Board membership of other Companies held by the Directors. In order to achieve a balance of power, the position of the Chairman of the Board and that of the Group CEO are different. The Chairman of the Board of Directors is a Non Executive Director. One third of the Directors retire by rotation at every Annual General Meeting as specified in the Articles of Association of the Company. The directors to retire during the first and second years following the registration of the Company shall be drawn by
62
Indorama Ventures PCL
lots. In subsequent years, the director who has been in office for the longest term shall retire. A retiring director is eligible for re-election. Voting for appointment/ re-appointment of Directors is done individually. The Board has appointed the Company Secretary in order to meet the requirements of the SEC regulations. The Company secretary is responsible for matters connected with meetings of the Board and Shareholders and to advise the Board on law and regulations that the Board must know to effectively perform its duties and to administer the Board’s activities and ensure Board resolutions are complied with.
Audit Committee The Audit Committee of IVL was constituted by the Board at its meeting on September 18, 2009 for a period of two years. The Committee comprises of Mr. Rathian Srimongkol as Chairman, Mr. William Ellwood Heinecke, and Mr. Chakramon Phasukavanich as members. All members are independent Directors and have the requisite experience and knowledge to review financial statements. The attendance of the Committee members for the year 2009 is given below: Name
Attendance
Mr. Rathian Srimongkol
3/3
Mr. William Ellwood Heinecke
2/3
Mr. Chakramon Phasukavanich
3/3
The Audit Committee Charter was approved by the Board in their Meeting held on September 18, 2009. The Charter is in line with the new SEC regulations. It is available for reference on the Company’s website. The main duties and responsibilities of the Audit Committee include: 1. 2.
review of company’s financial reporting process to ensure that it is accurate and adequate; review of the company’s internal control system and internal audit system to ensure that they are suitable and efficient, to determine an internal audit unit’s independence, as well as to approve the appointment, transfer and dismissal of the chief of an internal audit unit or any other unit in charge of an internal audit;
3.
review of the company’s compliance with the law on securities and exchange, the regulations of the Stock Exchange of Thailand, and the laws relating to the company’s business;
4.
to consider, select and nominate an independent person to be the company’s auditor, and to propose such person’s remuneration, as well as to attend a non-management meeting with an auditor at least once a year;
5.
review of the connected transactions, or the transactions that may lead to conflicts of interest, to ensure that they are in compliance with the laws and the regulations of the Stock Exchange of Thailand, and are reasonable and for the highest benefit of the Company;
6.
to prepare, and to disclose in the company’s annual report, an Audit Committee’s report which must be signed by the Chairman of the Audit Committee and consist of at least the following information:
(1) an opinion on the accuracy, completeness and credibility of the company’s financial report; (2) an opinion on the adequacy of the company’s internal control system; (3) an opinion on the compliance with the law on securities and exchange, the regulations of the Stock Exchange of Thailand, or the laws relating to the company’s business; (4) an opinion on the suitability of an auditor; (5) an opinion on the transactions that may lead to conflicts of interests; (6) the number of the Audit Committee meetings, and the attendance at such meetings by each committee member; (7) an opinion or overview of comments received by the Audit Committee from its performance of duties in accordance with the charter; and (8) other transactions which, according to the Audit Committee’s opinion, should be known to the shareholders and general investors. 7.
to perform any other act as assigned by the company’s board of directors, with the approval of the Audit Committee. The Audit Committee is responsible to the Board of Directors according to the duties assigned by the Board of Directors, while the responsibilities for all activities of the company towards third persons are still vested in the entire Board of Directors.
Annual Report 2009
63
The Chairman reports on the Audit Committee’s activities to the Board, immediately following the Audit Committee meetings. Between the meetings, the Committee reviews emerging issues with the management team, Secretary of Audit Committee and Chief of Internal Audit. Nomination, Compensation and Corporate Governance Committee (NC&CG) At present the Company has no Nomination, Compensation and Corporate Governance Committee. However, in order to promote Good Corporate Governance, the Company is taking effective steps to constitute the Nomination, Compensation and Corporate Governance Committee in the year 2010. Responsibility and duties of the Board of Directors The Board of Directors of IVL has the vision, mission, value statement, plans, strategies, key policies and budgets of the Company with a view to effectively and efficiently manage the business for maximum Shareholder value. Detailed budgets and plans are formulated for the Company and its subsidiaries. The Board closely monitors the management and implementation of business plans to achieve targets. The Board also sets internal controls and audit procedures, including risk management. The Board through the Audit Committee, internal auditor, and compliance department reviews potential conflicts of interest. The internal guidelines of the company on related party transactions and the relevant rules and regulations of SET/ SEC provide a basis for avoiding conflicts of interest. Details of all related party transactions are updated in Form 56-1 and reported in the Annual Report. Those Board members who have an interest in a matter that might involve a conflict of interest must abstain from voting and other involvement, as prescribed by the Board. Company policy prohibits personnel at all levels from using inside information for personal benefit with all business decisions based on achieving the maximum benefit for the company and its subsidiaries. The company has a code of conduct for Directors, executives and employees, approved by the Board and communicated to everyone. The Company through this Code of Conduct strives to achieve observance of ethical practices, honesty, and accountability, as well as a responsibility to all stakeholders and external agencies.
Internal Audit The company has its own Internal Audit Department, Internal Audit Manual and Internal Audit Charter. The Internal Audit Department is entrusted to carry out internal audit activities of the company and its subsidiaries under the supervision of the Chief of Internal Audit. The Internal Audit Department reports functionally to the Audit Committee. A detailed plan for the year is formulated for the units and approved by the Audit Committee which then reviews the work of the internal audit department against the plan periodically and makes recommendations to management. For the year 2009, the audit was carried out for Thailand units and some overseas units. The Secretary of Audit Committee follows up on the implementation of recommendations and reports the progress to the Audit Committee and also undertakes periodic checks to ensure compliance with statutory and regulatory requirements. A report by the Audit Committee to the Shareholders on its activities for the year 2009 is separately disclosed in the Annual Report.
The regulations on the use of internal information of the Company The regulations on the use of internal information of the Company are as follows: 1) All directors, executives, staff and employees of the Company shall keep the confidential and/or internal, all information of the Company except for the purpose of the operation of the Company’s businesses; 2) All directors, executives, staff and employees of the Company shall not disclose confidential and/or internal information of the Company with the aim to seek benefit for oneself or for other persons either directly or indirectly regardless of whether or not such benefit is to be received; and 3) All directors, executives, staff and employees of the Company shall not sell, purchase, transfer or take the assignment of securities of the Company by using confidential and/ or internal information of the Company and/ or enter into any transactions by using confidential and/or internal information of the Company in a manner that could possibly cause
64
Indorama Ventures PCL
damage to the Company either directly or indirectly. This provision shall also apply to spouses and minor children of the directors, executives, staff and employees of the Company. Violators of the regulations shall be deemed as committing a serious offence. After the shares of the Company have been listed on the Stock Exchange of Thailand (“SET”), directors, executives, managers, person responsible for the operation, auditor, staff or employees of the Company purchase or sell, offer to purchase or sell or invite any other person to purchase, sell or offer to purchase or sell the shares of the Company in such a way as to take advantage of other persons by using internal information material to changes in the prices of the shares of the Company which has not yet been disclosed to the public and to which information he has access by virtue of his office or position, and whether or not such act is done for his own or another person’s benefit, or to disclose such information so that he will receive consideration from the person who engages in the aforesaid acts, such person shall be liable under the applicable laws with respect to insider trading as a result of such contravention. In case, directors, executives, managers, person responsible for the operation, auditor of the Company acquire or dispose of shares or other securities (if any) of the Company, such person have to report on such acquire or dispose to the SEC within the time described by SEC Act B.E. 2535. The said acquire or dispose of such person shall include the holding of shares and other securities (if any) by his spouse and minor children of securities in the Company. These regulations have been informed to all employees.
Board of Directors’ performance The Board of Directors has met 4 times since its decision to convert the Company to a Public Limited Company in August, 2009. The Company generally proposes to schedule a minimum of 4 meetings a year. Typically, a meeting is convened every 3 months with extra meetings convened as and when deemed necessary to review operations, financial matters, plans, or other matters. At the end of each year a schedule of meetings for the next year is circulated to the members so as to fix the meeting dates well in advance and also to ensure maximum participation. The Chairman, Group CEO and Company Secretary set Board meeting agendas and the Company Secretary sends invitation letters together with the Agenda and relevant documents to the Directors at least 7 days prior to the meeting to allow adequate time for the directors to study the information. At each Board Meeting, the Chairman allows each Board member to express his or her views and management to answer all queries in full. If desired, Directors can request for additional information from a designated person. Detailed minutes are prepared for each meeting which includes the meeting date, beginning and ending times, name of Directors who attended and were absent from the meeting, summarized information proposed to the Board on each issue, summarized discussion and Director’s observations and the person authorizing the Minutes. The following are the details of attendance of the Board of Directors’ meeting in 2009* Name
No. of attendance / total meeting
1. Mr. Sri Prakash Lohia
-/3
2. Mr. Aloke Lohia
3/3
3. Mrs. Suchitra Lohia
3/3
4. Mr. Sashi Prakash Khaitan
3/3
5. Mr. Amit Lohia
-/3
6. Mr. Rathian Srimongkol
3/3
7. Mr. William Ellwood Heinecke
3/3
8. Mr. Chakramon Phasukavanich
3/3
Remarks: * The company became a public limited company on 25 September 2009
Annual Report 2009
65
Remuneration The current remuneration of Independent Directors is established based on assignments, responsibilities. Such remuneration proposed by the Board requires the approval of the Shareholders’ meeting. For the year 2009 the total annual remuneration to the Independent Directors approved at the Extraordinary General Meeting No.1/2009 held on September 19, 2009 was for an amount not exceeding Baht 1,300,000. The actual remuneration paid in 2009 is Baht 1,300,000 as against the approved amount of Baht 1,300,000. The details of the remuneration paid are as hereunder: As Directors of the Company No.
Independent Directors
Amount approved (Baht)
Actual Paid (Baht)
1
Mr. Rathian Srimongkol
50,000 per month
200,000
2
Mr. William Ellwood Heinecke
50,000 per month
200,000
3
Mr. Chakramon Phasukavanich
50,000 per month
200,000
Total
600,000
Note: The remuneration to Independent Directors is paid effective from September, 2009 As Audit Committee members No.
Members
(Baht)
(Baht)
1
Mr. Rathian Srimongkol
75,000 per month
300,000
2
Mr. William Ellwood Heinecke
50,000 per month
200,000
3
Mr. Chakramon Phasukavanich
50,000 per month
200,000
Amount approved
Total
Actual Paid
700,000
Note: The remuneration to the Audit Committee Members is paid effective from September, 2009
The Executive Directors on the IVL Board are not paid any director’s fee. Remuneration paid to the Management team for the year was Baht 45,731,335. Professional Development of Directors & Management The Directors who joined the Company during the year are given a Directors Orientation folder with complete information about the Company and its subsidiaries to assist them in getting well acquainted with the business, practices and procedures of the company and their rights, duties and obligations as Directors. In addition to the above, the new directors were arranged orientation meetings with the management team members. The Board encourages the Board members, Audit Committee members, management team members, Company Secretary and Internal Auditor to attend seminars, training and courses which would assist in further improving their contribution/performance in the Company. We encourage the member of the Board to undergo applicable training programs. Our company’s policies, integrity, ethics and disclosures always seek to emulate the best practices in Corporate Governance.
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People & CSR
Our People - Drivers of Performance at IVL The EEE (3E) Concept- – Environment, Engagement and Excitement, which is a way of life at IVL, has been instrumental in creating employee participation and involvement thereby bringing improvement in all spheres of the IVL business. During the last year, IVL has moved from the margins of employee involvement agenda towards constantly engaging employees through various forums and events to build excitement, passion and competency of the people. Our 3E facet is all the more critical in a global and multicultural environment, such as at IVL.
Environment Through our periodic measures we have been ensuring that a sense of control over one’s environment, a sense of shared destiny, and opportunities for development and advancement is maintained at our company. Some of the measures being: Indorama Song – This song has been emblematic of the ways in which it ignites a sense of passion, pride and belongingness within every employee for their company. Emotions run high each time the song is played or sung and it has gone onto become an anthem that every one at IVL identifies with. Communication of Vision Mission and Values (VMV) - VMV have been the beacon which signal intent and direction and feeling of oneness in employees that is crucial in creating a thriving organization that people feel committed to. Regular sessions on communication of VMV are enabling employees to acquire the necessary knowledge, skills and attitude so that they can contribute their best to the achievement of our vision. Our vision, mission and values Environment, Health and Safety (EHS) - The week from 1st to 5th June 2009 included several eco-awareness activities, including plantations aimed at increasing green areas belts. Many activities stressed the importance of maintaining a clean environment. Also, the celebration of World Environment Day on 5th June catalyzed the endeavors. The Management team and employees planted trees on this day as an act of collective responsibility. The health programs highlighted the importance of educating the community on various protection measures against impending diseases. A Complete Medical Health Check up for all employees was held at head office. Indorama is focused on building a sustainable healthy fraternity for the good of the whole community As part of SHE fortnight, following activities were carried out – - Health care workshop for employees organized by local hospital. - Fire fighting training organized by local fire station staff. - Traffic safety seminar given by local Police chief. - Tree plantation done at site - Training on Action for good health in order to protect from diseases. Training on Aids & Tuberculosis (TB) prevention and management in Employee Opinion survey (EOS) – EOS activities are carried out at IVL where in employees provide their feedback about the organization, peers, superiors and culture / environment. These opinions are of paramount importance in the building of a smooth organizational culture and development. Communication Month - March 2009 was declared as the Communication Month wherein Vision, Mission, Values were reinforced and communication workshops were conducted across all facilities of Indorama Thailand which culminated in interesting competitions towards the end of the month.
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Indorama Ventures PCL
To a large extent it was successful in improving the participants’ understanding and practical experience of the skills required for communicating in a professionally assertive manner. Simulation activities and a single day workshop were conducted by Hans Andersson and Inn Narula, who have been working in the field of education and management training for more than 20 years.
Quality Circles concept (QCC) - Quality Circles drive continues to spread its wings by encouraging an environment for participation and involvement at grass root levels. These groups identify their own problems, which turns into a “Problem Bank”. Out of this problem bank, easy ones are picked to be worked on for solutions. These groups meet every month, discuss problems and go for solutions using our 7 Quality Tools. They present their case studies to the management and take pride in sharing their success stories. The dynamic and ongoing mid-year QCC continued with its efforts to improve the performance of the organization by enriching the work of employees The annual event – Quality Day was conducted on 12th December 2009. The convention was held at CTE, with the Quality Day Flag being hoisted, the Quality circle committee was formed and t-shirts with the ‘Q’ logo were introduced. The program was concluded with the Royal Anthem and Indorama song. Quality week was conducted from 7th-12th December 2009 wherein the concept of quality was further reinforced and its meaningful contribution to the organization was brought to the forefront. After winning national accolades, IVL’s Quality Circles (QC) initiatives have soared international. It is really a matter of great pride for us at Indorama that our teams have progressed to achieve the international accolades. Three Quality Circle Concept (QCC) Teams (Two from Indorama Polyester Industries and One from Wool) recently participated in the national event of QCC HQ. The presentations made by the teams at the competition were excellent. The next step from QCC HQ was the site visit to the two locations at Indopoly and Wool, which was also appreciated by the judges as they could see the movement on the shop floor showcasing what the teams had talked about in the presentation at the competition. The QC Group “Two for One” was awarded “Best QC Group” from The 23rd Quality Control Circles (QCC) Presentation held by The QC Head Quarter of Thailand on 28th April, 2009. Furthermore the group also was selected for International Convention on Quality Control Circle for the International Exposition for Team Excellence (IETEX) 2009 at SINGAPORE during 9-12 June 2009. The Sen Dai Kao Klai Team from Indorama Polyester Industries was been selected for the International competition in China on 3rd Nov 2009
Engagement Engagement remains the ultimate prize given to the employees. Having a critical mass of employees who are engaged in activities that lead to their self development and learning is of tremendous value for IVL. Employee engagement is a process that never ends. And it rests on the foundation of a meaningful and task-driven enriching work experience. What is on the engagement list are the things that take time and commitment — such as strong leadership, interaction amidst employees, training etc. In the end, it only reminds us that there are no substitutes for these fundamentals. Some of the measures being:
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Promoting Mutual Learning (PML) – Knowledge is power and it multiplies with every sharing process. PML continues to be our step towards building “Knowledge Bank” for the company by motivating people to participate in the knowledge sharing process by learning from their superiors as well as their subordinates thus promoting the culture of two-way learning process. During this year two PML sessions were conducted by the Production department. Total Quality Assurance (TQA)- Inspired by the Malcolm Bald ridge Model for Total Quality Assurance IVL gave birth to an evolutionary model Indorama Business Excellence Model “ IRBEM” .We are already working on this model where in improvements under the concept of Approach, Deployment, Integration and Learning. The following committees are already working on this concept: This model will aid in improving organizational performance practices, capabilities and results and also facilitate communication and sharing of opportunities for learning. It will serve as a working tool for understanding and managing business performance and also lead to improvement in overall organizational effectiveness The categories of the IRBEM model at IVL are: Leadership Strategy Empowerment Capability Building Continuous Improvement Benchmarking Commitment Involvement Self Development Quality of life (QOL) - Working towards its target of Total Quality Management, IVL moved on with its periodical QOL activities. Employees got together on a weekend program on self development. This stimulated good performance, boosted performance and eased work pressures after a weekend getaway. Training and Development (T&D) - Being good at a job bolsters confidence and ensures both the organization and the employees achieve individual and collective goals. Training and development programs, mentor/coach relationships and regular feedback from managers not only engender competence, but help a company build the skills and behaviors that meet specific business objectives. Regular training and developments programs are conducted at various levels of the manpower. Employees are trained on various areas of improvement like attitude for excellence, team work, interpersonal skills, motivation, success as well as technical training related to their job. On an average employees are given 16 hours training per year. For employees who are involved in the QCC concept they undergo additional eight to ten days training per year. The Visit of Mr. Lulla was facilitated in January 2009, wherein he endeavored to enhance training effectiveness by ensuring all committees related to the IRBEM model start working on the preparation of action plans called RACI (Responsibility, Accountability, Consult and Inform) and submit it for review to him. He very vividly made clear the “Approach for Making Action Plan” on the base elements of TQA i.e. Leadership, Strategic Planning and Customer and Market Focus, taking inputs from Customer and Market Focus and Leadership (Vision, Mission and Values), and drilled down to Strategic Planning. ADLI Model (Approach, Deployment, Learning, and Integration) is creating excitement all around. Indorama also conducted the Thai Labor for stability occupation training. The Opening ceremony of this training of Indorama Polyester Industries’ employees took place on 27 March 2009 and was done by Nakhonpathom Deputy Governor Mr.Uthan Chawamethee
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PERFORMANCE MANAGEMENT SYSTEM (PMS) - PMS deals with identifying, evaluating and facilitating the work performance of employees in the organization which facilitates in achieving the organizational goals and objectives in a more effective way through the employees and also provides rewards to employees through recognition for their work. Activities were designed that will facilitate overall development of the employees. - Career Growth opportunities for talented people. - Succession planning for effective business. - Job Rotation/ Multi-Skilling opportunities to enable effective use of in-house talents for better results. - Recognition and Rewards to motivate people Excitement IVL indulges its employees in various activities and events allowing employees the freedom to breakaway from their erratic schedules which is an essential part of enthusiastic execution. These events provide a platform to highlight those aspects of our employee’s personalities that have the most positive impact on behavior and performance and also make them a part of the happenings around the world. This way our multi-cultural team gets to be a part of every Global event. Events held during year 2009 are: Picnic getaways Family Day Celebrations Father’s Day Celebrations Diwali and New Year Party Celebrations Songkran Successful employee involvement and participations strategies help create a community at the workplace and not just a workforce. When employees are effectively and positively engaged with their organization it leads to competitive advantage. At IVL we thrive on an open and transparent culture to empower people and develop better managers. The 3E concept which is moving on successfully is gradually evolving into a fourth E-“Excellence” in all arenas of IVL operations and people. It is an endeavor towards enhancing the existing culture of Education so IVL becomes– a learning organization.
“We care for our communities” IVL’s main objective of social activities is sustainable growth of the society and a better environment. These objectives are achieved by working directly or with government or non-government organizations works to support communities. IVL continues to be involved in social contribution activities in Thailand, Lithuania and USA. IVL learns from the community how best to serve and participates in annual public events to cultivate positive human and social relationships. Many line employees are members of these communities. IVL social activities and respect for communities reflect its commitment to be a good corporate citizen. The main activities include: • Scholarships for primary education of children • Sponsor sports team • Support for the public health center • Green program for planting trees • Support and organize cultural activities and events • Participating in various local festivals, such as National Children’s Day, Songkran, Loy Krathong and Makhabucha Day. IVL focus is also to reduce and reuse natural resources. Energy and water conservation is of paramount importance and requires greater efficiency in use of natural resources. IVL has implemented EHS, environment - health - safety, practice at all
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plants and a set of guidelines were prepared, EHS Manual, and distributed to all plants for its implementation. To ensure operations meet all government and industry standards, IVL hires professionals to assess, recommend, and monitor environmental and workplace programs. IVL has staff dedicated to implementing all environment-related systems to ensure they are functioning properly and that staff are observing prudent safety practices. Outside professionals test regularly as an added measure. During 2009, our endeavor towards Corporate Social Responsibility at various IVL locations unfolded in the form of following activities: At OGPET Lithuania the following activities were conducted - Meeting with Klaipeda Enviroment organization Žvejonė like Green peace organization - Annual presentation of Environmental Monitoring for society (villagers, city administration, Environment Department). - Also conducted was the Fire prevention training with Klaipėda Fire and Rescue Department - Annual Football Charity Cup at FEZ A Boat Race was conducted on Oct 5th, 2009 at Bangkham River, Koksalod Village located at the backside of Indorama Polymers PCL, Lopburi. This is a Traditional Function for conservation of water source at Bangkham River. IRP has supported it and got involved in it by sending IRP’s team to participate in this event. The team also emerged victorious for the year 2009. Activity training on HIV AIDS by Thailand Business Coalition was conducted at Lopburi (IRP) on Sept 28th,2009. Indorama Polyester Indutries PCL-Nakhonpathom’s employees co-operated to donate blood with Department of Transfusion Medicine, the Faculty of Medicine Siriraj Hospital, Mahidol University on September 21st, 2009. Environment Good Governance Reward “Green Star on White Flag - On June 5th, 2009, TPT Petrochemicals Plc. and TPT Utilities Company have received the Excellent Reward on Environment Good Governance from the Industrial Estate Authority of Thailand Governor. Before the award, ‘Green Star on White Flag’, was received, IEAT assessment team along with representatives from communities had audited TPT four times in year 2008. They focused on our environment management, i.e. water consumption and waste water treatment, wastes management, air emission and noise control, VOCs monitoring, Green Area/Buffer Zone, support student trainees program to train at plant site and hire local people to work at TPT. Indorama presented a gift of Baht 20,000 to H.H Princess Somsawalee during her visit to Thaklong on 25th April 2009 for ‘Sapakachat Thai’ towards project of preparing rice grain as improvement for the people affected by the last flooding. At Alphapet, USA, the following activities took place: - Relay For Life American Cancer Society - Charity Golf Tournament The Pilot Club of Decatur - Annual Membership Industrial Emergency Association - Scholarship Funding Decatur General Foundation - Hindu Cultural Center of North Alabama - Avon Breast Cancer Foundation - Student Leadership Scholarship DECATUR - MORGAN COUNTY CHAMBER OF COMMERCE
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Indorama Ventures PCL
In 2009 the following external projects were executed at Indorama Polymers/Holdings Rotterdam B.V: • Donated redundant computers to a charity organization in the Netherlands • Participated in the program “feel the chemistry”. This program is initiated by the VNCI (Association of Chemical Industry). The objective is to let children, from primary school, visit chemical plants and see what chemistry is all about. Approximately 35 school kids visited our site in June. Presentation about Indorama and their products was given. The children were invited to execute chemical proofs by making hair gel and shampoo. • Indorama participates in the Process College Mainport Rotterdam. Promoting the schools for process operator and mainte nance technician is one of the major tasks. The need for more students following a technical education is a priority. By inviting students from secondary schools to our site, giving presentations, explaining about the job should help students to make a decision about their next step in education. During the week of the process industry in January various groups of students visited the plant site. • A number of trainees from the Process College are offered an internship within our company. For some of them it resulted in employment with Indorama. Indorama Petrochem Plant in Rayong undertook the following activities during the year • Coordinated with IEAT and Ban Chang District local community leaders during Jun-Dec 09 on smell impact reduction plan to nearby communities. • Regular visit to local communities every month during Jan-Dec 09. • Organized “School Safety Project” activities at Prachummit Bumrung School (basic fire fighting training for school children and teachers) on 4/9/09. • Donating items , luncheon, and organizing sports activities for orphans at Huay Pong Youth Care Center, Rayong, on 26/12/09. • Joined MPR (Map Ta Phut Public Relations Club) activity of “Happy Healthy Youth Camp with MPR” during 28-29/5/09 at PTT Herb Garden, Rayong. • Supported gifts and presents to young children during 2009 National Children Day. • Donated to support 2009 Rayong Red Cross Fair organized by Rayong Province. • Donated to support Songkran Festival organized by Prachummit community and Chak Look Ya community. • Donated to support 2009 Chinese temple charity at Payoon Chinese Temple
Indorama Ventures will always stand to support and contribute to the well being of its people, communities and the environment.
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Report of Audit Committee for the Year 2009 The Audit Committee of Indorama Ventures PCL consists of three independent directors of the Company namely; • Mr. Rathian Srimongkol - Chairman • Mr. William Ellwood Heine - Member • Mr. Chakramon Phasukavanich – Member The Audit Committee was constituted by the Board at its meeting no. 6/2009 dated 18 September 2009 for a period of two years. An Audit Committee Charter was approved by the Board at the same meeting which incorporated the provisions of the SEC Act. During the year 2009, the Committee held 3 meetings (details provided in Corporate Governance Report) and performed the following tasks in accordance with the scope of their responsibilities as assigned by the Board of Directors and those required by regulations. Reviewed the financial statements of the Company with the Company’s auditors, including the significant accounting policies, the preparation process for financial statements, information disclosures and other issues, for the third quarter of 2009 (reviewed) and for the annual audited financial statements in order to assure that the financial reports are accurate, reliable and in compliance with generally accepted accounting standards and relevant regulations. Approved the Internal Audit Plan for 2009 and reviewed the opinion on internal control on all the major subsidiaries of Indorama Ventures with the Internal Auditor of the Company. The Audit Committee also approved the Internal Audit Plan for the year 2010. The Internal Audit Department carried out its audit activities covering all subsidiaries of IVL except two US units. US units have been included in the Internal Audit Plan for the year 2010. Assessed the adequacy of internal control system of the company with the Company’s Auditors, Internal Auditors and Management. The Committee will work together with the Internal Auditor and Management to further streamline the systems and procedures. Reviewed the company’s compliance with laws and regulations of the Stock Exchange of Thailand, the Securities and Exchange Commission and other relevant laws pertaining to the Company’s business and found no issue of non-compliance for the period. Since the Audit Committee was not in existence at the time of the appointment of Company’s Auditors including the setting of the Annual Audit Fee for 2009, the same has been recommended to the Shareholders’ Meeting by the Board of Directors. The Committee reviewed for each quarter all connected party transactions of the Company and its subsidiaries and found the same to be line with the internal Related Party Transaction Policy on connected transactions and regulatory requirements. The Audit Committee believes that the Company’s financial statements are properly presented, Internal Controls are adequate and the Company’s practices are in compliance with relevant regulations and good governance practices.
Rathian Srimongkol Chairman of the Audit Committee February 24, 2010
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Indorama Ventures PCL
Report of the Board of Directors’ Responsibilities for the Financial Statements The Board of Directors of Indorama Ventures PCL places significance on its roles and responsibilities in supervising the Company’s operations in compliance with good Corporate Governance Principles and is accountable for the financial statements including financial data as shown in the Annual Report. The financial statements for the accounting year ended December 31, 2009 has been prepared under the generally accepted accounting standards of Thailand. In preparing the said financial statements, the Company has adopted accounting practices and standards that are appropriate to its nature of business. All material information has been sufficiently disclosed in the notes to financial statements. The financial statements have been audited by qualified and independent auditors who have confirmed that the said statements accurately reflect the actual financial standing, results and operating results over the past year, as well as being transparent. Moreover, the Board of Directors has instituted and maintained internal control, internal audit, risk management and corporate governance in order to ensure the completeness, adequacy and accurateness of the financial statements. The Board of Directors has appointed the Audit Committee to review the quality of financial reports, the internal control system as well as complete and appropriate disclosure of connected transaction. The Board of Directors expresses its satisfaction on the adequacy, credibility and reliability on the internal control system and the financial statements of Indorama Ventures Public Company Limited and its subsidiary companies for the year ended December 31, 2009.
Mr. Sri Prakash Lohia Chairman
Mr. Aloke Lohia Group CEO
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75
Financial Statements
Audit report of Certified Public Accountant To the Shareholders of Indorama Ventures Public Company Limited I have audited the accompanying consolidated and separate balance sheets as at 31 December 2009 and 2008, and the related statements of income, changes in equity and cash flows for the years then ended of Indorama Ventures Public Company Limited and its subsidiaries, and of Indorama Ventures Public Company Limited, respectively. The Company’s management is responsible for the correctness and completeness of information presented in these financial statements. My responsibility is to express an opinion on these financial statements based on my audits. I did not audit the financial statements of two subsidiaries acquired in 2008 included in the consolidation which had total assets as at 31 December 2009 and 2008 constituting 26 percent and 22 percent and total revenues for the years then ended constituting 22 percent and 5 percent, respectively, of the related consolidated totals. The carrying value of these investments in the separate balance sheets as at 31 December 2009 and 2008 amounted to Baht 3,752.2 million and Baht 2,928.2 million, respectively. The financial statements of the subsidiaries were audited by another auditor whose reports have been furnished to me, and my opinion, insofar as it relates to the amounts included for these subsidiaries, is based solely on the report of the other auditor. I conducted my audits in accordance with generally accepted auditing standards. Those standards require that I plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. I believe that my audits and the reports of the other auditor referred to in the first paragraph provide a reasonable basis for my opinion. In my opinion, based on my audits and the reports of the other auditor, the consolidated and separate financial statements referred to above present fairly, in all material respects, the financial positions as at 31 December 2009 and 2008, and the results of operations and cash flows for the years then ended of Indorama Ventures Public Company Limited and its subsidiaries, and of Indorama Ventures Public Company Limited, respectively, in accordance with generally accepted accounting principles. Without qualifying my opinion on the consolidated financial statements for the year ended 31 December 2008 of Indorama Ventures Public Company Limited and its subsidiaries, I draw attention to Note 4, during the year ended 31 December 2008, the Company completed a number of acquisitions, resulting in the recording of negative goodwill, which was recorded in the consolidated statement of income for the year ended 31 December 2008 in the amount of Baht 3,123.8 million.
(Vichien Thamtrakul) Certified Public Accountant Registration No. 3183
KPMG Phoomchai Audit Ltd. Bangkok 25 February 2010
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Indorama Ventures Public Company Limited and its Subsidiaries Balance sheets As at 31 December 2009 and 2008
Assets
Note
Consolidated
Separate
financial statements
financial statements
2009
2009
2008
Current assets
2008
(in thousand Baht)
Cash and cash equivalents
6
1,396,824
Current investments
7
Trade accounts receivable
5, 8
Short-term loans to related parties
5
-
212,800
Inventories
9
9,673,954
7,419,235
Other current assets
5, 10
Total current assets
1,179,241
131,727
27,450
1,162,929
257,020
572,808
-
9,962,811
8,525,056
-
-
-
-
1,369,479
1,242,144
301,415
5,666
23,565,997
18,835,496
1,005,950
33,116
-
-
9,622,066
9,473,822
32,706
100,118
-
-
Non-current assets
11 Investments in subsidiaries and associates Other long-term investments 7 Long-term loans to related party Property, plant and equipment Intangible assets Other non-current assets Total non-current assets
5
-
-
1,262,628
924,023
12
49,505,319
49,641,830
-
-
13
878,874
967,825
-
-
14
277,216
222,806
-
-
50,694,115
50,932,579
10,884,694
10,397,845
74,260,112
69,768,075
11,890,644
10,430,961
Total assets
The accompanying notes are an integral part of these financial statements.
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Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Balance sheets As at 31 December 2009 and 2008
Liabilities and shareholders’ equity
Note
Consolidated
Separate
financial statements
financial statements
2009
2008
2009
2008
(in thousand Baht)
Current liabilities
Bank overdrafts and short-term loans from 15
10,004,447
11,205,149
-
565,543
16
9,003,958
6,863,101
-
-
Current portion of long-term loans from 15
4,643,396
3,264,924
162,600
45,870
financial institutions Trade accounts payable financial institutions
Current portion of long-term loans from related parties
5
24,467
-
24,467
-
Current portion of finance lease liabilities 15
24,538
73,467
-
-
Income tax payable Other current liabilities Total current liabilities
17
313,643
28,172
-
-
1,770,907
2,344,520
222,255
10,455
25,785,356
23,779,333
409,322
621,868
25,330,385
27,507,305
2,155,158
1,195,217
-
473,989
-
460,646
73,374
77,399
-
-
Non-current liabilities
Long-term loans from financial institutions 15 Long-term loans from related parties 5 Finance lease liabilities Other non-current liabilities
15
605,182
223,107
-
-
Total non-current liabilities
26,008,941
28,281,800
2,155,158
1,655,863
Total liabilities
51,794,297
52,061,133
2,564,480
2,277,731
The accompanying notes are an integral part of these financial statements.
Annual Report 2009
79
Indorama Ventures Public Company Limited and its Subsidiaries Balance sheets As at 31 December 2009 and 2008
Liabilities and equity
Note
Consolidated
Separate
financial statements
financial statements
2009
2009
2008
2008
(in thousand Baht)
Equity Share capital Authorised share capital Issued and paid-up share capital Additional paid-in capital Share premium Unrealized surpluses (deficits) Revaluation surplus Fair value changes on cash flow hedges Currency translation differences Excess of book value of acquired subsidiaries over cost Differences arising from common control transactions Retained earnings
18
5,082,000
3,351,544
5,082,000
3,351,544
18
3,351,544
3,351,544
3,351,544
3,351,544
19
4,443,214
4,443,214
4,443,214
4,443,214
19
864,535
986,546
-
-
29
(132,795)
-
-
-
19
(324,283)
(109,247)
-
-
-
-
-
-
-
-
19
173,674
94,517
19
(1,580,670)
(1,580,670)
-
-
19
290,575
146,011
-
-
10,093,238
5,462,619
1,531,406
358,472
17,179,032
12,794,534
9,326,164
8,153,230
5,286,783
4,912,408
-
-
22,465,815
17,706,942
9,326,164
8,153,230
74,260,112
69,768,075
11,890,644
10,430,961
Appropriated Legal reserve Unappropriated Total equity attributable to equity holders of the Company Minority interests Total equity Total liabilities and equity
The accompanying notes are an integral part of these financial statements.
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Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Statements of income For the years ended 31 December 2009 and 2008
Note
Consolidated
Separate
financial statements
financial statements
2009
2008
2009
2008
Revenues Revenue from sale of goods Interest income Dividend income Net foreign exchange gain Negative goodwill Other income Total revenues
5 5
4 (a)
Expenses Cost of sale of goods 5, 21 Selling expenses 5, 22 Administrative expenses 5, 23 Management benefit expenses 24 Impairment loss on investment 11 Loss on disposal of subsidiary 4 (b) Net foreign exchange loss Total expenses Profit before finance costs and income tax expense 5, 25 Finance costs Profit before income tax expense 26 Income tax expense Profit for the year Profit attributable to: Equity holders of the Company Minority interests Profit for the year
(in thousand Baht)
79,994,226 18,360 567,715 305,274 80,885,575
53,331,844 26,858 3,123,837 122,358 56,604,897
33,074 1,232,471 1,265,545
21,621 128,927 150,548
67,665,880 4,269,652 651,973 123,901 72,711,406
48,178,261 2,553,200 366,274 53,044 287,202 523,765 51,961,746
11,496 1,300 16,103 7,115 36,014
6,438 26,892 33,330
8,174,169 1,601,532 6,572,637 553,954 6,018,683
4,643,151 1,467,460 3,175,691 52,641 3,123,050
1,229,531 56,564 1,172,967 33 1,172,934
117,218 20,619 96,599 31 96,568
4,824,097 1,194,586 6,018,683
2,656,296 466,754 3,123,050
1,172,934 1,172,934
96,568 96,568
28
1.44
16.51
0.35
0.60
Par value per share (in Baht)
18
1
10
1
10
Earnings per share - Basic (in Baht)
The accompanying notes are an integral part of these financial statements.
Annual Report 2009
81
82
Indorama Ventures PCL
18
4
Additional
(132,329) -
-
4,275,613 4,443,214
4,443,214
-
2,951,544
3,351,544
-
3,351,544 (132,329) (132,329) 10,318 - 864,535
986,546
332,112 -
(314,836) (314,836)
(208,228)
(106,608)
-
-
969,270
Revaluation surplus
167,601
Share premium
(132,795) (132,795) (132,795)
-
(132,795)
-
-
-
-
-
-
-
Fair value changes on cash flow hedges
(215,036) (215,036) (324,283)
(215,036)
-
-
(109,247)
-
8,316 8,316
8,316 -
-
(117,563)
(1,580,670)
79,157 173,674
(1,580,670)
94,517
-
(791,803) -
5,423 -
-
-
-
-
-
(788,867)
89,094
-
Difference arising from common control transactions
Excess of book value of acquired subsidiaries over cost
5,228 139,336 290,575
-
-
-
146,011
16,329 -
-
-
-
129,682
Legal reserve
4,824,097 4,824,097 (54,142) (139,336) 10,093,238
-
-
-
5,462,619
197,787 (16,329) -
(73,471) 2,656,296 2,582,825
(73,471)
-
2,698,336
Unappropriated
Consolidated financial statements Retained earnings
Currency translation differences
paid-in capital Unrealized surpluses (deficits)
400,000
Issued and paid-up share capital
The accompanying notes are an integral part of these financial statements.
Balance at 1 January 2008 Unrealized losses Depreciation of revaluation increment in property, plant and equipment Translation of financial statements differences Disposal of subsidiaries Net income (expense) recognised directly in equity Profit for the year Total recognised income and expense Differences arising from business combinations involving entities under common control Acquisition of subsidiaries Transfer to legal reserve Dividends Issue of share capital Balance at 31 December 2008 and 1 January 2009 Unrealized losses Depreciation of revaluation increment in property, plant and equipment Cash flow hedges Loss recognised in equity Translation of financial statements differences Net expense recognised directly in equity Profit for the year Total recognised income and expense Purchase of minority interests Transfer to legal reserve Dividends Balance at 31 December 2009
Note
For the years ended 31 December 2009 and 2008
Statements of changes in equity
Indorama Ventures Public Company Limited and its Subsidiaries
(480,160) 4,824,097 4,343,937 40,561 17,179,032
(215,036)
(132,795)
(132,329)
12,794,534
(261,904) 5,423 7,227,157
(379,991) 2,656,296 2,276,305
8,316 (281,699)
(106,608)
3,547,553
Total equity attributable to the Company equity holders
(284,861) (817,339)
(69,825) (337,179) 1,194,586 857,407 (301,112) (181,920) 5,286,783
6,018,683 5,201,344 (260,551) (181,920) 22,465,815
(205,417)
(72,622)
17,706,942
4,912,408
(327,061)
(529,068) 2,150,845 (136,038) 7,227,157
(267,164) 2,145,422 (136,038) -
(194,732)
(476,621) 3,123,050 2,646,429
29,692 (355,878)
21,376 (74,179) (96,630) 466,754 370,124
(150,435)
6,347,617
Total equity
(43,827)
2,800,064
Minority interests
Indorama Ventures Public Company Limited and its Subsidiaries of Changes in Equity Statements
For the years ended 31 December 2009 and 2008
Separate financial statements Additional paid-in capital
Retained earnings
Issued and Note
paid-up
Share
share capital
premium
Total Unappropriated
equity
(in thousand Baht) Balance at 1 January 2008 Profit for the year Total recognised income Issue of share capital Balance at 31 December 2008 and 1 January 2009 Profit for the year Balance at 31 December 2009
18
400,000
167,601
261,904
829,505
-
-
96,568
96,568
-
-
96,568
96,568
2,951,544
4,275,613
-
7,227,157
3,351,544
4,443,214
358,472
8,153,230
-
-
1,172,934
1,172,934
3,351,544
4,443,214
1,531,406
9,326,164
The accompanying notes are an integral part of these financial statements.
Annual Report 2009
83
Indorama Ventures Public Company Limited and its Subsidiaries Statements of cash flows For the years ended 31 December 2009 and 2008
Note
Consolidated
Separate
financial statements
financial statements
2009
2008
2009
2008
Cash flows from operating activities Profit for the year 6,018,683 Adjustments for Depreciation and amortisation 3,081,932 Interest income (18,360) Dividend income Finance costs 1,601,532 Unrealized foreign exchange (gain) loss (470,097) Recovery of bad and doubtful debts expense, net (28,527) (Reversal) provision for inventory obsolescence (87,764) (Gain) loss on disposal of property, plant and equipment (1,045) Impairment loss on investment in subsidiary 11 Loss on disposal of subsidiary Negative goodwill Income tax expense 553,954 10,650,308 Changes in operating assets and liabilities Trade accounts receivable (1,080,090) Inventories (2,202,914) Other current assets 319,836 Other non-current assets 86,085 Trade accounts payable 1,886,452 Other current liabilities (139,268) Other non-current liabilities (33,875) (263,634) Income taxes paid 9,222,900 Net cash provided by (used in) operating activities
3,123,050
1,172,934
96,568
1,566,585 (26,858) 1,467,460 491,627 (28,967) 229,564 156 287,202 (3,123,837) 52,641 4,038,623
(33,074) (1,232,471) 56,564 22,071 16,103 33 2,160
(21,621) (128,927) 20,619 26,892 31 (6,438)
3,734,855 679,669 (168,365) 51,753 (4,909,809) (968,500) 32,726 (27,565) 2,463,387
(301,188) 216,761 (33) (82,300)
345 (31) (6,124)
Cash flows from investing activities 31,475 Interest received Dividend received (3,784,501) Purchase of property, plant and equipment Proceeds from sale of property, plant and equipment 2,741 (900,082) (Purchase) sale of other investments, net (2,730) Purchase of intangible assets (236,721) Loans to a related party
37,487 (4,855,854) 186,394 535,145 (7,372) (42,612)
3,962 1,232,471 (572,808) (354,586)
2,955 128,927 90,189 (894,217)
Cash outflow on acquisition of subsidiaries, including cash acquired of Baht 845,255,121 in 2008, (165,092) and additional investment in subsidiaries 11 Return of capital from subsidiary Net cash inflow on disposal of subsidiary (5,054,910) Net cash provided by (used in) investing activities
(14,474,047) 279,941 (18,340,918)
(824,058) 659,711 144,692
(3,466,833) (4,138,979)
The accompanying notes are an integral part of these financial statements.
84
(in thousand Baht)
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Statements of cash flows For the years ended 31 December 2009 and 2008
Consolidated
Separate
financial statements
financial statements
2009
Note
2008
2009
2008
Cash flows from financing activities
(in thousand Baht)
Interest paid
(1,915,610)
(1,338,520)
(59,111)
(10,568)
Dividends paid
(181,920)
(136,038)
-
-
Proceeds from borrowings
3,870,572
18,699,773
1,147,541
2,242,689
Repayment of borrowings
(5,618,712)
(4,410,353)
(1,046,545)
(2,131,010)
Repayment of finance leases
(72,269)
(64,772)
-
-
Proceeds from issue of shares
-
4,025,136
-
4,025,135
(3,917,939)
16,775,226
41,885
4,126,246
Net increase (decrease) in cash and cash equivalents
250,051
897,695
104,277
(18,857)
Cash and cash equivalents at beginning of year
1,179,241
281,654
27,450
46,307
(32,468)
(108)
-
-
1,396,824
1,179,241
131,727
27,450
Net cash provided by (used in) financing activities
Effect of exchange rate changes on balances held in foreign currencies Cash and cash equivalents at end of year
6
Non-cash transaction In 2008, the Company issued ordinary shares at a premium with an aggregate value of Baht 3,202,021,384 to acquire shares in a subsidiary and Baht 676,216,599 for additional investment in shares in a subsidiary.
The accompanying notes are an integral part of these financial statements.
Annual Report 2009
85
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Note
Contents
1
General information
2
Basis of preparation of the financial statements
3
Significant accounting policies
4
Acquisitions and disposal of subsidiaries
5
Related party transactions and balances
6
Cash and cash equivalents
7
Other investments
8
Trade accounts receivable
9
Inventories
10
Other current assets
11
Investments in subsidiaries and associates
12
Property, plant and equipment
13
Intangible assets
14
Other non-current assets
15
Interest-bearing liabilities
16
Trade accounts payable
17
Other current liabilities
18
Share capital
19
Additional paid-in capital and reserves
20
Segment information
21
Cost of sales
22
Selling expenses
23
Administrative expenses
24
Employee benefit expenses
25
Finance costs
26
Income tax expense
27
Promotional privileges
28
Earnings per share
29
Financial instruments
30
Commitments with non-related parties
31
Contingent liabilities
32
Events after the reporting period
33
Thai Accounting Standards (TAS) not yet adopted
34
Reclassification of accounts
86
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 These notes form an integral part of the financial statements. The financial statements were authorised for issue by the Board of Directors on 25 February 2010.
1. General information Indorama Ventures Public Company Limited, the “Company”, is incorporated in Thailand and has its registered office at 75/102, Ocean Tower II, 37th Floor, Sukhumvit Soi 19, Asoke Road, Klongtoeynua, Wattana, Bangkok, Thailand. Subsequent to 31 December 2009, the Company was listed on the Stock Exchange of Thailand (see note 32 (b)). The immediate and ultimate parent company as at 31 December 2009 was Indorama Resources Limited, incorporated in Thailand, and Canopus International Limited, incorporated in Mauritius. The principal business of the Company and its subsidiaries (collectively, the “Group”) is the manufacture and distribution of polyethylene terephthalate (“PET”), purified terephthalic acid (“PTA”) and related products: polyester fibres and yarns, and wool products. Details of the Company’s subsidiaries as at 31 December 2009 and 2008 were as follows:
Name of the entity Direct subsidiaries Indorama Petrochem Limited
Type of business
Country of
Effective ownership
incorporation
interest (%) 2009
2008
Manufacture of purified terephthalic acid (“PTA”) Manufacture of wool products, polyester fiber and yarns and furfural and furfural alcohol Manufacture of PTA
Thailand
100.00
100.00
Thailand
97.93
97.93
Thailand
54.60
50.56
Manufacture of polyester fibers and yarns
Thailand
Indo Poly (Thailand) Limited
Manufacture of polyester fibers and yarns
Thailand
Indorama Polymers Public Company Limited
Thailand Manufacture and sale of solid-state polymerised chips (generally known as bottle grade resin chips), polyethylene terephthalate (“PET”)
Direct 64.94 Indirect 33.90 98.84 Direct 44.38 Indirect 53.33 97.71 Direct 42.81 Indirect 25.93 68.74
Direct 97.01 Indirect 97.01 Direct 44.38 Indirect 53.33 97.71 Direct 42.81 Indirect 25.93 68.74
Indorama Holdings Limited
TPT Petrochemicals Public Company Limited Direct and indirect subsidiaries Indorama Polyester Industries Public Company Limited [formerly Tuntex (Thailand) Public Company Limited]
Annual Report 2009
87
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Name of the entity
Indirect subsidiaries UAB Indorama Holdings Europe Indorama Holdings Rotterdam B.V. Indo Rama Textiles (Thailand) Limited UAB Indorama Polymers Europe Indorama Polymers Rotterdam B.V. Indorama Polymers Workington Limited AlphaPet, Inc.
Indorama Polymers (USA), Inc. UAB Orion Global Pet StarPet Inc. Asia Pet (Thailand) Limited Petform (Thailand) Limited
TPT Utilities Company Limited Chao Pha Ya Heritage Company Limited Indirect associates Tuntex Textile (Thailand) Company Limited Tri Ocean Tuntex Textile (Thailand) Company Limited
Type of business
Country of
Effective ownership
incorporation
interest (%) 2009
2008
Lithuania The Netherlands
97.93 97.93
97.93 97.93
Manufacture of wool top
Thailand
93.13
93.13
Trading in PET
Lithuania
68.74
68.74
The Netherlands
68.74
68.74
United Kingdom
68.74
68.74
United States of America (“USA”) USA Lithuania
68.74
68.74
68.74 68.74
68.74 68.74
USA
68.74
68.74
Thailand
68.74
68.74
Thailand
41.24
41.24
Thailand
54.60
50.56
Thailand
98.84
97.01
Thailand
16.48
16.17
Thailand
5.93
5.82
Trading in PTA Manufacture of PTA
Manufacture of bottle-grade resin chips Manufacture of bottle-grade resin chips Manufacture of bottle-grade resin chips Holding company Manufacture of PET bottle-grade resin chips Manufacture of bottle-grade resin chips Manufacture of Amorphous chips Manufacture of PET preforms, closures and blown bottles Power generation and other utilities Real estate development
Manufacture of fibers and yarns Trading of fibers and yarns
On 19 March 2008, the Company registered a change in its name from “Beacon Global Limited” to “Indorama Ventures Limited” with the Ministry of Commerce, Kingdom of Thailand. Effective 31 July 2009, Indo Poly (Thailand) Limited (“IPL”) transferred its entire business to Indorama Polyester Industries Public Company Limited (“IPI”). IPI purchased all the IPL’s assets and assumed all its liabilities for a consideration of Baht 1,487.5 million which was equal to the net book value of the IPL’s assets and liabilities as at 31 July 2009. IPL registered its dissolution with the Ministry of Commerce on 3 August 2009, but was still controlled by the Group as at 31 December 2009. On 19 September 2009, the shareholders approved the change of the status of the Company from a private company to a public company.
88
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 On 25 September 2009, the Company registered a change in its name from “Indorama Ventures Limited” to “Indorama Ventures Public Company Limited” with the Ministry of Commerce. On 27 October 2009, the shareholders approved a shareholding restructuring plan between Indorama Polymers Public Company Limited (IRP) and the Company wherein, upon the successful completion of the initial public offering by the Company in February 2010, the Company would exchange all of the shares in IRP currently held by IRP’s shareholders excluding those held by the Company and its subsidiaries for shares in the Company. IRP’s shares would then be subsequently delisted from the Stock Exchange of Thailand (“SET”). On 27 October 2009, IRP filed the application for delisting of shares with the SET. A tender offer for the IRP shares was initiated on 24 December 2009 (see note 32 (a)). Effective 9 November 2009, IPI’s shares were delisted from the Stock Exchange of Thailand. Effective 14 November 2009, TPT Utilities Company Limited (“TPT-UC”) transferred its entire business to TPT Petrochemicals Public Company Limited (“TPT”). TPT purchased all the TPT-UC’s assets and assumed all its liabilities for a consideration of Baht 1,556.9 million which was equal to the net book value of the TPT-UC’s assets and liabilities as at 14 November 2009. TPT-UC registered its dissolution with the Ministry of Commerce on 16 November 2009, but was still controlled by the Group as at 31 December 2009.
2. Basis of preparation of the financial statements The financial statements issued for Thai reporting purposes are prepared in the Thai language. This English translation of the financial statements has been prepared for the convenience of readers not conversant with the Thai language. The financial statements are prepared in accordance with Thai Accounting Standards (“TAS”) and Thai Financial Reporting Standards (“TFRS”) including related interpretations and guidelines promulgated by the Federation of Accounting Professions (“FAP”) and with generally accepted accounting principles in Thailand. On 15 May 2009, the FAP announced (Announcement No. 12/2009) the re-numbering of TAS to the same numbers as the International Accounting Standards (“IAS”) on which the TAS/TFRS are based. The Group has adopted the following revised TAS/TFRS and accounting guidance which were issued by the FAP during 2008 and 2009 and effective for annual accounting periods beginning on or after 1 January 2009: TAS 36 (revised 2007)
Impairment of Assets
Framework for the Preparation and Presentation of Financial Statements (revised 2007) (effective 26 June 2009) Accounting Guidance about Leasehold Right (effective 26 June 2009) Accounting Guidance about Business Combination under Common Control The adoption of these revised TAS/TFRS and accounting guidance does not have any material impact on the consolidated and separate financial statements.
Annual Report 2009
89
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 The FAP has issued during 2009 a number of new and revised TAS/TFRS which are not currently effective and have not been adopted in the preparation of these financial statements. The revised TAS applicable to the Group is disclosed in note 33. The financial statements are presented in Thai Baht, rounded to the nearest thousand unless otherwise stated. They are prepared on the historical cost basis except as stated in the accounting policies. The preparation of financial statements in conformity with TAS and TFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses. Actual results may differ from estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which estimates are revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements is included in the following notes: Note 4 Business combinations Note 24 Measurement of defined benefit obligations Note 29 Valuation of financial instruments Note 31 Evaluation of contingent liabilities
3. Significant accounting policies (a)
Basis of consolidation
The consolidated financial statements relate to the Company and its subsidiaries and the Group’s interests in associates. Business combinations Business combinations are accounted for under the purchase method. The cost of an acquisition is measured at the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange, plus costs directly attributable to the acquisition. The excess of the Group’s interest in the net identifiable assets and liabilities of the acquiree over cost (“negative goodwill”) is recognized in the consolidated statement of income. Business combinations of entities or businesses under common control are accounted for using a method similar to the pooling of interests method and in accordance with the Guideline issued in 2009 by the FAP. Subsidiaries Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. The accounting policies of subsidiaries have been changed where necessary to align them with the policies adopted by the Group.
90
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 The difference between the proceeds from the disposal of a subsidiary and its carrying amount as of the date of disposal, including the cumulative amount of any currency translation differences that relate to the subsidiary recognised in equity, is recognised in the consolidated statement of income. Associates Associates are those entities in which the Group has significant influence, but not control, over the financial and operating policies. Significant influence is presumed to exist when the Group holds between 20% and 50% of the voting power of another entity. The consolidated financial statements include the Group’s share of the income, expenses and equity movements of associates from the date that significant influence commences until the date that significant influence ceases. When the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate. Transactions eliminated on consolidation Intra-group balances and transactions, and any unrealised income or expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised gains arising from transactions with associates are eliminated against the investment to the extent of the Group’s interest in the investee. Unrealised losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment.
(b)
Foreign currencies
Foreign currency transactions Transactions in foreign currencies are translated to Thai Baht at the foreign exchange rates ruling at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated to Thai Baht at the foreign exchange rates ruling at that date. Foreign exchange differences arising on translation are recognised in the statement of income. Non-monetary assets and liabilities measured at cost in foreign currencies are translated to Thai Baht using the foreign exchange rates ruling at the dates of the transactions. Foreign entities The assets and liabilities of foreign entities are translated to Thai Baht at the foreign exchange rates ruling at the reporting date. Goodwill and fair value adjustments arising on the date of acquisition of foreign entities are stated at exchange rates ruling on transactions dates. The revenues and expenses of foreign entities are translated to Thai Baht at rates approximating the foreign exchange rates ruling at the dates of the transactions. Foreign exchange differences arising on translation are recognised in a separate component of equity until disposal of the investments.
Annual Report 2009
91
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Where monetary items, in substance, form part of the Group’s net investment in a foreign entity, foreign exchange differences arising on such monetary items and related hedges are recognised directly in a separate component of equity until disposal of the investment.
(c)
Derivative financial instruments
Derivative financial instruments are used to manage exposure to foreign exchange and interest rate risks arising from operational, financing and investment activities. Derivative financial instruments are not used for trading purposes. However, derivatives that do not qualify for hedge accounting are accounted for as trading instruments. Derivative financial instruments are recognised initially at fair value; attributable transaction costs are recognised in the statement of income when incurred. Subsequent to initial recognition, they are remeasured at fair value. The gain or loss on remeasurement to fair value is recognised immediately in the statement of income. However, where derivatives qualify for hedge accounting, recognition of any resultant gain or loss depends on the nature of the item being hedged (see accounting policy 3(d)). The fair value of interest rate swaps is based on broker quotes at the reporting date. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the reporting date. The fair value of forward exchange contracts is based on their listed market price, if available. If a listed marked price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price at the reporting date for the residual maturity of the contract using a risk-free interest rate (based on governmental bonds).
(d)
Hedging
Fair value hedges Where a derivative financial instrument hedges the changes in fair value of a recognised asset, liability or unrecognised firm commitment (or an identified portion of such asset, liability or firm commitment), any gain or loss on remeasuring the fair value or foreign currency component of the hedging instrument is recognised in the statement of income. The hedged item is also stated at fair value in respect of the risk being hedged, with any gain or loss being recognised in the statement of income. Cash flow hedges Where a derivative financial instrument is designated as a hedge of the variability in cash flows of a recognised asset or liability or a highly probable forecast transaction, the effective part of any gain or loss on the derivative financial instrument is recognised directly in equity. If a hedge of a forecast transaction subsequently results in the recognition of a financial asset or financial liability, the associated cumulative gains or losses that were recognised directly in equity are recognised in the statement of income in the same period or periods during which the asset acquired or liability assumed affects the statement of income. If a hedge of a forecast transaction subsequently results in the recognition of a non-financial asset or non-financial liability, or a forecast transaction for a non-financial asset or non-financial liability becomes a firm commitment for which fair value hedge accounting is applied, the associated cumulative gains or losses that were recognised directly in equity are removed from equity and recognised in the statement of income in the same period or periods during which the asset acquired or liability assumed affects the statement of income.
92
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
For cash flow hedges other than those noted in the preceding two paragraphs, the associated cumulative gains or losses that were recognised directly in equity are removed from equity and recognised in the statement of income in the same period or periods during which the hedged forecast transaction affects the statement of income. Discontinuing hedge accounting Hedge accounting is discontinued prospectively when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge accounting. Any cumulative gain or loss on the hedging instrument existing in equity is retained in equity and is recognised when the forecast transaction is ultimately recognised in the statement of income. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is recognised in the statement of income immediately.
(e)
Cash and cash equivalents
Cash and cash equivalents comprise cash balances, call deposits and highly liquid short-term investments. Bank overdrafts that are repayable on demand are a component of financing activities for the purpose of the statement of cash flows.
(f)
Trade and other accounts receivable
Trade and other accounts receivable are stated at their invoice value less allowance for doubtful accounts. The allowance for doubtful accounts is assessed primarily on analysis of payment histories and future expectations of customer payments. Bad debts are written off when incurred.
(g)
Inventories
Inventories are stated at the lower of cost and net realisable value. Cost is calculated using the weighted average cost principle, and comprises all costs of purchase, costs of conversion and other costs incurred in bringing the inventories to their present location and condition. In the case of manufactured inventories and work-in-progress, cost includes an appropriate share of production overheads based on normal operating capacity. Net realisable value is the estimated selling price in the ordinary course of business less the estimated costs to complete and to make the sale.
(h)
Investments
Investments in subsidiaries and associates Investments in subsidiaries in the separate financial statements of the Company are accounted for using the cost method. An investment in a subsidiary that is not controlled by the Group is accounted for using the cost method in the consolidated financial statements.
Annual Report 2009
93
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 (i)
Property, plant and equipment
Owned assets Property, plant and equipment are stated at cost less accumulated depreciation and impairment losses, except for machinery and equipment related to the manufacture of textiles and related products which are stated at their revalued amounts. The revalued amount is the fair value determined on the basis of the assets’ existing use at the date of revaluation less any subsequent accumulated depreciation and impairment losses. Leased assets Leases in terms of which the Group substantially assumes all the risk and rewards of ownership are classified as finance leases. Property, plant and equipment acquired by way of finance leases is capitalised at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease, less accumulated depreciation and impairment losses. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly to the statement of income. Revalued assets Revaluations are performed by independent professional valuers with sufficient regularity to ensure that the carrying amount of these assets does not differ materially from that which would be determined using fair values at the reporting date. Any increase in value, on revaluation, is credited to equity under the heading ‘revaluation surplus’ unless it offsets a previous decrease in value recognised in the statement of income in respect of the same asset. A decrease in value is recognised in the statement of income to the extent it exceeds an increase previously recognised in equity in respect of the same asset. The revaluation surplus is utilised by reference to the difference between depreciation based on the revalued carrying amount of the asset and depreciation based on the asset’s original cost and credited to accumulated depreciation. Upon disposal of a revalued asset, any remaining related revaluation surplus is transferred from equity to retained earnings and is not taken into account in calculating the gain or loss on disposal. Depreciation Depreciation is charged to the statement of income on a straight-line basis over the estimated useful lives of each item of property, plant and equipment. The estimated useful lives are as follows: Land improvements Buildings and building improvements Machinery and equipment Office furniture, fixtures and office equipment Transportation equipment No depreciation is provided on freehold land or assets under construction.
94
Indorama Ventures PCL
20-25 20-30 5-30 3-10 5-10
years years years years years
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
(j)
Intangible assets
Intangible assets that are acquired by the Group, which have finite useful lives, are stated at cost less accumulated amortisation and impairment losses. Intangible assets are amortised in the statement of income on a straight-line basis over their estimated useful lives of intangible assets from the date that they are available for use. The estimated useful lives are as follows: Rights acquired Software licenses Customer lists Technology license
(k)
3-15 5-7.5 9 30
years years years Years
Impairment
The carrying amounts of the Group’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amounts are estimated. An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. The impairment loss is recognised in the statement of income unless it reverses a previous revaluation credited to equity, in which case it is charged to equity.
Calculation of recoverable amount The recoverable amount of a non-financial asset is the greater of the asset’s value in use and fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset. For an asset that does not generate cash inflows largely independent of those from other assets, the recoverable amount is determined for the cashgenerating unit to which the asset belongs.
Reversals of impairment An impairment loss in respect of a financial asset is reversed if the subsequent increase in recoverable amount can be related objectively to an event occurring after the impairment loss was recognized. Impairment losses recognised in prior periods in respect of non-financial assets are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.
(l)
Interest-bearing liabilities
Interest-bearing liabilities are recognised initially at fair value. Subsequent to initial recognition, interest-bearing liabilities are stated at amortised cost with any difference between cost and redemption value being recognised in the statement of income over the period of the borrowings on an effective interest basis.
Annual Report 2009
95
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 (m) Trade and other accounts payable Trade and other accounts payable are stated at cost.
(n)
Employee benefits
Defined contribution plans Obligations for contributions to defined contribution pension plans are recognised as an expense in the statement of income as incurred. Defined benefit plans A defined benefit plan is a post-employment benefit plan other than a defined contribution plan. The net obligation in respect of defined benefit pension plans is calculated separately for each plan by estimating the amount of future benefit that employees have earned in return for their service in the current and prior periods; that benefit is discounted to determine its present value. Any unrecognised past service costs and the fair value of any plan assets are deducted. The discount rate is the yield at the reporting date on AA credit-rated bonds that have maturity dates approximating the terms of the Group’s obligations and that are denominated in the same currency in which the benefits are expected to be paid. The calculation is performed annually by a qualified actuary using the projected unit credit method. When the calculation results in a benefit, the recognised asset is limited to the total of any unrecognised past service costs and the present value of economic benefits available in the form of any future refunds from the plan or reductions in future contributions to the plan. An economic benefit is available if it is realisable during the life of the plan, or on settlement of the plan liabilities.
(o)
Provisions
A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.
(p)
Revenue
Revenue excludes value added taxes and is arrived at after deduction of trade discounts. Sale of goods Revenue is recognised in the statement of income when the significant risks and rewards of ownership have been transferred to the buyer. No revenue is recognised if there is continuing management involvement with the goods or there are significant uncertainties regarding recovery of the consideration due, associated costs or the probable return of goods. Interest and dividend income Interest income is recognised in the statement of income as it accrues. Dividend income is recognised in the statement of income on the date the Group’s right to receive payment is established.
96
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
(q)
Expenses
Operating leases Payments made under operating leases are recognised in the statement of income on a straight line basis over the term of the lease. Finance costs Interest expenses and similar costs are charged to the statement of income for the period in which they are incurred, except to the extent that they are capitalised as being directly attributable to the acquisition, construction or production of an asset which necessarily takes a substantial period of time to be prepared for its intended use or sale. The interest component of finance lease payments is recognised in the statement of income using the effective interest method.
(r)
Income tax
Income tax on the profit or loss for the year comprises current tax. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted at the reporting date, and any adjustment to tax payable in respect of previous years.
4. Acquisitions and disposal of subsidiaries (a)
Acquisitions
(i)
Negative Goodwill
The excess of the Group’s interest in the net identified assets and liabilities of the companies acquired during the year ended 31 December 2008 is considered by management as negative goodwill attributable to bargain purchase factors, and is recognized in the consolidated statement of income and comprised the following:
(in thousand Baht)
Eastman Chemical Company
1,027,446
Indorama Petrochem Limited
1,339,860
TPT Petrochemicals Public Company Limited
619,367
Indorama Polyester Industries Public Company Limited (formerly Tuntex (Thailand) Public Company Limited)
137,164
Total negative goodwill
3,123,837
(ii)
Eastman Chemical Company
On 31 March 2008, the Group acquired the net assets (property, plant and equipment and working capital) and assumed the operations of two PET production facilities and a PTA production facility located in the Netherlands and the United Kingdom, previously owned and operated by Eastman Chemical Company (“Eastman”). The net assets were acquired for a cash consideration of €221.28 million (Baht 11,007.2 million).
Annual Report 2009
97
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 The acquirees’ net assets at the acquisition date comprised the following: Recognised values
Carrying amounts
Fair value adjustments (in thousand Baht)
Trade and other receivables Inventories Property, plant and equipment Intangible assets Trade and other payables Net identifiable assets and liabilities Negative goodwill Total consideration
2,918,758 1,575,754 7,872,052 552,364 (884,268) 12,034,660 (1,027,446) 11,007,214
487,637 552,364 1,040,001
2,918,758 1,575,754 7,384,415 (884,268) 10,994,659
(iii) Indorama Petrochem Limited
Effective 30 September 2008, the Group acquired, from a shareholder group controlled by a related party, 100% of the outstanding shares of Indorama Petrochem Limited (“IRPTA”), in exchange for 26,115,400 shares of the Company with fair value of Baht 2,525.8 million. IRPTA is principally engaged in the manufacture and distribution of PTA. IRPTA’s net assets at the acquisition date comprised the following: Recognised values Cash and deposits at financial institutions Trade accounts receivable Inventories Other current assets Property, plant and equipment Intangible assets Other non-current assets Interest-bearing loans and borrowings Trade accounts payable Other liabilities Net identifiable assets and liabilities Interest acquired (%) Net identifiable assets and liabilities-acquired Negative goodwill Total consideration Fair value of shares issued Cash acquired Net cash inflow
98
Indorama Ventures PCL
4,110 1,853,121 1,466,235 265,700 13,497,206 410,290 12,827 (11,218,938) (2,383,134) (41,752) 3,865,665 100% 3,865,665 (1,339,860) 2,525,805 (2,525,805) (4,110) 4,110
Fair value adjustments
Carrying amounts (in thousand Baht) 4,110 1,853,121 1,466,235 265,700 266,697 13,230,509 410,290 12,827 (11,218,938) (2,383,134) (41,752) 266,697 3,598,968
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
(iv) TPT Petrochemicals Public Company Limited
In three transactions between 15 August 2008 to 16 October 2008, the Group obtained a 50.56% equity interest in TPT Petrochemicals Public Company Limited (“TPT”) for a cash consideration of Baht 2,128.5 million. TPT is principally engaged in the manufacture and distribution of PTA. The acquisition was considered effective on 30 September 2008. TPT’s net assets at the acquisition date comprised the following: Recognised values
Fair value
Carrying
adjustments
amounts
(in thousand Baht) Cash and deposits at financial institutions
518,080
-
518,080
Trade accounts receivable
2,042,591
-
2,042,591
Inventories
898,048
-
898,048
Other current assets
378,298
-
378,298
Property, plant and equipment
9,789,620
272,384
9,517,236
Intangible assets
9,380
-
9,380
Other non-current assets
155,601
-
155,601
Interest-bearing loans and borrowings
(6,930,231)
-
(6,930,231)
Trade accounts payable
(969,715)
-
(969,715)
Other liabilities
(456,651)
-
(456,651)
Net identifiable assets and liabilities
5,435,021
272,384
5,162,637
Interest acquired (%)
50.56%
Net identifiable assets and liabilities-acquired
2,747,867
Negative goodwill
(619,367)
Total consideration
2,128,500
Cash acquired
(518,080)
Net cash outflow
1,610,420
(v)
Indorama Polyester Industries Public Company Limited (formerly Tun tex (Thailand) Public Company Limited)
In two transactions on 16 September 2008 and 4 December 2008, the Group acquired a 97.01% equity interest in Tuntex (Thailand) Public Company Limited (“Tuntex”) for a cash consideration of Baht 799.7 million. Tuntex is principally engaged in the manufacture and distribution of polyester yarn. The acquisition was carried out as part of a plan of a business rehabilitation plan for Tuntex, including the restructuring of debts with its lenders. On 25 September 2008, the business rehabilitation plan was completed and on 27 October 2008, the Central Bankruptcy Court approved the Company’s exit from the business rehabilitation process. The acquisition was considered effective on 30 September 2008. The net assets of Tuntex after giving effect to the provisions of the rehabilitation plan comprised the following:
Annual Report 2009
99
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Cash and deposits at financial institutions Trade accounts receivable Inventories Other current assets Property, plant and equipment Intangible assets Other non-current assets Interest-bearing loans and borrowings Trade accounts payable Other liabilities Net identifiable assets and liabilities Interest acquired (%) Net identifiable assets and liabilities-acquired Negative goodwill Total consideration
Recognised values (in thousand Baht) 323,065 22,683 70,340 13,992 1,819,983 1,968 13,790 (1,210,632) (34,670) (54,774) 965,745 97.01% 936,847 (137,164) 799,683 (323,065) 476,618
Cash acquired Net cash outflow
(b)
Disposal
On 19 June 2008, the Group sold its 89.71% interest in a subsidiary, Indo-Rama Chemicals (Thailand) Ltd., to a related party, for a cash consideration in the amount of Baht 279.9 million. As a result, the Group recognised a loss on the disposal in the amount of Baht 287.2 million in the 2008 consolidated statement of income.
5. Related party transactions and balances Related parties are those parties linked to the Group and the Company as shareholders or by common shareholders or directors. Transactions with related parties are conducted at prices based on market prices or, where no market price exists, at contractually agreed prices. Relationships with related parties that control the Company or are being controlled by the Company or have transactions with the Group were as follows: Name of entity
Country of
Nature of relationship
incorporation/ nationality Canopus International
Mauritius
Ultimate parent company of the Group, some common directors
Limited Indorama Resources Limited
Thailand
Indorama Petrochem
Thailand
Immediate parent company, 92.87% shareholder, some common directors common directors
Limited Indorama Holdings Limited
Subsidiary, 100% shareholding; some
Thailand
Subsidiary, 97.93% shareholding, some common directors
100
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Name of entity
Country of incorporation/ nationality
Indorama Polyester Industries Public Company Limited TPT Petrochemicals Public Company Limited Indo Poly (Thailand) Limited
Thailand
Indorama Polymers Public Company Limited UAB Indorama Holdings Europe Indorama Holdings Rotterdam B.V. Indo Rama Textiles (Thailand) Limited UAB Indorama Polymers Europe Indorama Polymers Rotterdam B.V. Indorama Polymers Workington Limited AlphaPet, Inc. Indorama Polymers (USA), Inc. UAB Orion Global Pet StarPet Inc. Asia Pet (Thailand) Limited Petform (Thailand) Limited TPT Utilities Company Limited Chao Pha Ya Heritage Company Limited Tuntex Textile (Thailand) Company Limited P.T. Indorama Synthetics TBK Limited Tri Ocean Tuntex Textile (Thailand) Company Limited Serm Suk Public Company Limited Pacific Resources Limited Cryoviva (Thailand) Limited
Thailand Thailand Thailand Lithuania The Netherlands Thailand Lithuania The Netherlands United Kingdom USA USA Lithuania USA Thailand Thailand Thailand Thailand Thailand Indonesia Thailand Thailand Thailand Thailand
Nature of relationship
Subsidiary, 64.94% shareholding and 33.90% interest held indirectly, some common directors Subsidiary, 54.60% shareholding, some common directors Subsidiary, 44.38% shareholding and 53.33% interest held indirectly, some common directors Subsidiary, 42.81% shareholding and 25.93% interest held indirectly, some common directors Indirect subsidiary, 97.93% effective interest, some common directors Indirect subsidiary, 97.93% effective interest, some common directors Indirect subsidiary, 93.13% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 68.74% effective interest, some common directors Indirect subsidiary, 41.24% effective interest, some common directors Indirect subsidiary, 54.60% effective interest, some common directors Indirect subsidiary, 98.84% effective interest Indirect associate, 16.48% effective interest Some common shareholders and directors Indirect associate, 5.93% effective interest Shareholder of subsidiary, 40% shareholding, some common directors Some common shareholders Some common directors
Annual Report 2009
101
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Name of entity
Country of incorporation/ nationality
Nature of relationship
Tuntex Petrochemical Inc. Era Global Limited Indo-Rama Chemicals (Thailand) Limited Indo Rama Synthetics (India) Limited
Taiwan Gibraltar Thailand
Shareholder of subsidiary, 21% shareholding Some common shareholders Subsidiary (up to June 2008), some common directors Family relationships with directors
India
The pricing policies for particular types of transactions are explained further below: Pricing policies Market prices Market prices Market linked rate Contractually agreed Market linked rate Contractually agreed
Transactions Sales of goods Purchases of goods Interest income Other income Interest expense Selling and administrative expenses
Significant transactions for the years ended 31 December 2009 and 2008 with related parties were as follows:
Consolidated
Separate
financial statements
financial statements
2009
Subsidiaries Interest income Interest expense Other related parties Sales of goods Purchases of goods Selling and administrative expenses Interest income Interest expense
2008 2009 2008 (in thousand Baht) 33,053 18,666 7,436 2,415 1,682,143 823 7,948 11,528 -
683,858 5,248 13,173 713
-
-
Balances as at 31 December 2009 and 2008 with related parties were as follows: Trade accounts receivable from related parties
Consolidated
Separate
financial statements
financial statements
2009 2009 2008 2008 (in thousand Baht) Other related parties 125,016 136,075 Serm Suk Public Company Limited 244,457 Indo Rama Synthetics (India) Limited 26,692 Tuntex Textile (Thailand) Company Limited 151,708 380,532 (26,692) Less allowance for doubtful account 125,016 380,532 Net Bad and doubtful expense for the year 26,692 -
102
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Short-term loans to related parties Comprising: Short-term loans to related party Other related party Indo-Rama Chemicals (Thailand) Limited Total
Consolidated Separate financial statements financial statements 2009 2008 2009 2008 2009 2008 (% per annum) (in thousand Baht) Interest rate
-
212,800 212,800
-
-
Other receivables from related party Subsidiary Indorama Holdings Ltd. Total
-
-
-
5,666 5,666
Total short-term loans to related parties
-
212,800
-
5,666
Long-term loans to related parties
Comprising: Long-term loans to related party Subsidiary Indorama Petrochem Limited Total
-
5.75
Consolidated Separate financial statements financial statements 2009 2008 2009 2008 2009 2008 (% per annum) (in thousand Baht)
Interest rate
2.42-5.13
5.58
Other receivables from related party Subsidiary Indorama Petrochem Limited Total Total long-term loans to related parties
-
-
-
-
-
-
-
-
1,217,265
911,023
1,217,265
911,023
45,363 45,363
13,000 13,000
1,262,628
924,023
The above long-term loan, including the related interest, is repayable only after full repayment of the long-term indebtedness of Indorama Petrochem Limited to a financial institution.
Summary of loans to related parties
Short-term Long-term Total loans to related parties
Consolidated Separate financial statements financial statements 2009 2008 2009 2008 (in thousand Baht)
-
212,800
-
5,666
-
-
1,262,628
924,023
-
212,800
1,262,628
929,689
Annual Report 2009
103
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Movements of loans to related parties for the years ended 31 December 2009 and 2008 were as follows: Loans to related parties
Consolidated Separate financial statements financial statements 2009 2008 2009 2008 (in thousand Baht)
Short-term loans: Other related party At 1 January Increase Decrease At 31 December
212,800 (212,800) -
170,188 212,800 (170,188) 212,800
-
-
-
-
911,023 354,587 (48,345) 1,217,265
911,023 911,023
Long-term loans: Subsidiary At 1 January Increase Decrease At 31 December Loans from related parties
Long-term loans Parent Canopus International Ltd. Subsidiary Indorama Holdings Limited Other related party Era Global Limited Total Less current portion Long-term loans from related parties
Consolidated Separate financial statements financial statements 2009 2008 2009 2008 2009 2008 (in thousand Baht) (% per annum)
Interest rate
Nil
Nil
24,467
403,171
24,467
350,824
-
5.75
-
-
-
109,822
-
Nil
24,467 (24,467)
70,818 473,989 -
24,467 (24,467)
460,646 -
-
473,989
-
460,646
Movements of loans from related parties during the years ended 31 December 2009 and 2008 were as follows:
Long-term loans
Consolidated Separate financial statements financial statements 2009 2008 2009 2008 (in thousand Baht)
Parent At 1 January Increase Decrease At 31 December
104
Indorama Ventures PCL
403,171
2,162,548
350,824
2,111,897
-
352,520
-
350,824
(378,704)
(2,111,897)
(326,357)
(2,111,897)
24,467
403,171
24,467
350,824
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2008 2009
Subsidiary At 1 January Increase Decrease At 31 December Other related party At 1 January Increase Decrease At 31 December Total long-term loans related parties At 1 January Increase Decrease At 31 December
-
-
109,822 (109,822) -
109,822 109,822
70,818 (70,818) -
53,752 17,066 70,818
-
-
473,989 (449,522) 24,467
2,216,300 369,586 (2,111,897) 473,989
460,646 (436,179) 24,467
2,111,897 460,646 (2,111,897) 460,646
Loans from related parties are unsecured and comprise the following: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Loan - USD 730,000 (2008: USD 10,000,000) repayable on or before 31 December 2013*
350,824
24,467
350,824
24,467
-
52,347
-
-
-
-
-
109,822
-
70,818
-
-
24,467
473,989
24,467
460,646
Subordinated loan - nil (2008: USD 1,500,000), repayable on demand upon repayment of certain long-term loans from financial institutions Loan, repayable on or before 31 December 2013 Loan - nil (2008: Baht 53.8 million and USD 525,514), repayable on or before 31 December 2013 Total
* The Company has declared its intention to repay the loan in 2010. As a result, the outstanding loan balance is classified as current liabilities at 31 December 2009.
Annual Report 2009
105
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 6. Cash and cash equivalents Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Cash on hand Cash at bank - current accounts Cash at bank - savings accounts Highly liquid short-term investments Total
2,311 557,619 797,619 1,357,549 39,275 1,396,824
4,000 706,701 467,077 1,177,778 1,463 1,179,241
1,252 130,475 131,727 131,727
304 27,146 27,450 27,450
As at 31 December 2009, cash at bank amounting to USD 1.2 million (Baht 39.3 million; 2008: USD 1.3 million (Baht 44.8 million)), was restricted for loan principal and interest repayments to financial institutions. The currency denomination of cash and cash equivalents as at 31 December was as follows: Consolidated Separate financial statements financial statements 2009 2008 2009 2008 (in thousand Baht) Thai Baht (THB) United States Dollars (USD) Euro (EUR) Pounds Sterling (GBP) Lithuanian Litas (LTL) Total
391,405 86,327 772,491 101,020 45,581 1,396,824
603,841 178,694 370,816 15,827 10,063 1,179,241
131,727 131,727
27,450 27,450
7. Other investments Consolidated Separate financial statements financial statements 2009 2008 2009 2008 (in thousand Baht) Current investments Short-term deposits at financial institutions Other long-term investments Long-term deposits at financial institutions Total
106
Indorama Ventures PCL
1,162,929 1,162,929
257,020 257,020
572,808 572,808
-
32,706 32,706 1,195,635
100,118 100,118 357,138
572,808
-
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 The currency denomination of other investments as at 31 December was as follows: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
THB USD EUR GBP LTL
612,654 347,837 235,144 -
100,118 215,923 35,286 5,811
572,808 -
-
Total
1,195,635
357,138
572,808
-
Deposits in the amount of Baht 267.8 million (2008: Baht 357.1 million) have been pledged to secure loans from financial institutions.
8. Trade accounts receivable
Separate financial statements 2009 2008 (in thousand Baht) 5 380,532 151,708 9,609,011 8,428,607 9,989,543 8,580,315 Note
Related parties Other parties Less allowance for doubtful accounts
Consolidated financial statements 2009 2008
Total Reversal of bad and doubtful debts expense during the year, net
(26,732)
(55,259)
-
-
9,962,811
8,525,056
-
-
28,527
28,967
-
-
Aging analyses for trade accounts receivable were as follows: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Related parties Within credit terms Overdue: Less than 3 months Over 12 months
315,290
61,522
-
-
Less allowance for doubtful accounts
65,242 380,532 -
63,494 26,692 151,708 (26,692)
-
-
Net
380,532
125,016
-
-
Annual Report 2009
107
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Other parties Within credit terms Overdue: Less than 3 months 3-6 months 6-12 months Over 12 months
8,085,788
6,800,441
-
-
Less allowance for doubtful accounts Net
1,351,721 64,929 79,261 27,312 9,609,011 (26,732) 9,582,279
1,559,532 35,668 7,227 25,739 8,428,607 (28,567) 8,400,040
-
-
Total
9,962,811
8,525,056
-
-
The normal credit term granted by the Group ranges from 15 days to 360 days. The currency denomination of trade accounts receivable as at 31 December was as follows: Separate financial statements 2009 2008 (in thousand Baht) -
Consolidated financial statements 2009 2008
968,046 2,538,725 5,414,462 4,864,721 1,285,388 1,650,759 835,794 814,796 21,366 93,810 8,525,056 9,962,811
THB USD EUR GBP LTL Total
Trade accounts receivable with a carrying amount of Baht 3,125.7 million (2008: Baht 3,161.2 million) have been pledged as collateral to secure loans from financial institutions.
9. Inventories
Finished goods
Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
4,483,816
3,658,588
-
-
363,320
255,560
-
-
Raw materials
3,015,931
2,018,616
-
-
Spare parts and supplies
1,231,797
1,191,811
-
-
600,912
536,968
-
-
9,695,776
7,661,543
-
-
(21,822)
(242,308)
-
-
9,673,954
7,419,235
-
-
Work in process
Goods in transit Less allowance for decline in value Net
108
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 The cost of inventories which is recognised as an expense and included in ‘cost of sale of goods’ for 2009 amounted to Baht 57,180 million (2008: Baht 40,482 million). Inventories with a carrying value of Baht 1,959.3 million (2008: Baht 3,496.0 million) have been pledged as collateral to secure loans from financial institutions.
10. Other current assets Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Value added tax receivable
417,327
669,292
-
-
Deferred initial public offering costs
294,704
-
294,704
-
Export incentive receivable
179,960
70,391
-
-
Prepaid expenses
155,565
220,778
-
-
Advance payments Others Total
72,968
9,381
-
-
248,955
272,302
6,711
5,666
1,369,479
1,242,144
301,415
5,666
11. Investments in subsidiaries and associates Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
At 1 January
-
-
9,473,822
2,804,967
Additional investments
-
-
824,058
6,668,855
Impairment
-
-
(16,103)
-
Return of investment
-
-
(659,711)
-
At 31 December
-
-
9,622,066
9,473,822
Annual Report 2009
109
110
Indorama Ventures PCL
5.93
16.48
98.84
Cost
5.82
16.17
97.01
175,000
1,200,000
750,000
175,000
1,200,000
750,000
2008
2009 2008 (in thousand Baht)
Impairment
(10,500)
(10,500)
943,000 943,000 (943,000) (943,000)
10,5500 105,500
200,000 200,000 (200,000) (200,000)
732,500 732,500 (732,500) (732,500)
2008 2009 2008 2009 (%)
Paid-up capital
Consolidated financial statements
-
-
-
-
2009
-
-
-
-
2008
Carrying amount
-
-
-
-
2009
-
-
-
-
2008
Dividend income
the Group and is accounted for using the cost method.
The subsidiary is currently in liquidation pursuant to the order of the Central Bankruptcy Court of Thailand in December 2007. As a result, the subsidiary is not controlled by
Total
Limited
(Thailand) Company
Tri Ocean Tuntex Textile
Company Limited
Tuntex Textile (Thailand)
Associates
Company Limited
Chao Pha Ya Heritage
Subsidiary
2009
interest
Effective ownership
Investments in subsidiaries and associates as at 31 December 2009 and 2008 and dividend income from those investments for the years then ended were as follows:
For the years ended 31 December 2009 and 2008
Statements of income
Indorama Ventures Public Company Limited and its Subsidiaries
Annual Report 2009
111
4 4
4
54.60
64.94
44.38
42.81
100.00 97.93
50.56
97.01
44.38
42.81
100.00 97.93
4,925,000
2,202,850
700,000
1,382,198
4,727,820 774,468
4,925,000
824,350
700,000
1,382,198
4,727,820 774,468
2,278,246 10,297,880
1,473,995
676,217
1,392,470
2,525,805 1,951,147 -
-
-
2,128,500 9,473,822 (16,103)
799,683
676,217 (16,103)
1,392,470
2,525,805 1,951,147
-
-
-
-
-
(659,711)
-
(659,711)
-
-
-
-
-
-
-
Return of capital Impairment 2009 2008 2009 2008 (in thousand Baht)
2,278,246 9,622,066
1,473,995
403
1,392,470
2,525,805 1,951,147
2,128,500 9,473,822
799,683
676,217
1,392,470
2,525,805 1,951,147
Carrying amount 2009 2008
1,232,471
-
-
128,928
709,172 394,371
128,927
-
-
128,927
-
Dividend income 2009 2008
At 31 December 2009, a portion of shares of Indorama Polymers Public Company Limited, Indorama Petrochem Limited, and TPT Petrochemicals Public Company Limited has been pledged as collateral for loans obtained from various financial institutions.
New and additional investments during 2008 were acquired in exchange for cash and the assumption of debt in amounts aggregating Baht 3,466.8 million and the issue of 33,107,102 ordinary shares of the Company at a premium of Baht 2,871.0 million.
During 2009, the Company received a dividend in the amount of Baht 350.6 million from Indo Poly (Thailand) Limited, which is under the process of liquidation, that was accounted for as a return of capital.
During 2009, the Company purchased additional shares of Indorama Polyester Industries Public Company Limited (“IPI”) representing a 1.7% equity interest for a cash consideration of Baht 12.0 million and subscribed to the capital increase of IPI for a cash consideration of Baht 662.3 million; and purchased additional shares of TPT Petrochemicals Public Company Limited representing a 4.0% equity interest for a cash consideration of Baht 149.7 million.
The market price of the Company’s direct interest at Indorama Polymers Public Company Limited was Baht 7,692,332 thousand as at 31 December 2009 (2008: Baht 3,195,282 thousand).
Total
Public Company Limited
TPT Petrochemicals
Company Limited
Industries Public
Indorama Polyester
Limited
Indo Poly (Thailand)
Public Company Limited
Indorama Polymers
Indorama Holdings Limited
Limited
Indorama Petrochem
Subsidiaries
Note
Consolidated financial statements
Effective ownership Paid-up capital interest Cost 2009 2008 2009 2008 2009 2008 (%)
For the years ended 31 December 2009 and 2008
Statements of income
Indorama Ventures Public Company Limited and its Subsidiaries
112
Indorama Ventures PCL
Finance costs capitalised Finance costs capitalized during 2008 (Note 25) Rates of interest capitalised during 2008 (% per annum) Finance costs capitalised during 2009 (Note 25) Rates of interest capitalised during 2009 (% per annum)
Disposals Disposal of subsidiary Translation differences on consolidation At 31 December 2008 and 1 January 2009 Additions Transfers Disposals Translation differences on consolidation At 31 December 2009
Office furniture, fixtures, and equipment
1,422 4.8 - 6.1 -
-
-
-
-
-
-
-
374,230 62,973 6,892 (73) (1,518) 442,504
40,545,846 2,782,067 1,114,108 (8,352) (460,532) 43,973,137
7,859,568 8,125 7,867,693
-
233,614 32,054 136,325 (508) (27,663) 408
11,041,458 360,488 30,256,130 865,605 (285,823) (1,831,296) 139,284
7,749,846 49,050 61,925 (1,253) -
-
-
-
-
176,183 16,104 (4,881) 62 187,468
165,222 17,605 16,218 (3,654) (19,234) 26
Transportation equipment
Consolidated financial statements
(in thousand Baht)
Machinery and equipment other
-
22,728 1,526,825 69,935 (140,040) 5,830 3,924,791 660,908 101,469 (61,765) 4,625,403
2,439,513
Buildings and building improvements
Machinery and equipment textile production
-
1,072,358 50,837 (7,669) 1,115,526
271,800 105,616 763,024 (73,644) 5,562
Land and land improvements
Property, plant and equipment
Cost/revalued At 1 January 2008 Additions Acquisitions through business combinations Transfers
12
For the years ended 31 December 2009 and 2008
Statements of income
Indorama Ventures Public Company Limited and its Subsidiaries
3.5
113,116
5.2
59,889
4,575,075 273,754 (1,273,306) (131,113) 3,444,410
885,164 4,268,312 244,205 (997,465) 174,859
Construction in progress
3.5
113,116
4.8 - 6.1
61,311
58,528,051 3,803,931 (13,306) (662,535) 61,656,141
22,786,617 4,855,853 32,942,727 (291,238) (2,091,877) 325,969
Total
Annual Report 2009
113
Owned assets Assets under finance leases Total at 31 December 2009
Owned assets Assets under finance leases Total at 31 December 2008
Net book value
and 1 January 2009 Depreciation charge for the year Disposals Translation differences on consolidation At 31 December 2009
At 31 December 2008
Accumulated depreciation At 1 January 2008 Depreciation charge for the year Disposals Disposal of subsidiary Translation differences on consolidation
2,473,146 2,473,146 2,355,116 2,355,116
3,785,019 3,785,019
1,084,615 1,084,615
5,386,422 126,155 5,512,577
5,173,827 212,705 (110) -
3,250,866 3,250,866
673,925 170,226 (3,767) 840,384
618,947 126,715 (72,904) 1,167
Buildings and building improvements
1,063,648 1,063,648
8,710 22,626 (425) 30,911
14,887 4,724 (11,160) 259
Land and land improvements
Machinery and equipment textile production
For the years ended 31 December 2009 and 2008
Statements of income
217,374 217,374 222,161 222,161
38,363,165 170,909 38,534,074
156,856 63,908 (73) (348) 220,343
155,640 26,439 (1,560) (23,751) 88
37,792,921 180,111 37,973,032
2,918,577 (2,316) (50,012) 5,439,063
2,572,814
2,541,190 1,344,532 (4,742) (1,296,851) (11,315)
Office furniture, fixtures, and equipment
(in thousand Baht)
Machinery and equipment other
50,247 29,677 79,924
74,620 14,069 88,689
87,494 25,982 (5,821) (111) 107,544
75,973 22,042 (2,765) (7,769) 13
Transportation equipment
Consolidated financial statements
Indorama Ventures Public Company Limited and its Subsidiaries
49,447,650 194,180 49,641,830 49,304,733 200,586 49,505,319
3,444,410 3,444,410
8,886,221 3,327,474 (8,210) (54,663) 12,150,822
8,580,464 1,737,157 (9,177) (1,412,435) (9,788)
Total
4,575,075 4,575,075
-
-
Construction in progress
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
The gross carrying amount of fully depreciated property, plant and equipment that was still in use as at 31 December 2009 amounted to Baht 3,514 million (2008: Baht 3,168 million). In June 2005, certain subsidiaries of the Company revalued their machinery and equipment related to textile production at appraised values at 31 May 2005 by applying the fair market value as specified in the appraisal report dated 2 June 2005 obtained from an independent qualified appraiser. Certain property, plant and equipment with a carrying value of Baht 45,148.2 million (2008: Baht 49,085.1 million) have been pledged as collateral to secure loans from financial institutions.
114
Indorama Ventures PCL
Annual Report 2009
115
At 31 December 2008 At 31 December 2009
Net book value
Amortisation charge for the year Translation differences on consolidation At 31 December 2009
At 31 December 2008 and 1 January 2009
Accumulated amortization and impairment At 1 January 2008 Amortisation charge for the year Reversal of impairment charge Translation differences on consolidation
At 31 December 2009
Additions Translation differences on consolidation
At 31 December 2008 and 1 January 2009
Cost At 1 January 2008 Additions Acquisitions through business combinations Translation differences on consolidation
13. Intangible assets
4
Note
48,326 44,210
11,975 2,594 5 14,574 2,996 (142) 17,428
49,827 3,776 9,381 (84) 62,900 (1,262) 61,638
Rights acquired
For the years ended 31 December 2009 and 2008
Statements of income
117,542 105,565
555 10,942 (3,556) 63 8,004 17,044 (2,300) 22,748
1,190 3,596 119,962 798 125,546 8,341 (5,574) 128,313
Software licences
967,825 878,874
403,511 388,692
140,308
340,407
18,524
81,519 (3,497)
-
269
62,286
(3,556)
53,043
12,530
1,019,182
(19,270)
8,341
3,138
1,030,111
968,584
7,372
51,017
Total
14,819
3,705
-
-
3,705
-
407,216 407,216 407,216
Technology licence
398,446
46,660 (1,055) 81,608
201 36,003
-
35,802
-
(12,434) 422,015
-
2,424 434,449
432,025
-
-
Customer lists
Consolidated financial statements
Indorama Ventures Public Company Limited and its Subsidiaries
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 14. Other non-current assets Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Deferred financing costs Advance payment on purchase of machinery Refundable deposits Others Total
15. Interest-bearing liabilities
Total
162,636
-
-
25,409 47,193 42,089
5,082 55,088
-
-
-
-
277,216
222,806
-
-
Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Note
Current Bank overdrafts Short-term loans from financial institutions (a) Bank overdrafts and short-term loans Current portion of long-term loans from financial institutions (b) Current portion of finance lease liabilities (c) Non-current Long-term loans from financial institutions (b) Long-term loan from a related party Finance lease liabilities (c)
162,525
5
24,776
21,866
-
-
9,979,671
11,183,283
-
565,543
10,004,447
11,205,149
-
565,543
4,643,396
3,264,924
162,600
45,870
24,538 14,672,381
73,467 14,543,540
162,600
611,413
25,330,385
27,507,305
2,155,158
1,195,217
73,374 25,403,759
77,399 27,584,704
2,155,158
109,822 1,305,039
40,076,140
42,128,244
2,317,758
1,916,452
The periods to maturity of interest-bearing liabilities, excluding finance lease liabilities, as at 31 December were as follows: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Within one year After one year but within five years After five years Total
116
Indorama Ventures PCL
14,647,843
14,470,073
162,600
611,413
19,885,264
18,518,623
1,708,348
723,402
5,445,121
8,988,682
446,810
581,637
39,978,228
41,977,378
2,317,758
1,916,452
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Secured interest-bearing liabilities as at 31 December were secured on the following assets: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Current investments Other long-term investments Trade accounts receivable Inventories Property, plant, and equipment Shares of subsidiaries
235,144 32,706 3,125,690 1,959,314 45,148,171 10,198,344
257,020 100,118 3,161,223 3,496,031 49,085,128 10,033,402
2,207,040
958,283
Total
60,699,369
66,132,922
2,207,040
958,283
(a)
Short-term loans from financial institutions
Short-term loans from financial institutions comprise the following:
Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Short-term loans, secured by property, plant and equipment Short-term loans, secured by shares of a subsidiary Revolving loan (USD 62,430,195) (2008: USD 55,889,175) due in May 2014, secured by trade accounts receivable and inventories Revolving loan (EUR 4,000,000) (2008: EUR 7,587,355) secured by property, plant and equipment Revolving loan secured by property, plant and equipment Liabilities under trust receipts Packing credits Promissory note Call loans Bill discounted and other Total
2,009,900
2,834,334
-
-
-
565,543
-
565,543
2,069,954
1,950,404
-
-
191,174
373,309
-
-
179,000 597,186 2,368,346 1,943,366 620,745
1,864,246 1,532,480 1,314,967 748,000 -
-
-
9,979,671
11,183,283
-
565,543
Under the terms of trust receipt agreements with banks, certain imported inventory has been released by the bank to the Group in trust. The Group is accountable to the banks for the inventory or its related sales proceeds until the inventory is fully paid for. Although the Group has no current expectations it will repay the full amount of the USD revolving credit loan before the agreement expires in 2014, the borrowings have been classified as short-term debt on the Group’s balance sheets due to certain subjective provisions available to the bank that are included in the loan document. All short-term loans bear interest at floating rates with the exception of the short-term loans secured by shares of a subsidiary which are interest-free.
Annual Report 2009
117
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 (b)
Long-term loans from financial institutions
All long-term loans are secured by property, plant and equipment and additionally (or except) as disclosed below and bear interest at floating rates except as disclosed below as follows: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Term loan, due in December 2013, secured additionally by inventories Term loan, due in November 2015, secured additionally by guarantee by a related party Term loan, due in March 2013, secured additionally by guarantee by a related party Syndicated term loan, due in August 2012, secured additionally by land sublease rights, cash inflows and shares in a subsidiary Term loan, due in March 2015, secured by shares of a subsidiary Unsecured loan, due in January 2014 Term loan, repayable in monthly installments of Baht 17.1 million, with interest at the rate of fixed rate Unsecured loan, repayable in semi-annual installments of USD 1.1 million commencing in September 2010 Term loan due in November 2015, secured additionally by a restricted bank account Term loan, repayable in monthly installments of Baht 3.8 million, with interest at 4% per annum for the first three years and a floating rate thereafter, secured by shares in TPT Other long-term loans Less portion due within one year Net
7,398,269
8,415,453
-
-
3,840,306
2,826,585
-
-
1,487,974
1,901,390
-
-
1,332,480
1,742,155
-
-
867,250 866,311
708,000 993,030
-
-
853,660
1,024,800
-
-
535,200
560,200
535,200
560,200
499,316
647,005
-
-
485,018 11,807,997 29,973,781
530,887 11,422,724 30,772,229
485,018 1,297,540 2,317,758
530,887 150,000 1,241,087
(4,643,396)
(3,264,924)
(162,600)
(45,870)
25,330,385
27,507,305
2,155,158
1,195,217
The above loan agreements contain certain covenants relating to the declaration and payment of dividends, maintenance of financial ratios, acquisition of major fixed assets, additional indebtedness and share transfers. As at 31 December 2009, the Company had unutilised credit facilities totaling Baht 13,710 million (2008: Baht 12,345 million).
118
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 (c)
Finance lease liabilities
Finance lease liabilities as at 31 December were payable as follows: Consolidated financial statements 2009 Principal
Interest
2008
Payments
Principal
Interest
Payments
(in thousand Baht) Within one year
24,538
5,593
30,131
73,467
7,656
81,123
within five years
73,374
7,908
81,282
77,399
13,219
90,618
Total
97,912
13,501
111,413
150,866
20,875
171,741
After one year but
The currency denomination of interest-bearing liabilities as at 31 December was as follows: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
THB
15,685,204
15,568,837
1,205,018
1,356,252
USD
15,861,773
17,599,261
535,199
560,200
EUR
8,529,163
8,960,146
577,541
-
Total
40,076,140
42,128,244
2,317,758
1,916,452
16. Trade accounts payable The currency denomination of trade accounts payable as at 31 December was as follows: Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
THB
2,519,836
716,734
-
-
USD
3,131,523
3,083,502
-
-
EUR
3,165,223
2,944,159
-
-
GBP
82,732
9,161
-
-
LTL
104,644
109,545
-
-
9,003,958
6,863,101
-
-
Total
Annual Report 2009
119
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 17. Other current liabilities Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Note Accrued operating expenses Other payables Accrued initial public offering costs Interest payable Payable to Eastman Chemical Company Others
5 4
Total
825,320 381,073
666,246 537,709
3,730 -
400 -
213,269 103,571
335,231
213,269 5,088
10,051
247,674
709,895 95,439
168
4
1,770,907
2,344,520
222,255
10,455
18. Share capital 2009
Par value per share
Number
(in Baht) Authorised At 1 January - ordinary shares Reduction in par value from Baht 10 to Baht 1 Increase of new shares Increase of new shares At 31 December - ordinary shares - ordinary shares Issued and paid At 1 January - ordinary shares Reduction in par value from Baht 10 to Baht 1 Increase of new shares At 31 December - ordinary shares
10 1 10 1
2008 Amount
Number
Amount
(thousand shares / thousand Baht) 335,154
3,351,544
40,000
400,000
3,351,544 1,730,456
1,730,456
295,154 -
2,951,544 -
10 1
-
-
335,154
3,351,544
5,082,000
5,082,000
-
-
10
335,154
3,351,544
40,000
400,000
1 10
3,351,544 -
-
295,154
2,951,544
-
-
335,154
3,351,544
3,351,544
3,351,544
-
-
10 1
- ordinary shares The reduction in par value of the authorised share capital from Baht 10 to Baht 1 and the increase of authorised shares from 3,351,544 thousand shares (par value 1 Baht per share) to 5,082,000 thousand shares (par value 1 Baht per share) was approved in a shareholders’ meeting on 28 September 2009. The increase in authorised share capital was approved in shareholders’ meetings held during 2008, as follows:
120
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
Increase in authorised share capital (in thousand shares)
10 June 2008
217,500
2 September 2008
58,364
17 September 2008
19,290
Total
295,154
The issue of shares during the year ended 31 December 2008 resulted in the increase in balances in share capital and share premium as following:
Increase in authorised share capital (in thousand shares)
Shares issued in acquisition of IRPTA
2,525,805
Shares issued in additional investment in IPL
676,217
Subscription monies received
4,025,135
Total
7,227,157
19. Additional paid-in capital and reserves Share premium Section 51 of the Public Companies Act B.E. 2535 requires companies to set aside share subscription monies received in excess of the par value of the shares issued to a reserve account (“share premium�). Share premium is not available for dividend distribution. Revaluation surplus Revaluation surplus recognised in equity relates to cumulative net changes in the surplus arising from the revaluation of machinery and equipment related to textile production. The revaluation surplus is not available for dividend distribution. Currency translation changes The currency transaction changes recognised in equity relate to foreign exchange differences arising from the translation of the financial statements of foreign operations to Thai Baht. Differences arising from common control transactions The differences arising from common control transactions represent the excess of the book values of certain subsidiaries over their cost as of the date of their acquisition and have been recorded as a reserve. It is non-distributable and will be retained until the respective subsidiaries are sold or otherwise disposed of.
Annual Report 2009
121
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Legal reserve Section 116 of the Public Companies Act B.E. 2535 Section 116 requires that a company shall allocate not less than 5% of its annual net profit, less any accumulated losses brought forward, to a reserve account (“legal reserve”), until this account reaches an amount not less than 10% of the registered authorised capital. The legal reserve is not available for dividend distribution.
20. Segment information Segment information is presented in respect of the Group’s business and geographic segments based on the Group’s management and internal reporting structure. Segment results, assets and liabilities include items directly attributable to a segment as well as those that can be allocated on a reasonable basis. Unallocated items mainly comprise interest or dividend-earning assets and revenue, interest-bearing loans, borrowings and expenses, and corporate assets and expenses. Business segments The Group comprises the following main business segments:
Segment 1
Manufacture and distribution of solid state polymerised chips, PET performs, closures and blown bottles (“PET”)
Segment 2
Manufacture and distribution of purified terephthalic acid (“PTA”)
Segment 3
Manufacture and distribution of fibers and yarns (“Fibers and yarns”)
Starting from 1 January 2009, management has decided to present three business segments compared to the four business segments previously reported. The “Polyester fibre & yarns” and “Wool yarns” business segments have been aggregated and reported as one segment under “Fibres & yarns”. In management’s view, these two business segments have similar production process and products and are under one management group, and furthermore, the wool yarns business segment is not considered sufficiently material to be reported separately. The 2008 comparative information has been disclosed accordingly. Geographic segments In presenting information on the basis of geographical segments, segment revenue is based on the geographic location of customers. Segment assets are based on the geographical location of the assets. The following are the main geographical locations: Segment 1
Thailand
Segment 2
North America
Segment 3
Europe
Segment 4
Rest of the world
122
Indorama Ventures PCL
Annual Report 2009
123
40,981,874
-
42,006,455
-
1,773,575
1,419,143
39,648,590
335,434
726,585
2,093,511
-
-
887,738
2,763,314
37,789,156
46,423,231
40,977,937
44,584,616
36,493,060
-
-
2,265
8,795
-
45,980,655
40,969,142
440,311
38,355,403
PTA*/**
12,207,495 11,119,397
14,733,777 13,306,735
12,304,870
-
14,644,180
-
-
420,619
206,140
567,151
764,854
-
564,154
4,083
-
6,406,873
-
(31,983)
272,849
411,825
5,754,182
6,667,863
-
-
15,052
22,492
1,641
-
6,652,811
12,180,920
14,732,136
(22,594,590)
-
-
-
(1,006)
(22,593,584)
(22,642,785)
-
-
(10,597)
(22,632,188)
(9,432,898)
-
-
-
(286,470)
(9,146,428)
(9,450,125)
-
-
(23,747)
(9,426,378)
2008
Eliminations
2008 2009 (in thousand Baht)
Fibers & yarns
Consolidated financial statements 2009 2008 2009
-
115,597
4,180
44,464,839
2008
PET
(a) This includes unallocated amounts related to a subsidiary sold during 2008.
Total expenses
Unallocated expenses
loss
Net foreign exchange
amortization
Depreciation and
expenses
administrative
Selling and
Cost of sales
Total revenue
Unallocated revenue
gain
Net foreign exchange
Interest income
of goods
Revenue from sale
2009
Business segment results
For the years ended 31 December 2009 and 2008
Statements of income
Indorama Ventures Public Company Limited and its Subsidiaries
72,711,406
12,797
-
3,081,932
4,946,305
64,670,372
80,885,575
313,018
559,991
18,340
79,994,226
2009
Total
51,961,746
695,001
509,591
1,566,585
2,783,020
46,407,549
56,604,897
3,675,445
-
1,741
52,927,711 (a)
2008
124
Indorama Ventures PCL
2,578,161 526,250 314,555 -
1,737,356 -
1,737,356
Profit (loss) after tax Minority interests
Profit (loss) for the year
-
4,340,191
4,340,191
-
-
-
633,530
236,405
3,803
5,441,357 864,761
633,530
To Fibers & Yarns
To PET
business segments:
**Includes estimated intercompany profit (loss) on sales to other
To Fibers & Yarns
To PET
ments:
PTA*/**
(294,945) (12,859)
631,721
376,899
1,455,292
8,644,930
6,692,548
(in thousand Baht)
2008
(298,497)
(298,497) -
(97,375) 198,161 2,961 -
15,417,589
2009
(502,627)
(502,627) -
89,597 560,451 31,773 -
40,957
-
40,957
-
13,672
206,361
260,990
6,520
6,520 -
(3,992) -
(3,992)
(17,227) (23,747) -
(48,195) (44,203) -
2008
Eliminations
2008 2009 (in thousand Baht)
Fibers & yarns
Consolidated financial statements 2009 2008 2009
692,014
1,329,347
2008
*Includes intercompany revenue on sales to other business seg-
expenses
Interest expense Income tax expense Unallocated items
income tax
interest and
Profit (loss) before
2009
PET
For the years ended 31 December 2009 and 2008
Statements of income
Indorama Ventures Public Company Limited and its Subsidiaries
4,824,097
6,018,683 1,194,586
8,174,169 1,544,969 553,921 56,596
2009
2008
2,656,296
3,123,050 466,754
4,643,151 1,435,079 49,248 35,774
Total
Annual Report 2009
125
(552)
38,791
687,794
206
30,232
1,743,343
411,648
(33)
13,113
554,038
61,745
21,437,957
21,437,957
27,306,765 30,628,338
765,379 2,556,194
(a) This includes unallocated amounts related to a subsidiary sold during 2008.
77
50,543
Amortisation
Gain/(loss) on disposal of assets
837,195
4,106,193
18,520,612
14,883,348
14,614,938
2,679,407
18,520,612
14,883,348
25,452,602 29,166,390
17,036,281 20,944,049
18,616,751 23,833,680
14,614,938
772,334 2,941,454
762
744
419,875
712,876
5,847,785
5,847,785
5,435,966 7,471,541
47,023 1,988,552
429
1,139
272,070
686,564
4,778,331
4,778,331
5,298,784 6,642,697
101,666 1,242,247
-
-
-
-
(1,224,954)
(1,224,954)
(27,240)
(27,240)
-
-
-
-
(887,844)
(887,844)
(2,228)
(2,228)
2008
Eliminations
2008 2009 (in thousand Baht)
Fibers & yarns
Consolidated financial statements
2009 2008 2009
284,746 3,623,022
2008
PTA*/**
445,741 4,771,188
Depreciation
Capital expenditure
Interest-bearing liabilities Unallocated liabilities Total liabilities
Cash and cash equivalents Inventories Property, plant and equipment Unallocated assets Total assets
2009
PET
Business segment financial position
For the years ended 31 December 2009 and 2008
Statements of income
Indorama Ventures Public Company Limited and its Subsidiaries
1,045
81,519
3,000,413
3,803,931
14,035,916 51,794,297
37,758,381
49,505,319 13,815,741 74,260,112
1,265,098 9,673,954
2009
1,151,791 7,419,235
2008
(156)
53,043
1,513,542
4,855,853 (a)
11,849,341 52,061,133
40,211,792
49,641,830 11,555,219 69,768,075
Total
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Geographic segments Consolidated financial statements Revenue from sale of goods
Thailand North America Europe Rest of the world Total
Segment assets
2009
2008
2009
11,916,524 12,437,639 30,368,906 25,271,157 79,994,226
6,063,552 12,547,683 25,500,353 9,220,256 53,331,844
43,799,125 13,167,056 17,293,931 74,260,112
Capital expenditure
2008
(in thousand Baht) 41,265,703 10,927,466 17,574,906 69,768,075
2009
2008
1,430,040 2,255,015 118,876 3,803,931
1,246,043 3,539,386 70,424 4,855,853
21. Costs of sales Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Changes in inventories of finished goods and work in process Raw materials and consumables used Depreciation and amortisation Others Total
(1,191,579) 58,371,999 2,995,508 7,489,952 67,665,880
-
(515,318) 40,996,822 1,445,916 6,250,841 48,178,261
-
22. Selling expenses Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Distribution Depreciation and amortisation Insurance expense Travelling expense Others Total
3,865,425 86,424 41,406 37,228 239,169 4,269,652
2,403,334 65,871 21,654 22,322 40,019 2,553,200
-
-
23. Administrative expenses Separate financial statements 2009 2008 (in thousand Baht) 10,311 5,972 1,185 466
Consolidated financial statements 2009 2008
Professional fees Personnel expense Depreciation and amortisation Others Total
164,912 136,374 187,894 158,301 54,798 299,167 16,801 651,973
366,274
11,496
6,438
One subsidiary acquired in 2008 recorded depreciation and amortisation expense in administrative expenses during a period in which the subsidiary was not producing goods for sale.
126
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 24. Employee benefit expenses Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Management Wages and salaries Contribution to defined contribution plans and social security Others
Other employees Wages and salaries Contribution to defined contribution plans and social security Bonus Staff welfare Others
Total
97,458
45,825
-
-
1,163 25,280 123,901
1,236 5,983 53,044
1,300 1,300
-
1,666,987
1,090,549
-
-
81,540 167,427 75,840 317,022 2,308,816
68,137 28,280 44,099 142,261 1,373,326
-
-
2,432,717
1,426,370
1,300
-
Provident funds The defined contribution plans comprise provident funds established by a subsidiary of the Company for its Thai employees. Membership to the funds is on voluntary basis. Contributions are made monthly by the employees at the rate of 2% of their basic salaries and by the Company at the rate of 2% of the employees’ basic salaries. The provident funds are registered with the Ministry of Finance as juristic entities and are managed by a licensed Fund Manager. Total expense recognised by the Thai entities for contribution plans for the year ended 31 December 2009 amounted to approximately Baht 0.6 million (2008: Baht 0.5 million). Employee retirement schemes A U.S. subsidiary has established a 401(k) plan that allows eligible employees to contribute up to 60% of their compensation, with the Company matching 50% of employee contributions up to 6% of their compensation. The plan also allows discretionary profit sharing contributions to be made by management. Total expense recognised for the plan for the year ended 31 December 2008 amounted to approximately USD 0.1 million (Baht 1.6 million) (2008: USD 0.1 million (Baht 1.7 million) for the year ended 31 December 2009. Two subsidiaries in Europe have established defined benefit plans that provide pension benefits for their employees upon retirement. The plans entitle a retired employee to receive an annual payment equal to 1/60 of final salary for each year of employment. Total expense recognised for the plan for the year ended 31 December 2009 amounted to EUR 1.4 million (Baht 64.9 million) (2008: EUR 0.4 million (Baht 18.6 million)). One subsidiary in Europe has established defined contribution plan that provide pension benefits for its employees upon retirement. The benefits calculations are based on the annual salary. Total annual contribution by the employer to the plan is defined by the annual and risk premiums charged by theinsurance company. Total expense recognised for the plan for the year ended 31 December 2009 was GBP 0.3 million (Baht 15.5 million) (2008: GBP 0.3 million (Baht 15.8 million).
Annual Report 2009
127
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008
The following information below relates to the defined benefit plans operated by the two European subsidiaries:
Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
(1) Total pension cost Current service cost Interest cost Total periodic pension cost
53,783 11,208 64,991
17,368 1,279 18,647
-
-
The expense is recognized in the following line items in the statement of income: Cost of sales Administrative expenses Total
64,991 64,991
18,647 18,647
-
-
51,612
-
119,569 53,783 11,208 (10,326)
28,340 17,368 1,279 4,625
-
-
225,846
51,612
-
-
(3) Less fair value of pension plan assets at end of year
(107,534)
-
-
-
(4) Liability recognized in the balance sheet
(118,312)
(51,612)
-
-
5.20%
5.90%
-
-
5.20% 3.50%
5.90% 3.50%
-
-
(2) Change in present value of defined benefit obligation Defined benefit obligation at beginning of year Defined benefit obligation assumed upon acquisition of subsidiaries (Note 4 (a)(ii)) Current service cost Interest cost Actuarial (gain) loss Total defined benefit obligation at end of period
(5) Principal actuarial assumptions at end of period Discount rate Expected long-term rate of return on plan assets Future salary increase
128
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 25. Finance costs Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Note Interest expense: Related parties Financial institutions Capitalised as part of construction in progress Net
26. Income tax expense
5
12
1,714,648
713 1,528,058
49,128 7,436
2,415 18,204
1,714,648
1,528,771
56,564
20,619
(113,116)
(61,311)
-
-
1,601,532
1,467,460
56,564
20,619
Current tax expense Current year Adjustments for prior years Total
Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
523,937 30,017
51,441 1,200
33 -
31 -
553,954
52,641
33
31
The current tax expense in the consolidated statement of income is less than the amount determined by applying the Thai corporation tax rate to the accounting profit for the year, principally because a significant portion of the Group’s profit was derived from promoted activities (see Note 27) which are not subject to tax, and unutilised tax losses brought forward from the previous year have been utilised during the year to set-off against the current year’s tax charge. Deferred income tax liabilities recorded in the accounts of subsidiaries located in jurisdictions outside Thailand and not included in the consolidated financial statements amounted to Baht 960.2 million as at 31 December 2009 (2008: Baht 998.9 million).
27. Promotional privileges By virtue of the provisions of the Industrial Investment Promotion Act B.E. 2520, the Company and certain subsidiaries incorporated in Thailand have been granted privileges by the Board of Investment at various times relating to their manufacturing of worsted wool yarn, wool top, Purified Terephthalic Acid (PTA), polyethylene terephthalate resin, PET preforms and closures and amorphous resin (“promoted operations”). The privileges granted include: (a)
exemption from payment of import duty on machinery approved by the Board of Investment;
(b)
exemption from payment of income tax on net profit from promoted operations for a period of eight years from the date on which income is deemed to first derive from such operations;
(c)
a 50% reduction in the normal income tax rate on the net profit derived from promoted operations for a period of five years, commencing from the expiry date in (b) above;
(d)
a five-year carry forward period for losses for tax purposes from promoted operations during the period in (b) above;
Annual Report 2009
129
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 (e)
income exclusions and additional deductions in computing the taxable income for promoted operations during the period in (b) above;
(f)
exemption from income tax on dividend paid to the shareholders from the profit of the promoted operation during the corporate income tax exemption period; and
(g)
double deduction of the cost of transportation, electricity and water supply for corporate income tax purposes for a period of ten years, from the date on which income is deemed to first derive from promoted operations.
As promoted companies, the subsidiaries in Thailand must comply with certain terms and conditions prescribed in the promotional certificates. Summary of revenue from promoted and non-promoted businesses: Consolidated financial statements 2009 Non-
2008 Non-
Promoted
promoted
Promoted
promoted
businesses
businesses
businesses Total (a) (in thousand Baht)
businesses
Total (a)
Export sales
20,178,460
11,257,402
31,435,862
6,012,093
4,293,789
10,305,882
Local sales
19,159,418
10,555,195
29,714,613
9,461,644
2,194,077
11,655,721
Total revenue
39,337,878
21,812,597
61,150,475
15,473,737
6,487,866
21,961,603
(a) excluding revenues from foreign subsidiaries and inter-company eliminations.
28. Basic earnings per share The calculations of basic earnings per share for the years ended 31 December 2009 and 2008 were based on the profit for the years attributable to equity holders of the Company and the weighted average number of ordinary shares outstanding during the years (for 2009, after giving effect to the reduction in par value (Note 18)) as follows: Separate financial statements 2009 2008 (in thousand Baht / thousand shares)
Consolidated financial statements 2009 2008
Profit attributable to equity holders of the Company (basic)
Number of ordinary shares outstanding at 1 January Effect of shares issued on: 9 July 10 October 17 October 8 December Weighted average number of ordinary shares outstanding (basic)
Earnings per share (basic) (in Baht) Par value per share (in Baht) (see note 18)
130
Indorama Ventures PCL
4,824,097
2,656,296
1,172,934
96,568
3,351,544
40,000
3,351,544
40,000
-
104,280 13,114 3,324 196
-
104,280 13,114 3,324 196
3,351,544
160,914
3,351,544
160,914
1.44
16.51
0.35
0.60
1
10
1
10
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 29. Financial instruments Financial risk management policies The Group is exposed to normal business risks from changes in market interest rates and currency exchange rates and from non-performance of contractual obligations by counterparties. The Group does not hold or issue derivative financial instruments for speculative or trading purposes. Risk management is integral to the whole business of the Group. The Group has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risks. The management continually monitors the Group’s risk management process to ensure that an appropriate balance between risk and control is achieved. Interest rate risk Interest rate risk is the risk that future movements in market interest rates will affect the results of the Group’s operations and its cash flows. The Group is primarily exposed to interest rate risk from its borrowings (see Note 15). The effective interest rates of loans to related parties as at 31 December and the periods in which the loans mature or reprice were as follows: Consolidated financial statements Effective interest rate (% per annum)
Within 1 year
After 1 year but within 5 After 5 years years (in thousand Baht)
Total
2008 Current Short-term loans to related party
5.8
212,800
-
-
212,800
212,800
-
-
212,800
Total Separate financial statements Effective interest rate (% per annum)
Within 1 year
After 1 year but within 5 years (in thousand Baht)
After 5 years
Total
1,262,628
1,262,628 1,262,628
2009 Non-current Long-term loans to related parties Total 2008 Non-current Long-term loans to related parties Total
2.4-5.1
5.6
-
-
-
-
1,262,628
-
-
911,023
911,023
911,023
911,023
Annual Report 2009
131
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 The effective interest rates of loans from related parties as at 31 December and the periods in which the loans mature or reprice were as follows: Separate financial statements Effective interest rate (% per annum)
After 1 year but within 5 After 5 years years (in thousand Baht)
Within 1 year
Total
2008 Non-current Long-term loans from a related party
5.8
Total
-
109,822
-
109,822
-
109,822
-
109,822
The effective interest rates of interest-bearing financial liabilities as at 31 December and the periods in which those liabilities mature or re-price were as follows: Consolidated financial statements Effective interest rate (% per annum)
After 1 year but within 5 After 5 years years (in thousand Baht)
Within 1 year
Total
2009 Current Bank overdrafts Short-term loans from financial institutions Long-term loans from financial institutions Finance lease liabilities Non-current Long-term loans from financial institutions Finance lease liabilities
5.2 to 8.2
24,776
-
-
24,776
2.0 to 5.2
9,979,671
-
-
9,979,671
2.0 to 5.9 2.7 to 6.2
4,643,396 24,538
-
-
4,643,396 24,538
2.0 to 5.9 2.7 to 6.2
-
19,885,264 73,374
5,445,121 -
25,330,385 73,374
14,672,381
19,958,638
5,445,121
40,076,140
Total 2008 Current Bank overdrafts Short-term loans from financial institutions Long-term loans from financial institutions Finance lease liabilities Non-current Long-term loans from financial institutions Finance lease liabilities Total
132
Indorama Ventures PCL
5.0 to 7.2
21,866
-
-
21,866
2.0 to 7.5
11,183,283
-
-
11,183,283
2.0 to 7.8 5.0 to 7.5
3,264,924 73,467
-
-
3,264,924 73,467
- 18,518,623 77,399 14,543,540 18,596,022
8,988,682 -
27,507,305 77,399
8,988,682
42,128,244
2.0 to 7.8 5.0 to 7.5
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Separate financial statements Effective interest rate (% per annum)
After 1 year but within 5 years
Within 1 year
After 5 years
Total
2009 Current Long-term loans from financial institutions
3.4 to 5.1
162,600
-
Non-current Long-term loans from financial institutions
-
162,600
3.4 to 5.1
-
1,708,348
446,810
162,600
1,708,348
446,810
2,155,158 2,317,758
-
-
Total 2008 Current Short-term loans from financial institutions Long-term loans from financial institutions
nil
565,543
3.4 to 5.1
45,870
-
-
45,870
Non-current Long-term loans from financial institutions
3.4 to 5.1
-
613,580
581,637
611,413
613,580
581,637
1,195,217 1,806,630
Total
565,543
Foreign currency risk The Group is exposed to foreign currency risk relating to purchases and sales which are denominated in foreign currencies. The Group primarily utilises forward exchange contracts with maturities of less than one year to hedge certain financial assets and liabilities denominated in foreign currencies. The forward exchange contracts entered into at balance sheet date also relate to anticipated purchases and sales, denominated in foreign currencies, for the subsequent period. As at 31 December, the Group and the Company were exposed to foreign currency risk in respect of financial assets and liabilities denominated in the following currencies:
Separate financial statements 2009 2008 (in thousand Baht / thousand shares)
Consolidated financial statements 2009 2008
Not United States Dollars Cash and cash equivalents Other investments Trade accounts receivable Interest-bearing liabilities Trade accounts payable Gross balance sheet exposure
6 7 8 15 16
86,327 347,837 4,864,721 (15,861,773) (3,131,523)
178,694 5,414,462 (17,599,261) (3,083,502)
(535,199) -
(560,200) -
(13,694,411)
(15,089,607)
(535,199)
(560,200)
Annual Report 2009
133
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Separate financial statements 2009 2008 (in thousand Baht)
Consolidated financial statements 2009 2008
Note Euro Cash and cash equivalents Other investments Trade accounts receivable Interest-bearing liabilities Trade accounts payable Gross balance sheet exposure Pounds Sterling Cash and cash equivalents Other investments Trade accounts receivable Trade accounts payable Gross balance sheet exposure Lithuanian Litas Cash and cash equivalents Other investments Trade accounts receivable Trade accounts payable Gross balance sheet exposure
772,491 235,144 1,650,759 (8,529,163) (3,165,223)
370,816 215,923 1,285,388 (8,960,146) (2,944,159)
(577,541) -
-
(9,035,992)
(10,032,178)
(577,541)
-
6 7 8 16
101,020 814,796 (82,732)
15,827 35,286 835,794 (9,161)
-
-
877,746
-
-
6 7 8 16
833,084 45,581 93,810 (104,644)
10,063 5,811 21,366 (109,545)
-
-
34,747
(72,305)
-
-
6 7 8 15 16
The net fair value of forward exchange contracts at 31 December 2009 was Baht 1,275.5 million (net asset transactions) (2008: Baht 1,076.6 million). Credit risk Credit risk is the potential financial loss resulting from the failure of a customer or counterparty to settle its financial and contractual obligations to the Group as and when they fall due. Management has a credit policy in place and the exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed on all customers requiring credit over a certain amount. At the balance sheet date, there were no significant concentrations of credit risk. The maximum exposure to credit risk is represented by the carrying amount of each financial asset in the balance sheet. However, due to the large number of parties comprising the Group’s customer base, management does not anticipate material losses from its debt collection. Liquidity risk The Group monitors its liquidity risk and maintains a level of cash and cash equivalents deemed adequate by management to finance the Group’s operations and to mitigate the effects of fluctuations in cash flows. As at 31 December 2009, current liabilities exceeded current assets by Baht 2,219.4 million in the consolidated financial statements (2008: Baht 4,943.8 million) and by Baht 596.6 million in the separate financial statements (2008: Baht 588.8 million). Management views that working capital positions in 2009 and 2008 are due to a significant degree to the financing of the various acquisitions in 2008 (principally, property plant and equipment and other long term assets - Note 4), by short and
134
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 medium term debt. Management believes that the Group and parent company will continue to experience improved cash flows in 2010 from the synergies related to the integration of the acquired companies into the Group, from utilization of the proceeds of the initial public offering (see Note 32), from the operations of the acquired companies and from the completion of construction of a significant factory by a subsidiary and commencement of its operations at full capacity in the early 2010. Management uses available lines of credit (Baht 13,710 million as at 31 December 2009) for re-financings, as necessary. Fair values The fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. The fair value of trade and other accounts receivables is taken to approximate the carrying value. The fair value of interest rate swaps is based on broker quotes. Those quotes are tested for reasonableness by discounting estimated future cash flows based on the terms and maturity of each contract and using market interest rates for a similar instrument at the measurement date. The fair value of forward exchange contracts is based on their listed market prices, if available. If a listed market price is not available, then fair value is estimated by discounting the difference between the contractual forward price and the current forward price at the reporting date for the residual maturity of the contract using a risk-free interest rate (based on government bonds). The fair value of non-derivative financial liabilities, which is determined for disclosure purposes, is calculated based on the present value of future principal and interest cash flows, discounted at the market rate of interest at the reporting date. As at 31 December 2009 and 2008, the financial assets and liabilities have fair values that do not differ significantly from the amounts recorded in the balance sheet. Capital Management The Board’s policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Board of Directors monitors the return on capital, which the Group defines as result from operating activities divided by total shareholders’ equity, excluding minority interests. The Board of Directors also monitors the level of dividends to ordinary shareholders.
30. Commitments with non-related parties
Consolidated financial statements 2009
2008 (in million Baht)
Capital commitments Contracted but not provided for Buildings and other constructions Machinery and equipment Total
348
1,151
54
53
402
1,204
Annual Report 2009
135
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 Consolidated financial statements 2009
2008 (in million Baht)
Non-cancellable operating lease commitments Within one year
126
138
After one year but within five years
397
352
After five years
508
372
1,031
862
-
12
543
14,249
Total Other commitments Sold receivables with recourse Purchase orders and letters of credits for goods and supplies
11
360
Forward and swap contracts
1,285
1,903
Bank guarantees
1,396
1,448
Bills discounted
1,426
373
Total
4,661
18,345
Service commitment
Other commitments Certain subsidiaries have executed long-term purchase agreements committing them to purchase agreed quantities of raw materials for periods up to three years, at prices linked to the market prices of the underlying commodities.
31. Contingent liabilities On 18 December 2009, Eastman Chemical Company ("Eastman") filed a complaint in the Delaware District Court, USA against four subsidiaries of the Company alleging the infringement of certain patents owned by Eastman, a breach of the technology license agreement between Eastman and the defendants and the misappropriation of Eastman’s confidential and proprietary trade secret information. No damages were specified. The defendants are defending themselves against the claims. The subsidiaries have appointed legal counsel to defend their interests. At this time, the outcome of the proceedings or the total amount of possible damages, if any, cannot be reasonably estimated. Management believes that the outcome of the proceedings will not have a material adverse effect on the Company's consolidated financial position, results of operations, or cash flows.
32. Events after the reporting period a) Pursuant to the shareholding restructuring plan for the exchange of shares in IRP for shares in the Company (see Note 1), the Company successfully concluded the tender offer on 1 February 2010. The tender offer resulted in the increase in the combined direct and indirect shareholding of the Company in IRP from 69.29% to 99.08%. The shares of IRP were delisted on 5 February 2010 from the Stock Exchange of Thailand. b) On 1 February 2010, the Company received the proceeds for the initial public offering of ordinary shares of 400 million shares at an issue price of Baht 10.20 per share. The issued and paid-up capital of the Company increased from Baht 3,351,543,910 to Baht 4,334,271,047 as a result of
136
Indorama Ventures PCL
Indorama Ventures Public Company Limited and its Subsidiaries Notes to the financial statements For the years ended 31 December 2009 and 2008 the initial public offering and the exchange offer (described in paragraph (a)). The costs of the initial public offering have been deferred (see Note 10) and will be deducted from share premium. On 3 February 2010, the Company registered the increase in issued and paid-up capital with the Ministry of Commerce, Thailand and the Securities and Exchange of Thailand approved the listing and trading of the shares of the Company. The first trading day of the shares was 5 February 2010. c) On 25 February 2010, the Board of Directors proposed for the dividend payment of Baht 0.33 per share, amounting to Baht 1,430.3 million. This dividend payment is subject to the approval by the shareholders of the Company.
33. Thai Accounting Standards (TAS) not yet adopted The Group has not adopted the following revised TAS that has been issued as of the reporting date but are not yet effective. The revised TAS are anticipated to become effective for annual financial periods beginning on or after 1 January in the year indicated. TAS TAS 24 (revised 2009)
Topic Related Party Disclosures
Year effective (formerly TAS 47) 2011
Management is presently considering the potential impact of adopting and initial application of this revised TAS on the consolidated and separate financial statements.
34. Reclassification of accounts Certain accounts in the 2008 financial statements have been reclassified to conform to the presentation in the 2009 financial statements, as follow: Selling expenses, administrative expenses and management benefits expenses are now disaggregated. Comparative figures have been reclassified accordingly. The reclassification has been made to comply with the classification set out in the Pronouncement of the Department of Business Development Re: Determination of items in the financial statements B.E. 2552 dated 30 January 2009.
Annual Report 2009
137
รายงานประจำ�ปี 2552
145