:: Annual Report 2011 - 2012 :: by Phantipa Kwanmuang

ANNUAL REPORT 2011-2012

Content 04 06 07 08 10 11 12 15 43 53 57 57 69 77 98 134

Message from the Chairman Board of Directors The Board of Directors没 Report on its Responsibility to Financial Statements Audit Committee Report 2011 - 12 Key Financial Indicators Financial Highlights General Information Business Overview Risk Factors Future Projects Legal Dispute Shareholding Structure & Management Good Corporate Governance & Internal Control Financial Position and Operational Performance Audited Financial Statements Information of Director and Management of the Company

Polyester Film Plant in Thailand

Polyplex USA LLC - PET Thin Film plant at USA - Under construction

Shareholders没 Company Visit - Feb没 2012

PTL - SAVE THE EARTH INITIATIVES

Annual Report 2011-2012 POLYPLEX (THAILAND) PUBLIC COMPANY LIMITED

Polyplex Participated in Japan-pack 2011 - Japan

Mr.Manu Leopairote Chairman

MESSAGE FROM THE CHAIRMAN As anticipated, the polyester film industry retraced from historical highs of the previous year with margins recalibrated to normalized levels. The inevitable rush of new capacity additions, concentrated mostly in Asia, has created surplus capacity which would last for a while. Notwithstanding the comparison with previous year profitability, the numbers for the year 2011-12 are quite respectable. Sales at Baht 10.14 billion were lower by 9.30% as compared to the previous year reflecting the compression in selling prices despite higher volumes. Profit after tax of Baht 1.36 billion was lower by almost 65% over last year, but still a reasonable net margin on sales of 13.27%. The Company remains upbeat about the plastic film industry and believes that the steps taken to diversify risks associated with cyclical nature of polyester industry would contribute to maintaining the growth tempo as well as a reasonable bottom line. Backed by a strong and liquid balance sheet, the Company intends to continuously grow the business by judicious selection of opportunities. The recent investments in CPP Film line and Silicone Coating Line and the development of other value added Polyester film products are helping the Company diversify its product portfolio which would help to bring in more stability in earnings. The investment in Thick PET line in Thailand, the Blown PP line and expansion in capacity of the extrusion coating business are further steps to diversify its product and market mix. The new thin polyester film line in USA is the continuation of the Company没s policy to have a geographically diversified manufacturing base which would help it to offer more value to its customers and continue being a Global Leader in the Polyester Film business.

Annual Report 2011-2012 POLYPLEX (THAILAND) PUBLIC COMPANY LIMITED

MESSAGE FROM THE CHAIRMAN Despite the sharp downturn in margins and a challenging outlook for the current year, the Company is fully committed to the expansion projects announced in last 18 months. All the projects are progressing satisfactorily and are expected to commence commercial operations on time. The total capital commitment of the company on account of these projects exceeds USD 200 million which will double the company没s asset base in next 12 months. The start-up of these expansion projects in USA and Thailand is likely to coincide with the reversal of current cycle and thereby benefit from improved market conditions. Recognizing the need for significant equity contribution from the company towards the new projects, while maintaining a healthy payout to its shareholders, the Directors have proposed total dividend of THB 0.52 per share for the FY 2011-12. The Company also realizes its responsibility towards the society and the environment it operates in. Adherence to all the environmental norms and striving to improve upon them is a key focus area of the company. Also the Company undertakes various CSR activities throughout the year in a bid to do its part in helping the society and preserving the environment. I, on behalf of the entire Board of Directors, would like to thank all the Stakeholders and the valued business partners for their continued support and belief in us, without which the transformation of the Company from a local producer to a Global leader would not have been possible.

BOARD OF DIRECTORS

Mr. Manu Leopairote

Dr. Virabongsa Ramangkura, Ph.D.

Chairman - Board and Audit Committee

Director and Member - Audit Committee

Mr. Shiraz Erach Poonevala

Mr. Sanjiv Saraf

Mr. Rohit Kumar Vashistha

Director and Member - Audit Committee

Vice Chairman

Managing Director

Mr. Praphad Phodhivorakhun

Mr. Pranay Kothari

Mr. Ranjit Singh

Director

The Board of Directors' Report on its Responsibility to Financial Statements To the Shareholders of Polyplex (Thailand) Public Co., Ltd. In recognition of its duties and responsibilities and in compliance with good corporate governance principles, the Board of Directors has ensured that the financial statements and financial information appearing in the annual report are accurate, complete and adequate. The financial statements are in compliance with the generally accepted accounting practices in Thailand and follow accounting standards and practices that are appropriate to the nature of business. To ensure reasonable confidence in using these financial statements, the Board has instituted and maintained internal control systems, subject to periodic review by the Audit committee and reported to the Board. The company auditor has applied generally accepted auditing standards in auditing the company没s financial statements for 2011-12 and is of the view that these financial statements present fairly, in all respects, the financial standing, results of the operations and cash flows for the company, in accordance with generally accepted accounting principles.

Mr. Manu Leopairote Chairman

Mr.Rohit Kumar Vashistha Managing Director

Audit Committee Report 2011-12 To the Shareholders of Polyplex (Thailand) Public Co., Ltd. Following the companyûs transformation into a public limited company on August 11, 2004, the shareholdersû meeting held on September 2, 2004 decided to constitute an Audit Committee comprising of three independent directors with knowledge, expertise and experience in finance & accounting, industry and business. The appointees were Mr. Manu Leopairote (Chairman of the Audit Committee), Dr. Virabongsa Ramangkura and Mr. Shiraz Erach Poonevala. The Audit Committee performed duties under the delegation of authority set out by the Board of Directors. Among the Audit Committeeûs responsibilities are to review the quarterly/annual financial results of the company, review and recommend expansion project proposals, supervise whether the company was in compliance with the rules and regulations of the Stock Exchange of Thailand (SET) and Securities Exchange Commission (SEC), ensure the transparency of the accounting system, review of internal control systems and promote good corporate governance practices. In the financial year ended March 31, 2012, a total of four Audit Committee meetings were held. The Committeeûs work can be summarized as below: 1. Reviewed and approved the quarterly and yearly financial statements of the company and its subsidiaries to ensure compliance with the generally accepted accounting standards and disclosure of key information before proposing them for the Boardûs approval as also prior to submission to SEC and SET. After due consideration and discussion, it is the opinion of the Committee that the above mentioned financial statements are presented fairly in accordance with generally accepted accounting principles and sufficiently disclosed. 2. Reviewed and monitored the corporate compliance and internal control systems as also risk mitigation measures. The Committee believes that the companyûs internal control systems are adequate. 3. Reviewed the disclosure of information on transactions between the company and its affiliates or any transactions, which may have been perceived as potentially causing conflicts of interest. 4. Reviewed and approved Interim Dividend payment based on profitability for three months period ended on 30th June 2011 5. Reviewed and approved the Final Dividend payment for the financial year ended on 31st March 2011 6. Reviewed and approved the Annual budget for financial year 2011-12 for the Company and its subsidiaries.

Annual Report 2011-2012

8 Polyplex (Thailand) Public Company Limited

Reviewed the new investment proposal i.e relocation of the PET Thin film line investment from Turkey to USA and proposed it to the Board of Directors for their consideration and approval. 8. Reviewed the new investment proposal i.e to invest in a PET Resin project in USA, along with the implementation of the PET Thin film line project and proposed it to the Board of Directors for their consideration and approval. 9. Reviewed the new investment proposal for a Peel & Stick (Blown PP) Project in Thailand and proposed it to the Board of Directors for their consideration and approval. 10. Reviewed the new investment proposal, to invest in second Thermal Lamination Film Project in Thailand and proposed it to the Board of Directors for their consideration and approval. 11. Considered and recommended to the Board of Directors to re-nominate Mr. Narong Puntawong (CPA No. 3315) and/or Mr. Supachai Phanyawattano (CPA No. 3930) and/or Ms. Siraporn Ouaanunkun (CPA No. 3844) of Ernst & Young to be re-appointed by the shareholders as the auditors of the Company for the FY 2011-12. Name

Position

Mr. Manu Leopairote

Board Chairman and Audit

Signature

Committee Chairman Dr. Virabongsa Ramangkura Audit Committee Member

Mr. Shiraz Erach Poonevala Audit Committee Member

Key Financial Indicators

0 20

07 0 20

7 -0

6 00

08 0 20

0 20

1 20

2 1 0 9 8 -1 -1 -1 -0 -0 11 10 08 009 07 0 0 0 0 2 2 2 2 2

Annual Report 2011-2012

10 Polyplex (Thailand) Public Company Limited

7 8 9 0 1 2 -0 -0 -0 -1 -1 -1 06 007 08 009 10 011 0 0 0 2 2 2 2 2 2

8 -0

7 -0

2 -1

1 -1

0 -1

9 -0

1. Financial Highlights 2011-12 Progression (Thousand Baht) Net Sales 10,143,111 Total Revenues 10,263,808 Gross Profit 2,311,548 Net Profit (Loss) 1,361,678 Total Assets 11,592,820 Total Liabilities 3,233,230 Total Shareholderûs equity 8,359,590 ○

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Financial Ratios* Net Profit Margin (%) Return on Equity (%) Return on Assets (%)

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2009-10

2008-09

2007-08

11,183,174 11,320,169 4,680,656 3,882,885 11,932,901 3,570,196 8,362,705

7,125,366 7,299,520 1,731,011 1,039,386 8,866,744 3,854,260 5,012,484

6,859,738 7,062,825 1,800,785 1,041,966 8,880,550 4,284,324 4,596,226

6,398,679 6,512,014 1,422,910 813,551 8,299,334 3,970,453 4,328,881

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13.27% 16.29% 11.58% ○

Per Share Data (Baht) No. of shares Dividend per share (Baht) Earnings per share Par value

○

2010-11

○

34.30% 58.26% 37.34% ○

○

14.24% 21.72% 11.71% ○

○

14.75% 23.44% 12.13% ○

○

12.50% 20.80% 11.51% ○

○

800,000,000 800,000,000 800,000,000 800,000,000 800,000,000 0.52* 1.94 0.52 0.52 0.40 1.70 4.85 1.30 1.30 1.02 1.00 1.00 1.00 1.00 1.00

Note: Above figures and ratios are on consolidated basis (includes figures for the Companyûs subsidiary in Turkey which had commenced operations in 2005/06 as also for subsidiaries in Singapore & USA which are investment holding companies and subsidiaries in USA & China which are Distribution companies) * Interim Dividend of Bt 0.35 per share paid in August 2011 and Final dividend of Bt 0.17 per share as proposed to the Annual General Meeting of Shareholders 2012 for their approval.

2. General Information 2.1 The company

Polyplex (Thailand) Public Company Limited ○

○

Stock Exchange of Thailand symbol PTL Registered Head office 75/26, Ocean Tower II, 18th Floor, Sukhumvit Soi 19, Kwaeng North Klongtoey, Khet Wattana, Bangkok - 10110 Telephone (662) 665-2706-8 Facsimile (662) 665-2705 Factory -1 Siam Eastern Industrial Park, 60/24, Moo 3, Tambol Marbyangporn, Amphur Pluak Daeng, Rayong - 21140 Factory -2 Siam Eastern Industrial Park, 60/91 Moo 3, Tambol Marbyangporn, Amphur Pluakdaeng , Rayong 21140 Type of Business Manufacturer of Polyester Film (Plain and Metallized), Polyester Chips, Extrusion Coated film and Cast Polypropylene Film (Plain and Metallized), Silicone Coated Film Company registration number 0107547000729 Telephone (66) 38 891 352-4 Facsimile (66) 38 891 358 Website http://www.polyplexthailand.com Registered Capital Common Shares Par Value Paid-up Capital Number of Employees

Annual Report 2011-2012

12 Polyplex (Thailand) Public Company Limited

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Baht 960,000,000 960,000,000 shares Baht 1.00 per share Baht 800,000,000 749 including subsidiaries in Turkey, USA and China, and 467 in Thailand.

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2.2 Subsidiaries in which the company holds more than 10% share Company Name and Address

Business Type

Registered No. of shares % Type of Capital held by the shareholding Shares (shares) Company 10,000,000 203,000 80.24% Common 5,000,000 800,000 96.15% Preference

Polyplex (Americas) Inc. Distribution 12200 Ford Suite A-210 Company Farmers Branch, Dallas, Texas-75234 Polyplex (Singapore) Pte Ltd. Investment 100,000 100,000 61, Club Street, Holding 300,000 206,150 Singapore-069436 Company Polyplex Europa Polyester Film* Manufacturer 1,500,000 1,500,000 Sanayi Ve Ticaret A.S. Avrupa of Polyester Serbest Bolgesi, 132, Ada, Film & 7 Parsel, Velimese Mevkii, Polyester Corlu, Turkey chips Polyplex Trading (Shenzhen) Distribution $400,000** $400,000** Co. Ltd* Room.1309,A block, Company Galaxy Century Building, Caitian South Rd., Futian District ,Shenzhen Peopleûs Republic of China Polyplex (Americas) Holding Inc. Investment 10,000 4,400 Corporation Trust Center Holding 1209 Orange Street Wilmington, Company New Castle County, Delaware - 19801 Polyplex USA LLC*** Manufacturing **** $21,927,000 3001 Mallard Fox Drive NW Company Decatur, Alabama - 35601 ○

○

100% 100% ○

○

100%

○

Common

○

100%

○

Common

100%

○

Common Preference

100%

○

Common

○

Common

* Indirect holding via PSPL ** $ 400,000 refers to the registered & paid up Share capital of Polyplex Trading (Shenzhen) Co. Ltd. There is no concept of number of shares or par value per share in Peopleûs Republic of China. *** Indirect Holding via Polyplex Americas Holding Inc. **** There is no shares of Polyplex USA LLC. Capital contribution from PAH is termed as Members Unit and it is 100% by PAH.

2.3 Other references (a)

Registrar Name Address Telephone Facsimile

Thailand Securities Depository Co., Ltd. 62, The Stock Exchange of Thailand Building 4th, 6th-7th Floor, Rachadapisek Road, Klongtoey, Bangkok 10110 (662) 229-2800, (662) 654-5599 (662) 359-1259 ○

○

(b) Trustee N/A (c)

Auditing Firm Name Ernst & Young Address 33rd Floor, Lake Rajada Office Complex, 193/136-137 Rajadapisek road Near Queen Sirikit National Convention Centre Bangkok 10110, Thailand Telephone (662) 264-0777 Facsimile (662) 661-9190 Auditors* Mr. Narong Puntawong (CPA No. 3315) and/or Mr. Supachai Phanyawattano (CPA No. 3930) and/or Ms. Siraporn Ouaanunkun (CPA No. 3844) * Auditors of the company for the FY 2011-12 ○

○

(d) Legal Advisors Name Allen & Overy (Thailand) Co. Ltd. Address 22nd Floor, Sindhorn Tower III, 130-132 Wireless Road, Lumpini, Pathumwan, Bangkok 10330, Thailand Telephone (662) 263-7600 Facsimile (662) 263-7699 Contact person Mr. Arkrapol Pichedvanichok Ms. Somporn Manodamrongtham Name Baker & McKenzie Ltd. Address 990 Abdulrahim Place, 5th floor and 22nd -25th Floors, Rama IV Road, Silom, Bangrak Bangkok 10500, Thailand Telephone (662) 636-2000 Facsimile (662) 636-2110 Contact person Mr. Wittaya Luengsukcharoen ○

(e)

○

Advisor or manager under management contract N/A

Annual Report 2011-2012

14 Polyplex (Thailand) Public Company Limited

○

3. Business Overview 3.1 Company profile and key changes and developments Polyplex (Thailand) Plc. (çPTLé or çthe Companyé) was incorporated as a private company on March 26, 2002 with an initial registered capital of Bt. 400,000 to manufacture and distribute PET film (polyethylene terephthalate film or polyester film). The registered capital of the Company was subsequently increased to Bt. 400 million in April/May, 2002. In August 2004, the Company was transformed into a Public Company and the IPO was subsequently made in December 2004. The Company is promoted by Polyplex Corporation Limited (PCL) based in India and engaged in the same business as the Company for more than 20 years. As on date, PCL has 51% stake in the Company through both direct and indirect shareholding and the balance 49% is with the general public. Past key changes and developments in the Company are as follows: March-April 2002 PTL was promoted by PCL, which is a listed company (on the Bombay Stock Exchange as also National Stock Exchange) in India. PCL took up 100% of the Companyûs registered capital of Bt. 400,000,000 divided into 8,000,000 ordinary shares at a par value of Bt. 10 per share and 32,000,000 preference shares at a par value of Bt. 10 per share. PTL also acquired a plot of land with an area of 20 rai 22 square wah at Siam Eastern Industrial Park in Rayong Province in order to construct a factory for manufacture of PET film. May 20, 2002

PTL was granted a promotion certificate by BOI for PET film (production line 1) with an approved production capacity of 15,000 tons per year.

July-2002 to April-2003 The Company started construction of the factory in July-2002 and completed its plant construction and proceeded with machinery testrun in March, 2003 followed by commercial production from April 2, 2003 when its first sale invoice was recorded. March/April-2003

The shareholdersû meeting resolved for increase of registered capital by another Bt. 260 million through issuance of 20,800,000 preference shares at a par value of Bt. 10 per share and 5,200,000 ordinary shares at a par value of Bt. 10 per share to the existing shareholders

June 11, 2003

The Company was granted a BOI promotion certificate for production of PET film (production line 2) with an approved production capacity of 15,000 tons per year (now expanded to 19,500 tons per year). PET resin with an approved production capacity of 26,250 tons per year ●

●

September 11, 2003

The Board of Directors resolved for the purchase of another plot of land adjacent to the existing land covering 8 rai 28.9 square wah area to produce PET resin which is the raw material in PET film production.

November 12, 2003

Commercial production and distribution began for film production line 2.

December 13, 2003

The Company attained ISO 9001:2000 certification on quality management system.

May 31, 2004

The Company attained ISO 14001:1996 certification on environmental management system.

May to July-2004

The company received approval from the BOI for a restatement of the installed capacity of both its film production lines from 15,000 tons to 19,500 tons each per year. The company also applied to the BOI for further increase in the production capacity of both the film lines to 24,000 tons per year each given the significant productivity improvements and additional equipment commissioned by the company.

July 30, 2004

The shareholdersû meeting resolved for transformation of the Company into a public company, write-down of par value from Bt. 10 to Bt. 5 per share and increase of registered capital by Bt. 1,068 million to make up a total of Bt. 1,728 million requiring issue of additional 213.6 million ordinary shares. The allocation of the increase in capital was as under: 133.6 million Shares offered to Polyplex (Asia) Pte. Ltd. (PAPL), a juristic person registered in Singapore, being a 100% subsidiary of PCL, India. Up to 80 million shares at part value of Bt. 5 per share, making a total of up to Bt. 400 million as public offering. ●

●

The meeting also resolved for establishment of a holding company named Polyplex (Singapore) Pte. Ltd.(PSPL), registered in Singapore as a holding company to facilitate investment and business expansion in Turkey. August 11, 2004

Registration was completed to transform the Company into a public company.

September, 2004

Start up on PET resin batch plant in Thailand with an annual production capacity of 7,000 MT per annum.

September 2, 2004

The shareholdersû meeting resolved for decrease of registered capital as under:

Annual Report 2011-2012

16 Polyplex (Thailand) Public Company Limited

Redemption of the entire 105.6 million preference shares worth Bt. 528 million, currently held by PCL, by a capital reduction process. Cancellation of the unissued ordinary shares of Bt. 240 million, comprising of 48 million shares, which were to be subscribed by PAPL. The combined reduction as above would make the total registered capital Bt. 960 million of which Bt. 560 million is paid-up. The shareholdersû meeting also resolved to reduce the par value of the shares from Bt. 5 per share to Bt. 1 per share to be registered along with the capital reduction. ●

●

November 15-16, 2004

●

Reduced the 105.6 million preference shares worth Bt. 528 million, currently held by PCL, by a capital reduction process. The reduction make the registered capital Bt. 960 of which Bt. 560 is paid-up capital. Changed the par value to Bt. 1 per share

December 8, 2004

IPO of 240,000,000 shares at the price of Baht 6.90 per share.

February 22, 2005

PTL was granted a promotion certificate by BOI for Metalliser film with an approved production capacity of 7,500 tons per year.

February 22, 2005

Startup of Continuous Chips Plant with a production capacity of 45,500 MT per annum.

April 19, 2005 & April 22, 2005

The company received approval from the BOI for a restatement of the installed capacity of both its film production lines from 19,500 tons to 24,000 tons each per year as also for its Chips plant from 26,250 tons to 52,500 tons per year

August, 2005

Start up of Metallizer Line 1 in Thailand with an attainable annual capacity of 4,800 MT per annum.

December, 2005

Start up of Thin Pet film line 1 in Turkey implemented by subsidiary company with a production capacity of 24,000 MT per annum.

March, 2006

Metallizer start up in Turkey with a production capacity of 4,800 MT pa.

December, 2006

Start up of Pet resin plant in Turkey with a production capacity of 45,500 MT per annum

March, 2007

PTL was granted a promotion certificate by BOI for Extrusion Coating film project with an approved production capacity of 18,000 MT per annum for two production lines. 17

October, 2007

Board of Directors of PTL approved a Project for related product diversification in CPP Film manufacture in Thailand.

November, 2007

Start up of Trial run of Extrusion Coating Plant

November, 2007

Total Productive Maintenance (TPM) policy adopted and rolled out by PTL to enhance productivity.

January, 2008

PTL was granted a promotion certificate by BOI for Metallised Film Expansion Project with an approved production capacity of 8,700 MT per annum.

April, 2008

Commencement of commercial production of the Extrusion Coating line.

May, 2008

Commencement of commercial production of the Thin PET Film line and the Metallised Film line in Turkey and also the Metallised Film line in Thailand.

July, 2008

The OHSAS (Occupational Health and Safety Management Systems) 18001:2007 certification was received for all the product lines

February, 2009

PTL was granted a promotion certificate by BOI for Cast Polypropylene (CPP) film project with an approved production capacity of 15,600 MT for CPP plain and CPP Metallized film.

February, 2009

Board of Directors of PTL approved an Investment for setting up a Trading company in China.

May, 2009

Board of Directors of PTL approved an Investment in a Silicone Coating line. The location was decided as Thailand in the Board meeting held in October 2009

September, 2009

The Trading company in China - Polyplex Trading (Shenzhen) Co. Ltd was set up and capital injected through Polyplex (Singapore) Pte Ltd

March, 2010

Commencement of commercial production of the Cast Polypropylene line

May, 2010

Board of Directors of PTL approved the revival of the new thin PET film line investment, which was earlier approved by the Board in May, 2008, but kept on hold due to the global economic crisis.

July, 2010

PTL was granted a promotion certificate by BOI for the Silicone Coating film project with an approved capacity of 725 million sqm.

February, 2011

Board of Directors of PTL approved an Investment in a Thick PET film line in Thailand.

Annual Report 2011-2012

18 Polyplex (Thailand) Public Company Limited

May, 2011

Board of Directors of PTL approved relocation of the Thin PET film line investment from Turkey to USA.

July, 2011

Board of Directors of PTL approved an Investment in a Blown PP film line in Thailand.

November, 2011

Board of Directors of PTL approved an Investment in the Second Extrusion Coating line in Thailand.

March, 2012

The Silicone Coating plant started the commercial operations.

3.2 Shareholding structure The current shareholding structure of the Polyplex group is: 100% Polyplex Resins, Turkey Polyplex Corporation Limited 100% Polyplex (Asia) Pte, Ltd. INDIA SINGAPORE PAR LLC. USA 100% 9.88% 16.5% 34.5% 9.88% Public/ Polyplex (America) Polyplex (Thailand) Public Institutional Private Investor Inc. USA Company Ltd. THAILAND 49% Shareholders 80.24% 100% 100% Polyplex Trading Polyplex (Singapore) 100% (Shenzhen) Polyplex Americas Co., Ltd. Pte. Ltd. SINGAPORE Holding, Delaware. USA CHINA 100%

100% Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi TURKEY

Polyplex USA LLC. Decatur, Alabama, USA Outside Interest

Manufacturing Company

Investment Company

Distribution Company

Polyplex Corporation Ltd. (PCL) PCL, the parent company operating for over 20 years since 1988, is one of the major producers and distributor of plastic film in India selling in both the domestic and overseas markets. It has been listed for several years on Bombay Stock Exchange and other Exchanges in India. Itûs paid up capital is INR 319.8 million (about Bt. 184 million). PCL has the following production capacities as at 31st March 2012:Product Polyester Film Polyester Chips Metallized Film BOPP Film

○

MT p.a 55,000 77,600 20,400 35,000 ○

○

Its direct and indirect shareholding in the Company aggregate to 51% of the latter没s paid up capital. Polyplex has also evolved an equitable policy for distribution of markets, for PET film business, between its Indian, Thailand and Turkey operations based on the several factors like product range, delivered cost to customer, supply lead times and preferential duty access. Based on the same, PTL would serve North America, South East Asia, Asia Pacific, China, Australia & New Zealand. PCL would serve South Asia, and South America. Turkey will serve, Europe, America, Middle East, Africa and CIS/Russian markets. The Polyplex group also has a policy on future investments in polyester film / related areas between the Company and its parent company. Investments in India/SAARC region would be decided and made by PCL and its other subsidiaries (excluding the Company) while investments In Thailand / ASEAN region as well as other countries would be in all likelihood be made by PTL or the subsidiaries in which the Company has a major stake. The above is subject to availability of Investible cash / ability to borrow debt by the existing / preferred Company as per the policy.

Polyplex (Asia) Pte. Ltd. (PAPL) PAPL was established as a 100% subsidiary of PCL in July, 2004 and is now a major shareholder of PTL holding 34.5% as on 31st March 2012. PAPL was incorporated as an investment vehicle of PCL for its overseas investments (including PTL). The issued and paid up capital of PAPL as of March 31, 2012 stands at USD 1.13 million.

Polyplex (Singapore) Pte. Ltd. (PSPL) PSPL was established as a 100% subsidiary of PTL in July 2004, as a wholly owned investment company. Subsequently, PSPL invested in Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi (PE), through Share capital injection as well as by extending subordinated loans, to set up a manufacturing factory in Turkey so as to serve the demand in European and other proximate markets. In September 2009, PSPL also set up a trading company in China, Polyplex Trading (Shenzhen) Co Ltd (PTSL) by investing $ 400,000 as share capital. During the financial year 2011-12, PTL has redeemed USD 34.3 million of its Preference Shares in PSPL, out of the funds received from PE, by way of loan repayment and dividend. The issued and paid up capital of PSPL (including Preference Share Capital) as of March 31, 2012 stands at Euro 9.14 million.

Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi (PE) PSPL had incorporated a 100% owned subsidiary company, PE in Turkey for setting up a Greenfield polyester film plant to cater to the European and other proximate markets. The commercial operations started in December, 2005 with the start up of the first thin PET film Annual Report 2011-2012

20 Polyplex (Thailand) Public Company Limited

line. The first Metallizer plant started production in March, 2006. The PET resin plant commenced commercial production from December, 2006. The second thin PET film line and Metallized Film line commenced commercial production in May 2008.The issued and paid up capital of PE, including Additional Contribution from PSPL, as of March 31, 2012 stands at Euro 8.84 million.

Polyplex (Americas) Inc. PTL acquired 80.24% equity stake in Spectrum Marketing Inc. (renamed as Polyplex (Americas) Inc) with effect from January 1, 2006 to enhance its distribution network in the North American market. PCL, PTLรปs parent company also has a 9.88% stake while the balance 9.88% is held by a foreign US-based shareholder. The issued and paid up equity capital of PA as of March 31, 2012 stands at USD 1.265 million. Apart from this the Preference Share capital, which is owned by PTL (96.15%) and a foreign US-based shareholder (3.85%) stands at USD 4.16 million as on March 31, 2012.

Polyplex Trading (Shenzhen) Co. Ltd (PTSL) In the financial year 2009-10, PTL invested in the setting up of a wholly owned Trading Company in Shenzhen, China, through its 100% held Investment Company in Singapore, PSPL. The decision to invest in the setting up of the Trading Company in China was a strategic initiative to establish the Companyรปs presence in China, which is one of the largest and the fastest growing market in this industry. The issued and paid up capital of PTSL as at 31st March 2012 is USD 0.4 million.

Polyplex Americas Holding Inc (PAH). During FY 2011-12, PTL invested in setting up a 100% investment holding company in USA. This company would be used to invest further in the manufacturing facilities within USA. PAH has further invested in Polyplex (USA) LLC, a manufacturing facility which is currently under project implementation phase. The issued and paid up capital of PAH (including the Additional Paid-In Capital) as on 31st Marchรป2012 is USD 22 million.

Polyplex USA LLC Polyplex USA LLC was established in FY 2011-12 as a 100% subsidiary of PAH. The thin PET film line along with the PET Resins plant project is being set up under this company in Decatur, Alabama. This project is the first manufacturing base of Polyplex in USA. The membersรป contribution which represents the paid up capital as on 31st Marchรป12 is USD 21.9 million.

3.3 Revenue structure of the Company PTLûs standalone and consolidated sales value classified by regions is shown below: STANDALONE Customers ○

○

Exports Asia North America Europe Others Total exports Domestic Sales Sale of chips/others 1 Total sales revenues Other revenues 2 Grand total ○

○

2009-10 Bt. million % ○

○

CONSOLIDATED Customers Exports ○

○

1,354.06 40.15 443.51 13.15 290.81 8.62 192.12 5.70 2,280.50 67.63 584.03 17.51 310.12 9.30 3,174.66 95.18 160.69 4.82 3,335.35 100.00

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24.81 21.45 29.73 4.90 80.89

584.03 8.00 479.45 6.57 1,063.48 14.57 157.04 2.15 7,125.36 97.61 174.15 2.39 7,299.52 100.00 ○

○

Consolidated Regionwise Film Sales FY 2011-12

Europe, 27%

Annual Report 2011-2012

22 Polyplex (Thailand) Public Company Limited

○

2011-12

○

3,032.33 2,802.47 3,464.45 289.04 9,588.29

○

26.79 24.76 30.60 2.55 84.70

○

2,620.25 2,683.84 2,745.07 396.93 8,446.09

○

25.53 26.15 26.75 3.87 82.29 ○

○

1,013.33 8.95 915.31 8.92 517.84 4.57 698.93 6.81 1,531.17 13.53 1,614.24 15.73 63.71 0.56 82.78 0.81 11,183.16 98.79 10,143.11 98.82 137.00 1.21 120.70 1.18 11,320.16 100.00 10,263.81 100.00 ○

○

Note: 1) Sale of chips includes both domestic and export sales. 2) Includes Exchange gain, miscellaneous sales, Export Incentive, interest received, etc. Turkey, Others, 3% Thailand, 9% 7%

○

2,220.06 45.72 809.00 16.66 418.71 8.62 141.47 2.91 3,589.24 73.91 915.31 18.85 56.09 1.16 4,560.65 93.92 295.32 6.08 4,855.96 100.00

% Bt. million % Bt. Million %

○

1,811.37 1,565.58 2,169.96 357.92 5,904.84

○

2010-11

Bt. million

○

2011-12 Bt. Million %

2,288.39 44.74 955.65 18.68 434.98 8.50 249.91 4.89 3,928.94 76.81 1,013.33 19.81 38.46 0.75 4,980.73 97.38 134.26 2.62 5,114.99 100.00

2009-10

○

Asia North America Europe Others Total exports Domestic sales - PTL (Thailand) - PE (Turkey) Total Domestic sales Sale of chips/others 1 Total sales revenues Other revenues 2 Grand total

○

2010-11 Bt. million %

Asia, 26% North America, 27%

3.4 Business Goal The vision of Polyplex is to continuously grow, create value and establish global leadership in the plastic film business through building trusted partnerships with Investors, Customers and Employees. Keeping this vision in mind, Polyplex has been moving towards establishing itself as a Preferred packaging substrate provider as against just a PET thin film supplier, by undertaking expansions for manufacturing BOPP film and CPP film, which are other Packaging substrates used by Converters, in addition to PET thin film. The Thick PET film line announced last year by the Company was its first step into the Thick Film segment which would help in diversifying its product and customer portfolio. The second Extrusion coating line and a Blown PP line projects in Thailand would help in diversifying its product portfolio further. The business goal is to increase market share in various regional markets - through geographically diversified manufacturing presence, increased market penetration in key markets and build a diversified portfolio of products like Metallized films, Clear films, Thermal Lamination films, Silicone Coated film, Chemically Coated films, and other grades of packaging films like CPP, BOPP etc. During FY 2011-12, Polyplex announced to set up its first manufacturing base in USA, in the form of a Thin PET film line along with PET resin plant. This would help the company to increase its market share in American continent by moving closer to the customers and becoming a preferred on-shore supplier as against an off-shore or near-shore supplier in the past.

3.5 Promotion certificate PTL has been granted seven BOI promotion certificates, details of which are as below: S.No Certificate No. Type of business Date granted 1 1321(2)/2545 PET film 20-May-02 2 1287/(2)/2546 PET film and PET Resin 11-Jun-03 3 1159(2)/2548 Metallized Films 22-Feb-05 4 1261(2)/2550 Thermal Lamination Films 14-Mar-07 5 1044(2)/2551 Metallized Films 10-Jan-08 6 1110(2)/2552 CPP film (Plain and Metallized CPP) 4-Feb-09 7 1719(2)/2553 Silicone Coated Film 14-July-10 By virtue of the provisions of the Board of Investment Promotion Act B.E. 2520, the Company has been granted certain standard promotional privileges on the manufacturing and distributing the polyester film/resin/Thermal Lamination film/CPP film/ Silicone Coated film as per the following sections: 25, 26, 27, 28, 31, 34, 35(1), 35(2), 35(3), 36(1), 36(2) and 37 respectively. The Company must comply with certain conditions and restrictions provided for in the promotion certificate. Details of the privileges of each of the above sections are available at www.boi.go.th

3.6 Business Operations by each product line PTL is Thailandûs leading producer and distributor of Polyester thin film (Polyethylene Terephthalate Film, also called PET film, sold under the Brand name ùSarafilû), with most of the companyûs production being exported to the foreign countries. PTL focuses mainly on 3 key segments Packaging, Industrial and Electrical. PTLûs customers use the companyûs products as raw material to produce their end-products which are then sold to their consumers. Some examples of products made from PET thin film are Coffee/Tea bag, snack bag, softener bag, detergent bag, wire/cable wrap and hot stamping foil.

In April 2008, the company started manufacturing a downstream value added product called ùThermal Lamination filmû. This sold under the brand name ùSaralamû. In this product line, the PET film or BOPP film is used as the base film, and then extrusion coated with adhesive resins like LDPE or EVA, based on the requirement of the end use application to be catered to. In line with its objective of becoming a complete packaging solution provider, rather than just a thin PET film supplier, the company has in March 2010 started the manufacture of Cast polypropylene film. The company manufactures and sells plain CPP film & metallised CPP film under the brand name ùSaraCPPû. In an effort to continue its objective of diversifying the product as well as the customer base, Polyplex set up a Silicone Coating film line is Thailand which commenced commercial operations in Marchû12 under the brand name ùSaracoteû. A project for manufacture of Thick PET film is under implementation in Thailand and is expected to start commercial production in Q1 of FY 2013-14. Some of the common applications of Thick PET film are as under:

Annual Report 2010-2011

24 Polyplex (Thailand) Public Company Limited

3.6.1 Product Description The range of products offered by the company is as under: A.) Transparent thin PET films which can divided into 5 sub-categories Plain Corona or chemically treated High adhesion films Ultra clear films Co-extruded films ● ● ● ● ●

B.) Metallized PET films Semi Metallized film (low Optical density) High barrier films ● ●

C.) Specialty Films Twist films Anti static films Heat Sealable films Isotropic Films, High Friction Films, etc Matte films Thick films ● ● ● ● ● ●

D.) Thermal Lamination Film Gloss PET Thermal Film MATTE PET Thermal Film BOPP Thermal Film Metallized Thermal Film ● ● ● ●

E.) Cast Polypropylene film - Product range: Lamination & Conversion grade film - Transparent film for lamination & surface printing - High hot tack film for candy packing Metallizable grade film - Transparent heat sealable film for vacuum metallization Twist grade film Retort grade film ●

●

● ●

F.)

Siliconized PET Films (Under the brand name ùSaracoteû) in Plain, Matte, and Metallized are used in various applications such as: Shingle roofing tapes Release liner in pressure sensitive labels. Release liner in pressure sensitive adhesive tapes. Release liner in medical and hygiene products. ● ● ● ●

3.6.1.1Characteristic Product a) Characteristic of PET film PET film characteristic properties are as follows: Optically brilliant, clear appearance Excellent mechanical strength and toughness Good dielectric properties Good flatness and coefficient of friction (COF) Tear-resistant and puncture - resistant characteristics Excellent dimensional stability over a wide range of temperatures Very good resistance to most common solvents, moisture, oil, and grease Excellent barrier against a wide range of gases ● ● ● ● ● ● ●

●

PET film can also be modified with varying degrees of shrinkage, opacity & colors and different surface textures for it to be used over a wide range of applications. A wide range of chemical treatments (in addition to corona) can be applied to PET film during its manufacture to help it adhere to various coatings. b)

Characteristics of CPP Film Excellent Heat sealing properties/ High heat resistance Exceptional Optics Good dimensional stability and barrier properties Excellent printability Metallized CPP - Significantly increases barrier properties

● ● ● ● ●

Characteristics of Thermal Lamination Films High gloss & stiffness provide longevity to laminated media Coated adhesive forms inseparable bond with inks/papers Surface is conducive to add-on processes like Hot stamping, UV coating Improves visual appeal of product

● ● ●

●

3.6.1.2End Use segment Thin PET film can be used in the following 3 key segments Packaging - Clear and Metallized thin PET film can be used as part of the outer layer and middle layer of the flexible packaging such as coffee bag, snack bag, softener bag, and detergent bag. Industrial -Comprising of Hot stamping foils, flexible air-conditioning ducts, labels /ID cards, lamination products and many more. Electrical - Wire and cable wrap, membrane switches, flexible printed circuits, capacitors and motor insulation. ●

●

Annual Report 2011-2012

26 Polyplex (Thailand) Public Company Limited

Thermal Lamination films mainly cater to the following applications: Thermal Lamination of documents or printed media Reflective Insulation Flexible packaging Rigid packing using printed corrugated carton board ● ● ● ●

CPP films can be used in the following key segments: Packaging - CPP film is used as the inner most layer in food packaging, due to its excellent heat sealing properties. It may also be used in Textile packaging, packaging of health care products/ consumer products etc Industrial - Hot fill bags & liners, Industrial adhesive tapes, Interior automotive trim panels etc ●

●

The segmental break-up of revenue (PTL Standalone and Consolidated) from Film sales (Plain & Metallized PET films, Thermal Lamination/ Silicone Coated Films and CPP film) are as follows: STANDALONE SALES Segment

○

Packaging Use Industrial Use Electrical Use Total Film Sales ○

○

2009-10 Bt. Mn %

2010-11 Bt. Mn %

2,407.62 84.05 456.92 15.95 0.00 0.00 2,864.54 100.00

3986.67 80.66 3,529.79 955.61 19.34 974.77 0.00 0.00 0.00 4,942.28 100.00 4,504.55

○

CONSOLIDATED SALES Segment

○

Packaging Use Industrial Use Electrical Use Total Film Sales ○

○

2009-10 Bt. Mn %

○

2011-12 Bt. Mn %

○

2010-11 Bt. Mn %

○

2011-12 Bt. Mn %

5,465.07 78.43 8,298.90 74.63 7,651.23 1,369.20 19.65 2,666.52 23.98 2,319.52 134.05 1.92 154.04 1.39 89.57 6,968.32 100.00 11,119.47 100.00 10,060.33

○

78.36 21.64 0.00 100.00

○

76.05 23.06 0.89 100.00 ○

○

Note: 1) Sales of Thermal lamination film by Thailand are included in 2 segments i.e. Packaging segment and Industrial segment, depending on the end use application of each type of product sold. 2) Sales of CPP film by Thailand are included in the packaging segment, as the company is currently catering only to this segment. 3) Sales of Silicone Coated film are included in the Industrial application.

Consolidated Segmentwise Film Sales FY 2011-12 Industrial Use, 23%

Electrical Use, 1%

Packaging Use, 76%

3.6.1.3Products with similar properties In certain applications like graphics and magnetic recordings, substituting PET film would result in compromising performance characteristics of the product (e.g., strength, flatness, clarity, tear resistance, thermal stability and chemical resistance). However, in other applications, for which certain PET film performance characteristics may not be needed, PET film competes with a wide variety of substitute materials. These applications tend to fall in the low end of the product range, where other plastic films (e.g., polyvinyl chloride, polypropylene, and polyethylene films) and paper may be considered as lower-priced substitutes. Applications for which a variety of substitute products may exist are primarily packaging and general-purpose industrial applications. BOPP Films (Biaxially Oriented Polypropylene) is one such close substitute product type, which is comparable in terms of its broad physical and mechanical properties to Polyester films. However, there are pros and cons of using PET film or BOPP films and depending upon the application requirements, a choice of the substrate would be made. As a result of this, both PET films and BOPP films have largely demarcated pockets where one is preferred over the other. A Comparison of BOPP Films and BOPET (Polyester) Films Polyester film is considered as the premium plastic film in the flexible packaging industry. This is also reflected by the difference in the volume of the two products. Features Water vapour barrier Gas barrier properties Break down voltage Machineability Printability Suitability for metallising Density (gm/cc) Strength Temperature Sensitivity Annual Report 2010-2011

28 Polyplex (Thailand) Public Company Limited

BOPP Excellent Poor Poor Fair Fair Poor Low (0.91) Fair Poor

BOPET Fair Excellent Excellent Excellent Excellent Excellent High (1.39) Excellent Excellent

Polyester film when stretched in both directions gives excellent dimensional stability, gas barrier properties, break-down voltage etc. BOPP, despite stretching remains a ùlimp filmû. Polyester film has better handling capabilities for fluctuations in temperatures etc. and is therefore also preferred in the less sophisticated markets. In tropical countries PET is also preferred due to its moisture and oxygen barrier properties. In addition products where aroma retention is important require the use of PET; e.g. coffee, tea. On the other hand, the low density of BOPP (0.91 Vs. 1.39 for PET) makes it a ùcheaperû alternative in packaging. However, the advantage of density is to some extent offset by the need to typically have a thicker film when using BOPP as compared to PET for the same application. Further, since PET is not ordinarily heat sealable, BOPP is preferred in heat sealable applications. All over the world BOPP and PET have established their respective segments in the packaging market and overlap is insignificant. Even in times of decline in BOPP selling prices few years back, there was no visible impact on the growth in PET films consumption. This establishes the limited substitutability between the two products. 3.6.2 Business Strategy Key elements of the strategy are: Attain cost leadership by way of capacity expansion and vertical integration. Capture high growth markets and build good customer relationship. To build strong global delivery capabilities with a judicious mix of on-shore, nearshore and off-shore strategy. Further broad base the product portfolio by investing in upgrading technical and R&D capabilities. Concentric and related diversification to bring stability in earnings. Consolidate market position in key geographic locations. Moving in this direction, the following initiatives have been taken by the Company in the past and are planned for future: The setting up of 2 successive Thin PET film lines in Thailand was the first step towards achieving cost leadership position along with diversification of customer base. With the start up of the second Thin PET film line in Turkey in May 2008, the subsidiary has an even stronger cost effective production base to service its expanding customer base in Europe, Middle East, Africa & CIS/Russia. Backward integration into the manufacturing of PET chips has strengthened the cost structure of the Company in Thailand and also of the subsidiary in Turkey. ● ● ●

●

● ●

●

With the Extrusion Coating plant in April 2008 and the additional Metallizers in Thailand and Turkey in May 2008, the Company has been able to significantly increase the share of value added products, in its sales portfolio thereby improving its profitability on the whole. As a part of its strategy of concentric diversification, the Company has set up a CPP film manufacturing line in Thailand in March 2010. This has helped the Company to establish itself as a complete packaging substrate provider. The new project to manufacture Silicone Coated film in Thailand will help the Company to increase its presence in new product segments and thereby reduce the impact of the cyclical nature of the Thin Polyester Film industry. Various types of customer engagement initiatives by the Company have helped it to not only retain key customers, but also increase its customer base across the globe. The wide network of distributors and agents has helped the Company to gain access to all key markets of the world. The parent company in India has set up a dedicated Research and Development center which works closely with key customers, including end users of convertors to develop specialty and innovative products. The Companyûs decision to invest in a new PET Thin film line in USA is another step towards geographically diversifying its manufacturing base. This would help the Company to participate in the growth in the flexible packaging segment in the American region and increase its market share substantially. The second Extrusion coating line in Thailand would help the Company to increase its market share in this industry as well as further diversify its product portfolio. The Blown PP line would help Polyplex to enter into the Silicone coated PP film market.

3.6.3 Distribution Channel The Company distributes its products to both domestic and overseas markets, with main focus put on the latter. The product distribution is being made directly to the end users using its own marketing arms in USA and in China as well as commission agents across the globe. The indirect channel is mainly through distributors in designated areas. The sales through distributors and commission agents help support and even boost the sale volumes as these distributors and agents are in close proximity of the target markets, hence allowing for closer service provision to the customers with rapid delivery, and also better market penetration to access small customers. Value of total film sales to end users and distributors are as follows. Sales made through commission agents are included in ùEnd Usersû segment. Annual Report 2011-2012

30 Polyplex (Thailand) Public Company Limited

STANDALONE SALES 2009-10 2010-11 Customers Bt. Mn % Bt. Mn % End Users 1,773.03 62% 2,986.43 60% Distributors 1,091.50 38% 1,955.84 40% Total 2,864.54 100% 4,942.28 100% ○

○

CONSOLIDATED SALES Customers End Users Distributors Total ○

○

2009-10 2010-11 Bt. Mn % Bt. Mn % 4,391.10 63.02 7,375.54 66.33 2,577.23 36.98 3,743.93 33.67 6,968.32 100.00 11,119.47 100.00 ○

○

2011-12 Bt. Mn % 2,480.96 55.08% 2,023.59 44.92% 4,504.55 100% ○

○

2011-12 Bt. Mn % 6,792.27 67.52 3,268.05 32.48 10,060.33 100.00

○

3.6.4 Markets and competitive environment 3.6.4.1Global Demand and supply The growth in packaging has over the years shifted the production and usage patterns of PET films. The Companyûs relevant segments of Packaging, Industrial and Electrical constitute 98% of the total demand and the traditional high-end technology segments like magnetic media and imaging segments are reduced to only 2% of the total consumption due to technology transformation. Polyplex currently produces only thin PET films, which represents three-fourth of the overall global PET film demand. The Company has also decided to foray into the Thick PET film segment by putting up a manufacturing line in Thailand, which is under implementation. Better packaging not only improves the shelf life of the products but is also essential for improving product appeal in a highly competitive consumer goods industry. Flexible packaging also plays a key role in source reduction on the principle of ùuse less waste in the first placeû which has ensured higher-than-GDP growth in the flexible packaging industry across the globe. PET film, being a higher-end substrate within packaging, has grown more rapidly than other substrates, growing at an average of about 8-10% per annum. Demand in packaging is quite resilient as it relates to consumption of food products and consumer staples which are to a large extent non-discretionary in nature. This moderated the impact of the global economic recessionary environment on the industry in 2008, as compared with some of the other segments like industrial and electrical which had been impacted more and had witnessed a contraction in demand in 2008. The revival of demand growth in 2009 and 2010 has also been faster in the packaging application as compared to other applications of Thin PET films. 2011 witnessed steady growth in demand in line with the expectation in the Thin PET films at about 8%-9%. 31

An increase in the purchasing power in the developing countries has brought with it a large rise in the per capita consumption of packaging material. As a result of this, Asia (excluding Japan & Korea), is the largest market for PET films with almost one-third of the PET films produced being consumed in this region. At the same time, per capita consumption of packaging material in developing countries is still very low as compared to the mature markets. The key drivers of demand growth in these regions are the increase in the share of organized sector, increasing consumerism, changing demographics and the resulting need for better and more convenient packaging.

2011-2098

10%

23%

71%

Source: Company/ Industry estimates A similar trend is also evident on the supply-side with most of the new capacities being added in low-cost developing countries. Most of the new capacity is also focused on the packaging segment, with an emphasis on high productivity and low operating costs. This has adversely impacted the traditionally large producers of PET film operating with high cost structures, who have now been forced to concentrate in the emerging niche technologies in PET films like films for LCDs, solar panels, touch screens and specific high-end applications within packaging. While trade defense measures like anti-dumping and countervailing duties are on the rise in an increasingly competitive market environment, they are unable to address the inherent problems of unproductive assets operating in the developed countries producing regular films. During the year 2010, the Thin PET industry witnessed a Demand supply imbalance scenario in favor of suppliers due to inadequate matching capacity additions, new applications in Optical / Photovoltaic industry, demand growth of about 9% and closure of some old lines.

Annual Report 2010-2011

32 Polyplex (Thailand) Public Company Limited

Due to the imbalance in demand-supply scenario, the selling prices of PET films moved to historic highs. This in turn significantly improved the operating margins of most of the manufacturers in this industry. These exceptionally high margins attracted a lot of new investments in the Thin PET film industry. Most of these capacity additions started commercial operations towards the second half of 2011 and first half of 2012. There are some more new projects, under implementation, which would commence production in the next 12 months. As the capacity addition during FY 2011-12 has been much more than the increase in demand, the current supply - demand situation is in favor of the buyers with oversupply of PET films in the market. The current situation of oversupply is expected to continue for another 12-18 months. We expect global PET film growth rates to be at about 8-10% in the year 2012, with the demand in the South East Asian region growing at a higher rate of 1012%. The overall capacity addition in FY 2012-13 is expected to be higher than the growth in demand but the actual timing of the additions will determine the duration of the current oversupply situation. Companies with consistent quality products, diversified product portfolio, access to international customers and a better supply chain model stand a better chance of participating in the market growth and improving/maintaining their margins above the industry averages. 3.6.4.2Industry Situation Global competition The global Thin PET film manufacturers can be classified into 3 main categories by size of their production capacity: (i) World majors with production capacity of over 100,000 tons per year (e.g. Dupont-Teijin, Mitsubishi and Toray, Cifu, Polyplex, Flex, Jindal etc). (ii) Mid-size players with production capacity between 50,000 - 100,000 tons per year (e.g. Kolon, SKC, etc.) and (iii) Small / local producers with production capacity of less than 50,000 tons per year Demand for PET film for magnetic media application has been high in the past, prompting major producers to focus mainly on this segment. Competition in the magnetic media segment is thus confined only to these major ones based on their long and well established expertise and experience. For other PET films including thin film, competition is seen among all groups of producers thanks to the consistently rising demand, especially for thin film which is used in packaging, industrial and electrical segments where healthy growth of demand has been recorded in the past. Thus small, mid-sized and 33

major producers (including Polyplex group) have expanded their capacity to cope with the increasing demand in these segments. This has led to the expectation of higher market share by producers in various countries which have surplus production capacity. Domestic competition Thailandûs PET film market is of small scale as compared to the global PET film market. As per our estimates, demand in Thailand is approximately 27,000 tons per year with growth rate for 2012 expected to be about 8-10%.In the past, domestic producers have put emphasis on producing BOPP film rather than any other types. PTL has principally focused on PET film since its inception in Thailand and started with one PET film line, within nine months set up a second line as well. Over the years, PTL has had several other expansions in film capacity i.e value added films like Metallized film, Thermal Lamination film, Silicone Coated film etc and related product diversification like manufacturing CPP film. The Company is in the process of setting up a Thick PET film line, Blown PP line and second Extrusion Coating line in Thailand. It is presently having the largest PET Thin film production capacity in the country. The production capacities of the various plastic film producers in Thailand are as follows: Production line Thai Film A.J. Plast. PTL* (tons per year) Industrials Plc. Plc. BOPP film 107,000 66,000 PET film 3,500 31,000 48,000 CPP film 3,500 **15,600 BOPA film 18,000 Metallized film 7,000 10,800 16,200 Thermal Lamination film 9,000 Other coated films 3,000 Total 124,000 125,800 88,800 Silicone Coated Film 725 Mn Sqm Source: Form 56-1 of A.J.Plast Plc and T.F.I Plc * PTL capacities are as approved by BOI. For actual attainable capacities, please refer table below, under section ùProduction Capacityû ** Combined capacity p.a. as approved by BOI for CPP plain and metalized film ○

○

Annual Report 2011-2012

34 Polyplex (Thailand) Public Company Limited

Most of PTL没s production is intended for exports while the other PET film producers have been more focused on the domestic markets. Despite the disparity between domestic supply and demand, PTL does not foresee any specific threat due to its diversified sales portfolio. Conclusion on PET film industry The PET film industry has been expanding continuously in the past. The main driving factor for the past five years has been the growth of the packaging, industrial and electrical segments. Meanwhile, PET film producers have boosted their capacity utilization and/or their production capacity aggressively to respond to the increasing growth of demand. During 2000-2011, global average capacity utilization of PET film manufacturers was in the range of 80-90% of rated or nameplate capacity, except in certain years where the utilization rate declined to below 80% due to excess capacity built up in the industry. The levels of 80-90% are considered a high utilization rate being close to the full machinery capacity. In practice, some producers can produce lower than the nameplate capacity due to the long use and hence the poor condition of machinery while some can produce with capacity utilization even higher than 100% of the nameplate capacity using new and modern machinery and based on their long-time expertise and experience. 3,000 2,500

91% 91% 89% 86% 89%

83% 86% 83% 78% 76% 81% 81%

2,000 1,500 1,000 500 -

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011

Note: Data from industry sources/Estimates Despite the rising demand for PET film, it is not easy for new entrants to compete with the existing players. It is because it is an industry that needs high levels of know-how, skills and expertise to ensure the exact product size, standard and specifications required by the customers. Project management skills are also needed to enhance efficiency and cost effectiveness that will lead to competitiveness against other producers. Capacity expansion may be unavoidable to attain larger size and hence economy of scale. 35

Polyplex group has accumulated over 23 years experience in the PET film industry. It has been strengthened with consistent expansion in production capacity. Its management is highly competent. Delivery of products is efficient by having geographically distributed production bases and a widely spread sales and distribution network that allow for easy access to the customers. The emphasis on the countries with high demand growth potential, production and cost effectiveness and concentrating on business segments such as packaging, industrial and electrical segments which have recorded healthy growth all along has contributed to the Polyplex group becoming one of the Top 5 producers of thin PET film (excluding capacity for magnetic media). In view of tariff barriers imposed by importing countries such as anti-dumping and anti-subsidy duties, the Company没s parent company based in India has experienced such threat from both the EU and the USA several times. It has thus been keen on the issue, having information on the criteria and inspection process adopted by those countries and knowing how to deal with the problem. It is an outcome of the understanding of the process, that USA has levied zero duties till date under the anti-dumping measure against the parent company. As regards Thailand, an Anti Dumping petition was launched by the USA manufacturers of PET film against PET imports from 4 countries i.e. China, Brazil, Thailand and UAE in September 2007. In the final determination by the International Trade Commission (ITC) in October 2008, a negative injury ruling was given in favor of Thailand, whereas the anti-dumping duty rates were notified against the other countries没 imports. In March-2007, the Government of Brazil had initiated an anti dumping investigation against Thailand besides India, against imports of PET films into Brazil. The company as also its parent company in India had fully cooperated with the same and submitted their detailed questionnaire responses. As a final outcome of this investigation, an Anti Dumping duty of about 28 cents/Kg on imports from Thailand to Brazil and about 9 cents/Kg of Anti Dumping and Countervailing Duty on imports from India to Brazil has been levied. The Company没s export sale to Brazil is insignificant as compared to the total sales volumes. As such, the adverse fall out of the investigation by the Government of Brazil has had a minimal impact on its sales. In December 2010, the Government of Brazil initiated an anti dumping investigation against UAE, Mexico and Turkey, in respect of PET film imports into Brazil. The company没s subsidiary in Turkey (Polyplex Europa) co-operated fully during the investigation and submitted all the required information with Annual Report 2011-2012

36 Polyplex (Thailand) Public Company Limited

the authorities. In the final determination, the government of Brazil imposed anti-dumping duty of USD 67.44 / MT on Polyplex Europa, which is the minimum rate as compared to the rates announced for other countries as well as other producers in Turkey. Polyplex Europaûs exports to Brazil are not a very significant portion of their overall sales volumes and as such, the management does not expect any major impact from the anti-dumping margin imposed. The company is undertaking all the safeguards to insulate against the risk arising out of anti-dumping duties and other protective barriers imposed by the importing countries. Outlook for the PET film industry: Global demand for Thin PET films is expected to grow at a CAGR of 8-10% over the next 4-5 years. Demand growth for the products in the Flexible Packaging segment in the South East Asian region is expected to be about 10-12% in 2012. Mid size and new producers would increasingly look to diversify their product range from commodity grades to specialty grade films to improve margins. Addition to global capacity during the next 1 year is expected to be higher than the growth in the demand, and hence the current situation of over supply is expected to remain for another 12-18 months New entrants from China have been increasingly dominating the market for PET film in the last 2-3 years, but their production is expected to mainly fulfill domestic demand which is growing rapidly. The cyclical nature of the industry would continue. Dominance of the existing 3-4 large producers with market share of about 25-35% is likely to continue though with a reducing share. However, decline in their traditional market segments and slower growth in their home markets has constrained their ability to improve their PET film operations. Lowering production cost through acquisitions and joint ventures with low-cost Asian countries, rationalization of capacity and continued emphasis on technology intensive niche products could be an important strategic response. The transitioning of the industry to Asia would pose higher competitive pressure in the years to come. Increasingly, the larger producers are trying to tie up strategic partnerships or acquisitions in order to ensure growth, presence in diversified markets or products or even as a measure to acquire technology for newer and sophisticated product range. ●

●

● ●

●

3.6.5 Manufacturing of product 3.6.5.1Production PTL is having 3 plots of land, one at No. 60/24 Moo 3, Siam Eastern Industrial Park, Rayong Province, with an area of 28 rai 50.9 square wah, the second one is located opposite to this plot, at 60/91 Moo 3, Siam Eastern Industrial Park, having an area of 35 rai, 2 nang, 54.80 square wah and the third plot is adjacent to the first plot in the same industrial park and having an area of 35 rai, 2 Nang and 66.5 square wah. The Company没s PET thin film lines, Metallized film lines and the Polyester Chips plant are located on the first plot of land. The Extrusion Coating line, the Cast Polypropylene (CPP) line and the Silicone Coating line are on the second plot of land. The second Extrusion coating line and the Blown PP line would also be set-up on plot number 2. The Thick PET film line with the Resin plant would be constructed on plot number 3. 3.6.5.2Production capacity PTL currently has two PET film production lines, two Metallized film lines, one Continuous Processing PET resin manufacturing plant, one Batch processing PET resin plant, one Extrusion Coating line, one CPP plain, one CPP metalized film line and a Silicone Coating line. Capacity of Polyplex group as on 31st March 2012 (including ongoing projects) is as follows:

PET - Thick

BOPP

CPP

Blown PP

Metallizer

Coated Film

8,600

57,600

31,000

11,000

57,600

Min Sqm

58,000

865

15,200

80,500

Min Sqm

42,000

160

20,400

77,600

28,800

35,000

10,000 4,645

PET - Thin

55,000

Base Film, Raw Material and Metallizer (in tons)

Polyplex Group Capacity

Base Raw MF Coated Film Material Film

Base Raw MF Film Material

India

Thailand

Turkey

USA

Note : BF = Base Film MF= Metallized Film CF= Coated Film

Annual Report 2010-2011

38 Polyplex (Thailand) Public Company Limited

Product Type PET Thin Plain Film PET Thick Film PET resin Metallized Film BOPP Film CPP Plain Film CPP Metallized Film Blown PP Film Thermal Lamination Film Silicone Coated Film ○

○

India Thailand* 55,000 42,000 - 28,800 77,600 80,500 20,400 11,000 35,000 - 10,000 - 4,200 - 4,645 265 160 500 ○

○

Turkey USA Total Unit 58,000 31,000 186,000 MT - 28,800 MT 57,600 57,600 273,300 MT 11,000 8,600 51,000 MT - 35,000 MT - 10,000 MT - 4,200 MT - 4,645 MT 265 Mn Sqm 660 Mn Sqm ○

○

* Capacities for Thailand above are attainable capacities and capacities approved by BOI based on theoretical output are higher. For BOI approved capacities in Thailand, please refer table above under section ùDomestic competitionû.

The above table includes the capacities for the projects under implementation at Thailand and in USA. The capacity utilization rates for the Plain PET film lines PTL Standalone and Consolidated are as follows: 43,000 42,000 41,000 40,000 39,000 38,000 37,000 36,000 35,000 34,000

PET Film Production & Capacity Utilization - Standalone 98%

95%

94%

90%

39,989 38,199

101%

42,420

42,446

40,764

80% 60%

37,950 36,877

120% 100%

97%

40%

36,847

20% 0% 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Production (MT)

100,000 90,000 80,000 70,000 60,000 50,000 40,000 30,000 20,000 10,000 -

Capacity Utilization (%)

PET Film Production & Capacity Utilization - Consolidated 92% 98% 91%

89% 60,320

38,199

94% 66,748

95%

94%

100%

81% 92,197

95,296

94,457

78,032

41,820

120% 80% 60% 40% 20% 0%

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 Production (MT)

Capacity Utilization (%)

3.6.5.3Major raw materials PET resin PET Resin (polyethylene terephthalate resin) is the major raw material in the production process for PET films. It has been the strategy of Polyplex to produce its own Resins at all the manufacturing locations. Accordingly every location has its own Resin plant with sufficient capacity to meet its requirement. Purified Terephthalic acid (PTA) and mono ethylene glycol (MEG): The major raw materials for PET resin production are purified terephthalic acid (PTA) and mono ethylene glycol (MEG). To ensure uninterrupted procurement of raw materials the Company has currently tied up with one local supplier each for PTA and MEG for PTL. The subsidiary in Turkey is importing PTA from Europe and MEG from Middle East. The company enters into Annual contracts as per which 100% of the company没s requirements would be supplied as per the specified price formula throughout the contractual period(s). Major Raw materials for the Extrusion Coated Film production: Apart from PET film, which comes mostly from the company没s in house production, the major raw materials for the Extrusion Coated film production are BOPP base film and Coating chemicals such as LDPE and EVA. The company has been meeting its BOPP film requirement by procuring the same from a local manufacturer as well as importing it from Korea / other ASEAN countries. The coating chemicals i.e LDPE and EVA are being imported from purchased locally as well as imported from Malaysia and Korea respectively. Major Raw materials for the Cast Polypropylene Film production: The major raw materials for the Cast Polypropylene film production are Homo Polymer and Co-Polymer. Homopolymer is being procured locally while Co-Polymer is being imported from Singapore. The company continues to look out for alternative sourcing options and would decide on an appropriate raw material procurement strategy for this product line, based on relevant factors such as pricing, quality, delivery lead time etc.

Annual Report 2011-2012

40 Polyplex (Thailand) Public Company Limited

The value chain for the Company没s PET & CPP film business is depicted below: NATURAL RESOURCES

BASIC PETROCHEMICALS

Ethylene

PLASTIC AND INTERMEDIATE PRODUCTS

RAW MATERIALS

MEG PET Resin

Natural Gas

Pere Xylene

B A S E

PTA

F I L M S

PP Resin Polypropylene

Oil

C O A T I N G

I N D U S T R I A L

M E T A L L I Z I N G

B U Y E R S &

END PRODUCTS

C O N V E R T E R S

Polyplex没s area of operation

The value chain for Thermal Lamination film is given below: RAW MATERIALS

PET/BOPP FILMS

EVA/LDPE

PLASTIC AND INTERMEDIATE PRODUCTS

E X T R U S I O N

C O A T I N G P R O C E S S

T H E R M A L

L A M I N A T I O N

F I L M

P R I N T E R S /

L A M I N A T O R S

E N D C U S T O M E R S

Polyplex没s area of operation

3.6.5.4Impact on the environment There is a negligible impact on environment caused from the polyester film production process since PET in both film and resins are generally recyclable. For its Polyester resin line, it has the required EIA approval and submits regular reports required as per EIA approval to the concerned authorities. Since its commencement of production in March 2003, PTL has not faced any significant problems relating to the environment. Inspection by the Industrial Factory Department has been undertaken on a regular basis, the result of which has come out that the Companyûs manufacturing process poses no environmental impacts. All our product lines in Thailand have the following certifications: ISO 14001:2004 certification on Environment Management system ISO 9001:2008 certification on Quality Management system OHSAS 18001:2007 certification on Occupational Health and Safety Management system ISO 22000:2005 certification on Food Safety standards TPM Excellence Award (Category A) ● ● ●

● ●

All our product lines in Turkey have the following certifications: ISO 14001:2004 certification on Environment Management system ISO 9001:2009 certification on Quality Management system OHSAS 18001:2007 certification on Occupational Health and Safety Management system BRC/IoP - certification on Global Standard For Packaging and Packaging Materials (For Plain and Metallized Film lines) ● ● ●

●

Annual Report 2011-2012

42 Polyplex (Thailand) Public Company Limited

4. Risk Factors Before making a decision to invest in the shares of the Company, investors should prudently consider the information about risk factors described in this section and all information contained herein. Apart from the said risk factors, there are still other unpredictable risks that may adversely impact the Company没s operating results. The key risk factors are: 4.1 Industry Cycle The industry cycle of PET film hinges on the spread between the PET film price and the prices of PTA and MEG which are major raw materials. Whenever the demand supply balance favors the suppliers, the PET film and raw material price spread usually widens, thereby encouraging the manufacturers to increase production by expanding their capacities. On the contrary, if PET film supply is larger than market demand, the film price will drop, hence narrowing the spread between the film and raw material prices. This cyclical nature will inevitably affect every producer没s revenues and profits. To illustrate such cyclical impact, the movement of profit before tax/sales of PTL (Consolidated), is shown in comparison with that of the prices of PET film and raw materials, as below: Comparison of profit before tax as a % to sales, of PTL on a consolidated basis, with prices of PET film and raw materials (Consolidated - Average for PTL-Thailand and PE-Turkey)

84.67

1 20 11 -12 75.18 47.88

-12 11 20

-11

37.83

-10

35.17

-09

37.91

07 20

60.41

39.44

73.48

43.75

-08

70.52

-07

68.62

-06

39.07

-05

46.98

-04

37.07

97.21 74.48

73.68

20 10 -1

09 -10

08 -09 20

20 07 -0

-07 20 06

6 20 05 -0

04 -05 20

20 03

-04

13.78%

Source: Company information 43

The cyclical behavior can be seen in the above data of the last 9 years, which has direct impact on the operating results of PET film producers as well as Polyplex. To mitigate such risk, the Company has sought to undertake the following: With high productivity levels and cost control measures, Polyplex believes it is one of the lowest cost producers of polyester film in the world which will help it deliver better financial results than the other constituents of the industry. ●

●

Diversify its product portfolio by introducing new products like Extrusion Coated Film (project implementation underway for a second Extrusion Coated film line and expected to start in Q1 of FY 2013-14), Cast Polypropylene Film), the Silicone Coating Line (which has commended commercial production in March 2012), Thick PET Film (project implementation underway and expected to start in Q1 of FY 2013-14) to mitigate the risk of over dependency on a single product and single industry.

●

Accessing customers operating across the globe in the flexible packaging and industrial segments by presenting alternative sourcing options from its existing manufacturing locations in India, Turkey and Thailand and going forward, from the new manufacturing location in USA where a PET thin film line project is being implemented and its warehousing & distribution set up in US and China, thereby mitigating the risk of over dependency on few customers.

●

Diversified manufacturing and distribution base helps to mitigate the risk of volatile markets. For Eg: South East Asian markets are quite volatile in nature, whereas developed markets of US, Europe, Japan etc are less volatile. Polyplex tries to mitigate such risks by having a diversified sales portfolio.

●

Increased focus on new product development through R&D or technology acquisitions besides creating a strong technical services team are likely to be additional differentiators between Polyplex and its competition

4.2 Risks relating to uncertainty in prices of the product and raw material The basic raw material for production of PET film is PET resin, which is in turn produced from Purified Terephthalate Acid (PTA) and Mono Ethylene Glycol (MEG). Since the cost of resin is the single largest component of the total production cost of Polyester film, the fluctuation in the resin price may hurt the Companyûs operating margins depending upon the ability of the Company to pass the increase in costs to its customers. As selling prices are usually negotiated on a monthly / quarterly basis, in a balanced demand supply situation, PTL is usually able to adjust the selling prices following any changes in the PET resin cost and other operating costs.

Annual Report 2011-2012

44 Polyplex (Thailand) Public Company Limited

The above graph of historic Selling price and Raw material price movement demonstrates the correlation between the raw material cost and the selling prices. In most of the years the movement in the selling prices have been following the trend of the raw material cost except for years where other factors influenced the prices like 2006-07 (down cycle in PET film industry due to imbalance in supply demand situation), 2008-09 when the world economies went through a turmoil and in 2010-11 where due to shortage in supply of PET films, the selling prices increased at extraordinarily high levels. During the FY 2011-12, the Polyester film industry witnessed a rebound in its value addition levels to historical normal levels, from the extraordinary high levels witnessed in year 2010-11. This reduction was brought about by the additional supplies which came into the market in 2011 and corrected the demand supply imbalance in the PET film industry seen in year 2010 Analysis of historical data shows high correlation between PTA/MEG - polyester film prices. The spread between two intermediates would vary depending upon the demand-supply situation of the commodity. Also sudden and sharp movements in raw material prices may affect the correlation for some time. The chart below shows the past trend in the pricing of PET film and PTA and MEG:

1995 4.48 1.09 0.70 VA OVER PTA & MEG 3.44

1996 3.51 0.88 0.65 2.50

1997 2.22 0.63 0.65 1.43

1998 1.57 0.44 0.49 1.01

1999 1.48 0.44 0.44 0.93

2000 1.76 0.57 0.58 1.05

2001 1.83 0.49 0.50 1.22

2002 1.94 0.53 0.46 1.31

2003 2.15 0.59 0.67 1.39

2004 2.07 0.75 0.93 1.07

2005 1.98 0.81 0.92 0.94

2006 1.88 0.90 0.91 0.75

2007 2.06 0.88 1.08 0.89

2008 2.54 0.91 1.15 1.33

2009 2.13 0.84 0.69 1.14

2010 3.08 0.97 0.97 1.87

2011 2.61 1.27 1.30 1.02

2012 2.13 1.18 1.23 0.64

VA OVER PTA & MEG

Source: Industry information The above industry data of the Far East demonstrates that variations in the raw material prices by and large tend to get passed on to the end-customers. The demand-supply balance of PET films which could vary across regions could impact margins. The spread between the raw material and PET films, especially over the last few years, has moved in a band. PTL没s contracts with some customers provide for a quarterly/periodic review in pricing which enables it to adjust for any raw material cost movement. The Company monitors world and local input price trends carefully and determines its procurement plans accordingly.

4.3 Risk associated with reliance on only a few raw material suppliers The 2 major raw materials for the company, PTA and MEG are well traded commodities, available from a variety of sources in this region. However, the company is meeting its requirement domestically, by procuring each of these raw materials 100% from a single local supplier, thereby enjoying certain distinct advantages of shorter lead time/lower raw material inventory carrying levels etc. The company has entered into long term / yearly contract for the supply of the raw material to ensure its availability. These contracts also have a supply guarantee clause to ensure that the risk of buying 100% from a single source and also a single plant operation is mitigated. And as far as the pricing is concerned, since it is linked to certain standard international benchmark rates there is high degree of transparency. For the Extrusion Coated film production, apart from PET film which is transferred from the Company没s in house production and also imported from the Parent company in India at Arm没s length pricing, the major raw materials are BOPP base film and Coating chemicals such as LDPE and EVA. The company has been meeting its BOPP film requirement by procuring it both locally as well as importing from manufacturers within the ASEAN region. The coating chemicals i.e LDPE and EVA are also both being locally as well as imported from the ASEAN region. The major raw materials for the Cast Polypropylene film production are Homo Polymer and Co-Polymer. Homopolymer is being procured locally while Co-Polymer is being imported from Singapore. Since the production from this new line has recently started in March 2010, the company would continue to look out for alternative sourcing options and would decide on an appropriate raw material procurement strategy for this product line, based on relevant factors such as pricing, quality, delivery lead time etc. For the Silicone Coating line, the main raw material is PET film which is transferred from the Company没s in house production and also imported from the Parent company in India at Arm没s length pricing. Silicone and other chemicals are being imported from USA and Europe from leading suppliers. 4.4 Risk from environmental regulatory measures All the production lines of PTL, except for the Polyester resin line, do not require any environmental impact assessment (EIA). For its Polyester Resin line, the Company has the required clearance from the regulatory authorities and utmost care is taken to ensure compliance to the same. For the Silicone Coating line or the Thick Film line under implementation, PTL would not be required to get any EIA approval.

Annual Report 2010-2011

46 Polyplex (Thailand) Public Company Limited

4.5 Risk from competition from existing manufacturers and entry of new players With consistently rising demand and healthy growth potential, the PET film industry attracts new capacity investments from existing large manufacturers (such as Polyplex) who are wellestablished companies with long experience in this industry, as well as medium to small producers and new entrants with strong capital to accommodate investment in PET film plants and machinery. Compared to these players, PTL has a lower cost of production, established quality, wide range of products and reach to all major customers across the globe. For those who are new entrants, they need to improve and develop their production competence to compete with the existing players, the process of which will certainly take some time. Besides, they need to build up their customer base which can happen gradually through supply of consistently good quality products. Thus, PTL is confident that it will readily be able to compete against both world leading producers as well as newcomers. While the financials of the company and group would broadly reflect the cyclical trend of the industry, it would be able to demonstrate superior profitability in any market situation due to its competitive edge as reflected in lower costs, good quality, higher productivity, diversified product portfolio, value added product mix and global sales reach. The Company has strategically embarked on various expansion projects in Turkey and Thailand over the last few years and also has three other expansion projects in the pipeline in Thailand and a new PET thin film line investment under implementation in USA, which will further strengthen its competitiveness (Refer Section 3 -Business Overview for details on Projects commenced during the year and Section 5 -Future projects for new projects in the pipeline) The company has been continuously evaluating other growth options in PET film / value added products / related areas like CPP / BOPP/ Silicone Coated Films at all existing locations in Turkey/Thailand/US, while also continuously evaluating growth options in other new locations/new product lines. With the start up of the Extrusion Coated Film line, Cast Polypropylene Film line, Silicone Coating Film and the projects under implementation in Thailand i.e Blown PP Film, 2nd Extrusion Coated Film line and Thick PET film line, the company aims to further broad base its product offering to its customers, and also diversify the risks associated with the cyclical nature of the PET film industry. The company has also been evaluating possibilities for any acquisitions to further expand its manufacturing base and also to improve its cost structure, product offering and market reach / penetration. 4.6 Risk from trade barrier measures Trade barrier measures taken by various countries are broadly of two major types: a) Anti-dumping (AD): An anti-dumping duty can be imposed on imports if the ex-factory prices of such imported products are proved to be lower than the local selling prices of the similar products in the countries of the exporters. For the past few years, the countries adopting this measure are the European Union member countries and the US against such countries as India, China, Brazil and South Korea. 47

Anti-subsidy: A countervailing duty (CVD) can be imposed if the government or any government agency provides any benefits or privileges specifically to any company or exporter of such country.

Such tax measures will cause import duty on the goods produced and exported from the targeted countries imposed at such a high rate that such goods will carry higher prices and hence have difficulty to compete with the products of the rivals. For manufacturers having a regional manufacturing base in such locations, such trade defense measures can be an opportunity if anti dumping duties are levied against imports from the Asian low cost producers. The company is undertaking all the safeguards to insulate against the risk arising out of anti-dumping duties and other protective barriers imposed by the importing countries. A geographically well-diversified sales portfolio like ours will help mitigate the adverse fall-out of such an action, if any. In the year 2008, in the US Anti Dumping petition against producers of PET film from Thailand, China, Brazil and Middle East, there was a negative injury ruling by the International Trade Commission (ITC) against Thailand and consequentially, there is no duty against Thailand imports into the US market. This has definitely given an opportunity for the company to increase its share on the US market through its distribution company Polyplex Americas Inc. As an outcome of the Anti-Dumping Investigation by Brazil in the year 2007, against Thailand, an Anti Dumping duty of about 28 cents/Kg on imports from Thailand to Brazil had been imposed. However, the impact of this on the Company is minimal, as the sales to Brazil are almost negligible. In December 2010, the Government of Brazil initiated an anti dumping investigation against UAE, Mexico and Turkey, in respect of PET film imports into Brazil. The CompanyĂťs subsidiary in Turkey (Polyplex Europa) co-operated fully during the investigation and submitted all the required information with the authorities. In the final determination, the government of Brazil imposed anti-dumping duty of USD 67.44 / MT on Polyplex Europa, which is the minimum rate as compared to the rates announced for other countries as well as other producers in Turkey. Polyplex EuropaĂťs exports to Brazil are not a very significant portion of their overall sales volumes and as such, the management does not expect any major impact from the anti-dumping margin imposed. 4.7 Risks from future projects The major risks associated with any new Projects are as below: Market Risk: Since Polyplex has a global reach and an extensive marketing and distribution network, the Company does not foresee any major risk in developing the markets new products. In the case of the Silicone Coating project, the market research data and the market experience already available with the parent company can also be â&#x2014;?

Annual Report 2011-2012

48 Polyplex (Thailand) Public Company Limited

leveraged upon to ramp up the sales. For the PET Thick film also, the Company has already started evaluating key target markets and remains confident of ramping up sales smoothly. ●

Competition Risk: The Company believes that its cost structure would be globally very competitive and will be one of the major advantages to gain an edge over some of the existing producers/new entrants.

●

Project Implementation risk: Implementation of the Project within the Budgeted cost and timeline is another critical aspect for the success of any Project. Based on past experiences, it can be very well said that the experienced Projects team at Polyplex should be able to achieve successful implementation of new projects on time and within Budgeted costs except for un-foreseen circumstances.

●

Funding Risk: Long term Debt to the extent of 65-75% of the Project cost is generally borrowed by the Company and the balance is funded out of internal accruals. For all ongoing expansions in Thailand and in the USA, financing has already been tied up at competitive pricing and favorable terms and conditions. Based on the good relationship with existing banks, the Company is quite confident of raising the required financing for any new future Projects at competitive terms and conditions.

●

Currency Risk: For any new project, the currency of borrowing is decided, based on the projected operational cash flows of the project. The currency which has the maximum surplus in the operational cash flows is chosen to be the currency for the loan. This creates a natural hedge for the loan repayments, as and when the repayments start. The company also has internal FX guidelines to cover net exposure of Project costs, in various currencies by booking appropriate forward contracts, so that the risk on the initially estimated overall Project cost, on account of currency fluctuations is minimized. Going forward, with borrowings for the ongoing expansions in Thailand, the Forex loan portfolio of the Company is expected to go up to more than 100 Million USD (including equivalent of the Euro denominated loans) over the next 1 year, thereby exposing the Company to high amounts of unrealized Fx loss/gains on account of the restatement of such loans.

Apart from all the Project specific risks and their mitigation plans as discussed above, the Company would also like to mention here that the overall Project risk of any new Project is covered by taking appropriate Insurance policies to cover various risks such as Erection and Construction all risks, Marine risks, Loss of Profit coverage due to delay in Project Start-up etc. 4.8 Risk from dependence on the parent company Polyplex Corporation Ltd. (PCL), through direct and indirect shareholding, currently controls 51% of the paid up shares in the Company.

In the initial 2-3 years of its incorporation, PTLûs core management team consisted of persons who were previously employed by PCL and they played a vital role in successfully establishing PTLûs operations ahead of the schedule and at a lower-than-estimated cost, together with ensuring high productivity levels resulting in the Companyûs ability to produce quality products at a competitive cost. However, after about 4-5 years of running, once operations were fully stabilized, the company successfully implemented a program for reducing the dependence on expatriates by increasing the proportion of local Thai staff in operating/managerial positions and has been managing the production and operations efficiently thereafter. The Companyûs present management team is composed of experienced key personnel in production, marketing, distribution and accounting/finance. It has thus been able to run the business on its own without reliance on the parent company. It is only in the research and development area and the implementation of new projects, where the parent company provides know-how and technical assistance to the Company. PTLûs business operation is independent from PCL in such undertaking as public offering of equity, borrowing of loans, and other investments in the future, for instance. The parent company need not request any approval from any government bodies except for reporting of significant events to two stock exchanges where it is listed, namely Mumbai Stock Exchange and National Stock Exchange. The Company is confident that there will be no conflict of business interest between PCL and PTL on account of the following: It is Polyplexûs policy in business operation that there is an equitable distribution of business between the various manufacturing units aligned to efficient servicing of customers. ❍

❍

The investment in PTL and its subsidiaries is higher as compared to PCLûs assets, hence the success of PTL being critical for PCL.

4.9 Risk from sponsor group holding about 51% of total shares Currently, PTLûs major shareholder is PCL (As of March 31, 2012 the promoter Mr. Sanjiv Saraf and related parties control 46.93% in PCL), holding 16.50%, and Polyplex (Asia) Pte. Ltd. (çPAPLé) which is wholly owned by PCL, holding 34.50%, thus in aggregate holding 51% of PTL paid-up common shares of Bt. 800 million. Thus, in matters that require a three-fourths majority vote of shareholders, the minority shareholders can successfully oppose corporate actions undertaken or supported by the majority shareholders. However, the parent company will continue to play a vital role in determining the Companyûs policy on business administration and operation. However, PTL has set up a three-member Audit Committee to provide for an audit of the operations and the management.

Annual Report 2011-2012

50 Polyplex (Thailand) Public Company Limited

Besides, PCL is listed on the Stock Exchanges in India and abides by the Corporate Governance regulations prevailing for listed companies in India. 4.10 Foreign exchange risk Most of PTLรปs products, i.e. about 75-85%, are for exports, which are mostly denominated in US dollars and Euro. As against this, raw material (PTA & MEG) prices are also linked to the US dollar, although their payments are done in Baht and there are Long term loan related interest payments/loan repayments in USD and Euro. The company as at Mar 31st รป12 had Euro loans of about 3.9 million and USD loans of about 40.8 million. There are some expenses which are in Thai Baht, i.e. locally procured raw materials, packing materials, salaries, utilities and other administrative expenses which have to be settled by income from domestic sales and from the surplus income from USD/Euro exports. Thus, broadly speaking, PTL has a net surplus US dollar and Euro position on the trade front, which can be hedged somewhat against repayment of its long-term loans. To the extent possible, the company has been trying to create a natural hedge to mitigate the risk from currency fluctuations. On an ongoing basis, the company also takes forward covers, to cover the net surplus exposure in USD and Euro. Similarly, the Companyรปs subsidiary in Turkey has a net surplus in USD and Euro currencies whereas they have certain payments in the local currency, which is hedged from time to time by taking appropriate forward covers. The funding for new Projects of the company are also planned based on the future inflows from the Project Operations so that a natural hedge can be created to the extent possible. However, as explained above, going forward, together with borrowings for the ongoing expansions in Thailand, the Forex loan portfolio of the Company is expected to go up to more than USD 100 Million (including equivalent of the Euro denominated loans) over the next 1 year, thereby exposing the Company to high amounts of unrealized Fx loss/gains on account of the restatement of such loans. 4.11 Interest rate risk As of March 31, 2012, the Companyรปs outstanding long term loans (consolidated basis) were Euro 8.4 million and USD 40.8 million, whereas outstanding short term loans were USD 8 million and Baht 80 million. The USD loans amounting to USD 4.8 million (O/S as on March 31st รป12) have already been swapped to fixed interest rate and the balance loans have floating LIBOR based interest rates. All the Euro loans have floating EURIBOR based rates. The floating interest rate may put the Company at a risk of rising financial cost if the interest rates move up. The company has been constantly monitoring the interest rates and will take interest rate swaps for converting the liability into fixed rates, if considered beneficial.

4.12 Risk from overlap of products and markets The product portfolio of PCL, PTL and PE is quite similar. In order to mitigate the risk from overlapping of products and markets, Polyplex has also evolved an equitable policy for distribution of markets, between its Indian, Thailand and Turkey operations based on the several factors like product range, delivered cost to customer, supply lead times and preferential duty access. Based on the same, PTL would serve North America, South East Asia, Asia Pacific, China, and Australia & New Zealand. PCL would serve South Asia, and South America. Turkey will serve, Europe, America, Middle East, Africa and CIS/Russian markets. The Polyplex group also has a policy on future investments in polyester film / related areas between the Company and its parent company. Investments in India/SAARC region would be decided and made by PCL and its other subsidiaries (excluding the Company) while investments In Thailand / ASEAN region as well as other countries would be in all likelihood be made by PTL or the subsidiaries in which the Company has a major stake. The above is subject to availability of Investible cash / ability to borrow debt by the existing / preferred Company as per the policy. 4.13 Credit risks Credit risk of customers is another significant risk for any business. The Company manages the risk by adopting appropriate credit control policies and procedures. All the sales, which are on credit are secured either through a Letter of credit issued by the customer or by taking appropriate credit insurance coverage for both domestic and export sales. The Company also takes extra caution in selection of any new customers and granting of credit. 4.14 Risk from European economic crisis Since the company没s subsidiary in Turkey is mainly dependant on the European market, the recession in Europe has raised concerns regarding the potential impact of this recession on our Turkey operations for this financial year. As of now, the subsidiary has not felt any direct impact in terms of contraction in demand/ orders from its customers, which would impact its operations or the profitability for the current year. Since most of our products are being used in the packaging of consumer staples (food items, soaps, detergents etc), it may be said that such products are recession resistant and as such, the impact of the recession is not expected to be very significant. However, any weakening of the Euro currency, would impact the consolidated revenues/ profits of PTL, since the reporting currency of the Turkey subsidiary is in Euro and most of its revenues are also Euro denominated, along with some sales in USD currency as well.

Annual Report 2011-2012

52 Polyplex (Thailand) Public Company Limited

5. Future Projects 5.1 Future Projects 5.1.1. PET Thick Film Line - Thailand In February 2011, the Board had approved an investment in a Thick Polyester Film Line along with Batch Resin Plant. This project is being implemented in Thailand by partially using the new plot of land purchased in 2010, located close to the existing factory in Siam Eastern Industrial Park. Project Details The total Investment in this project is about $ 90 million, including working capital. The PET Thick Film Line is of 5.9 meters width, with a capacity of about 28,800 TPA. Polyester Batch Process Chips manufacturing facility is with a capacity of about 28,000 TPA The product range from this new film line would be PET thick film in the range of 23-350 micron thickness. Funding of the Project will be through Long Term Debt borrowing of $ 60 million and balance will be funded out of internal cash flows of the Company and/or its subsidiaries The expected commercial start up of the project is in Q1 of FY 2013-14. ● ●

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Project Rationale Polyplex has become a preferred supplier of PET thin film to almost all the large convertors in major markets in the world. In the recent past, there have been several structural changes in the PET film industry. Some of the large PET film producers are accelerating exit from the competitive commodity segments in packaging (Thin films) & industrial (traditional Thick and Thin films) to electrical/electronic segments (new Thick film applications) - as a long term competitive repositioning strategy. By implementing the project for PET Thick film, the company would have certain benefits as given below: Diversification of risk from packaging dominated to industrial segments Thick film offers a relatively higher margin and more stable business, thereby mitigating the risk of volatility in earnings. Would also give an opportunity to the company to meet the in house requirement of Thick PET film for Extrusion Coated film line and Silicone Coating film line (existing in Thailand) Enhancement of presence in North East Asia (Japan, Korea and Taiwan) which are large markets for traditional thick films Leveraging existing sales and distribution network Extension of inherent cost competitiveness - being a part of large manufacturing facility leading to reduction in ● ●

●

● ●

o o

Capital cost Operating overheads - manpower, shared services, SG&A etc

Status of the project

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The company has tied up Long term Debt financing of $ 60 million for part financing the project, but no amount has been drawn until 31st May 2012. Contracts of all main machineries have been entered into and delivery of machinery is expected to start in second half of FY 2012-13. The civil construction work has started and electrical/mechanical works are expected to start within Q2 of FY 2012-13. The company has received the in-principle approval from BOI for the proposed investment. The promotion certificate would be obtained in due course of time.

5.1.2. PET Thin Film line - USA In May 2011, the relocation to USA of the PET Thin film line expansion earlier planned for implementation in Turkey was approved by the Board. In July 2011, the Board further approved investment in a PET Resin line, along with the already approved PET thin film line. This project is being implemented in Decatur, Alabama State, USA. Project Details Total investment is estimated to be about $ 125 million including working capital. This would include a PET Thin Film Line of 8.7 meters width with a capacity of about 31,000 TPA, PET Resin line of 57,600 TPA and a High speed Metallized Film line of 2.85 meters width with a capacity of about 8,600 TPA ● ●

Annual Report 2011-2012

54 Polyplex (Thailand) Public Company Limited

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Investment is being made under a new company incorporated in the USA Polyplex USA LLC., 100% held by another new company - Polyplex Americas Holding Inc, which is 100% held by Polyplex (Thailand) Plc. Funding of the Project is through Long Term Debt borrowing of $ 75 million and balance will be funded out of internal cash flows of Polyplex (Thailand) Plc and/ or its subsidiaries The expected commercial start up of the project is in Q4 of FY 2012-13.

Project Rationale Polyplexûs market share in the American continent has increased significantly post acquisition of the Trading Company in the US, in January 2006. With existing US PET thin film manufacturers shifting their focus from packaging applications to high end industrial and electrical applications and no new capacities coming in the US, there is a scope for Polyplex to further increase its market share in the US. The Company evaluated the option of either servicing the US market from its existing manufacturing location(s) vis a vis setting up of a manufacturing base in the US. The Company felt that an on shore location would be more competitive from a long term point of view as compared to an off-shore supplier due to the following reasons: Proximity to key markets leads to reduced cycle time, faster deliveries and is clearly a source of differentiation in the eyes of the customer. Also this will help the company to reduce its logistics, delivery costs including lower working capital. Both the key raw materials i.e. PTA and MEG are surplus in North America and possibilities of co-location also exist to further improve the economics. Risk of Trade remedial measures like AD/CVD duties can also be significantly reduced / eliminated. An additional location will also significantly diversify the overall business risk. ●

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5.1.3. Blown PP Film line - Thailand In July 2011, the Blown PP film line project was approved by the Board. This project is being implemented in Thailand, in the same plot of land in Siam Eastern Industrial Park where Silicone Coating film line was implemented. Project Details The total Investment in this project is about $ 10 million, including working capital. The company has tied up Long term Debt financing of $ 7 million for financing the project, but no amount has been drawn until 31st May 2012. Annual capacity of the Blown PP line will be 4,645 TPA Film to be captive input for the silicone coating line, with a view to enable better utilization levels and expand the product mix of the Silicone Coating line. ● ●

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BOI approval for the Project has been received, by amending the Silicone Coated Film line approval, to include manufacture of Blown PP Film as base film. The expected commercial start up of the project is in Q1 of FY 2013-14.

5.1.4. Extrusion Coated Film Line II - Thailand In November 2011, the Extrusion Coated Film line II project was approved by the Board. This project is being implemented in Thailand, in the same plot of land in Siam Eastern Industrial Park where Extrusion Coated Film Line I was implemented. Project Details The total Investment in this project is about $ 13 million, including working capital. The company is planning to borrow Long term Debt financing of $ 8 million for financing the project and balance Project cost will be funded out of internal accruals of the Company. Annual capacity will be 215 million Sqm, higher than the capacity of the first line which is 150 million Sqm pa. The expected commercial start up of the project is in Q1 of FY 2013-14. Main market for this product would be USA and Europe The BOI promotion certificate has been received ● ●

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Project Rationale Existing Line is almost fully utilized and additional capacity is required to tap the growth potential in this line of business Enhance product range and capitalize on the experience and knowledge gained from the first line. Investing in value added products helps grow product portfolio and improve margins and also helps in diversifying from commodity PET film business. Reinforces Polyplexûs underlying strategy of Integrated Manufacturing, strengthens Polyplexûs position in the Polyester Thermal Lamination market - we are the only integrated supplier in the world Tapping growth opportunities in US/Europe where on-shore suppliers are moving towards niche, value added products ●

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5.2 Other Capital Expenditure As an ongoing effort to improve productivity, reduce losses, develop products and enhance quality control, PTL and its subsidiaries in Turkey/USA undertake several small/medium capital expenditures on the basis of cost benefit analysis. The total outlay over the next 12-15 months for such projects is estimated at about Bt. 300-350 million which includes some energy conservation schemes, apart from normal insurance spares and miscellaneous equipments for upkeep of the machinery.

Annual Report 2011-2012

56 Polyplex (Thailand) Public Company Limited

6. Legal Dispute -None-

7. Shareholding Structure 7.1 Shareholding Structure 7.1.1 Securities PTLûs current registered capital is Bt. 960 million of which, Bt. 800 million is paid up, divided into 800 million ordinary shares each of Bt. 1 par value. 7.1.2 The shareholding structure of PTL as on 31st March 2012 is as follows:

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Name Polyplex Corp. Ltd. (PCL) Polyplex (Asia) Pte. Ltd. (PAPL) General public Existing small shareholders* Total ○

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Ordinary shares 131,999,940 275,999,915 392,000,000 145 800,000,000 ○

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% 16.50 34.50 49.00 0.00 100.00 ○

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* Beneficial interest held by PCL and PAPL PCLûs shareholding structure as of 31st March 2012 is shown as below: Name

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Promoter/Sponsor Group Institutional investors Indian public (Non Institutional Investors) Other shareholders Grand total ○

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% 46.93 13.12 29.12 10.83 100.00 ○

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PAPL is 100% held by PCL and together PAPL and PCL hold 51% of PTL. 7.1.3 Dividend payment policy As per the dividend policy stated in the prospectus, dividend is required to be paid out at rate of about 40% of the annual net profit, taking into account economic conditions, growth plans, future deployment opportunities, the Companyûs financial position and liquidity and subject to the approval by the shareholders. The Board of PTL has recommended a dividend of Baht 0.52 per share for FY 2011-12, out of which Baht 0.35 per share was paid as Interim dividend in August 2011 and the balance of Bt 0.17 per share will be paid out in August 2012, post approval by the Shareholders in the Annual General meeting to be held in July 2012.

The following graph shows the comparison of dividend payment for the last 8 years, since the company没s public listing in December 2004.

2004-05 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 721 561 342 814 1,042 1,039 3,883 1,362 224 136 320 416 416 1,552 416 280 0.35 0.28 0.17 0.40 0.52 0.52 1.94 0.52

2.50 2.00 1.50 1.00 0.50 0.00

7.2 MANAGEMENT STRUCTURE Company Secretary

Board of Directors

Audit Committee

Managing Director

Chief Financial Officer

Head Operations

Head Sales & Marketing

Corporate Finance

Head-Production & Engineering - Sarafil / CPP

SE Asia

Costing and Accounts

Head - Saracote Plant

Domestic market

Information Technology

TPM

America

Legal & Tax

HR & Industrial Relations

Europe

Investor Relations

Quality Assurance & Technical Services

Others

Purchase & Stores

Annual Report 2010-2011

58 Polyplex (Thailand) Public Company Limited

Business Head SARALAM

Manager-SARALAM Plant

PTL has a board of directors and an audit committee. There is a provision to appoint other need-based committees as may be appointed by the shareholders or the board of directors from time to time. The board members and executive officers are qualified persons with complete qualifications as per Section 68 of the Public Limited Companies Act B.E. 2535 and as per the Notification of the Securities and Exchange Commission (SEC) No. KorJor. 12/2543 Re: Application for Permission and Permission to Sell Newly Issued Shares dated March 22, 2000. Details of the board of directors and other committees are as follows: 7.2.1 Board of Directors As of March 31, 2012, PTLรปs Board of Directors is composed of eight members as follows: 1. Mr. Manu Leopairote Board chairman and Audit Committee Chairman 2. Dr. Virabongsa Ramangkura Director (and Audit Committee member) 3. Mr. Shiraz Erach Poonevala Director (and Audit Committee member) 4. Mr. Sanjiv Saraf Vice Chairman 5. Mr. Praphad Phodhivorakhun Director 6. Mr. Pranay Kothari Director 7. Mr. Ranjit Singh Director 8. Mr. Rohit Kumar Vashistha Managing Director Mrs.Supritha Pai Kasturi is the secretary to the Board of Directors Authorized signatories Any one of the four authorized signatories, namely Mr. Sanjiv Saraf, Mr. Pranay Kothari, Mr. Ranjit Singh, and Mr. Rohit Kumar Vashistha are empowered to sign with the Companyรปs seal affixed. Power and duties of the board of directors (the Board) The Board of Directors has the powers, duties and responsibilities to faithfully and prudently conduct the operations of the Company in accordance with the Companyรปs objectives and Articles of Association, applicable laws and resolutions of the shareholdersรป meetings, for the benefit of the Company. A summary of the substantial duties and responsibilities of members of the Board of Directors is set out below: 1. to hold the annual general meeting of shareholders within 4 months from the close of the accounting period; 2.

to call the meeting of the Board of Directors at least once every calendar quarter;

to arrange for the preparation and submission of the audited balance sheet and profit and loss statement at the end of each accounting period to the shareholdersรป meeting for its consideration and approval;

to authorize any one or several directors to perform any action on behalf of the Board of Directors under the supervision of the Board of Directors, or granting the power-ofattorney to such designated director(s) to perform any action within the specified time as the Board of Directors may think fit; provided, however, that the Board of Directors 59

has the sole discretion to revoke or modify such designated director or power-of-attorney as the Board of Directors may think fit. For this purpose, the Board of Directors may authorize the Executive Committee, if any, to conduct any activities within the specified scope of work, duties and responsibilities of the Executive Committee. No authorization will entitle the Executive Committee to consider and approve the transaction which may cause a conflict of interest between the Executive Committee or any related person or interested person as the one party and the Company or its subsidiary companies as the other party. However, an exception is granted where the transaction conforms to the approved policies and rules of the Board of Directors; 5.

to determine the goals, prospects, policies, business plans and budgets of the Company, and to ensure that the management work performed by the Executive Committee, if any complies with the set policies. However, the Board of Directors needs to obtain the resolution of the shareholdersû meeting before entering into these legal transactions, for instance, increase or reduction of capital, issue of bonds, sale or transfer of all or any substantial parts of the Companyûs businesses to any third party, purchase or acceptance of transfer of other businesses, amendment to the Memorandum of Association, and so on. The Board of Directors is also responsible for ensuring the Companyûs compliance with the securities and exchange law and rules of the SET, for instance, rules concerning the entry into connected transactions and concerning purchase or sale of substantial assets, including any law governing the Companyûs business;

to review the management structure and appoint the Executive Committee, General Manager and any subcommittees, as it deems appropriate;

to ensure that the Companyûs performance follows the business plans and budgets at all times;

to refrain from conducting any similar or competitive business, participating as partner in an ordinary partnership or partner with unlimited liability in a limited partnership or director in a private company or in any other firm, company or corporation operating the business similar to or in competition with the Company, regardless of whether for his/her own benefit or for othersû benefit. However, an exception is granted where the director provides notice to the shareholdersû meeting in advance of his/her effective appointment as director of the Company; and

to notify the Company without delay of the event of likelihood that the director may have direct or indirect interests as a result of (i) the Companyûs entry into any agreement; and (ii) his/her increased or decreased holding of shares or bonds in the Company or its subsidiary companies.

Annual Report 2011-2012

60 Polyplex (Thailand) Public Company Limited

7.2.2 Audit Committee The Companyûs Audit Committee comprises of: 1. Mr. Manu Leopairote Audit Committee Chairman 2. Dr. Virabongsa Ramangkura Audit Committee member 3. Mr. Shiraz Erach Poonevala Audit Committee member Mrs.Supritha Pai Kasturi is the secretary to the Audit Committee. Power and duties of the Audit Committee 1. to review the sufficiency, credibility and objectivity of the financial reporting of the Company by coordinating with the external auditors and management responsible for preparing the quarterly and yearly financial reports. The Audit Committee may suggest issues or matters to be included for review or audited by the external auditors during its audit of the Company; 2.

to review the adequacy and effectiveness of internal control systems and internal audit functions by coordinating with the external auditors and internal auditors (if any);

to review compliance with the Securities and Exchange Acts, Regulations of the SET, and any other relevant laws;

to consider and advise on the appointment of the external auditor including the audit fee, taking into account the creditability of the external auditor, the adequacy of its resources, the firmûs audit engagements, and the experience of its supervisory and professional staff; as well as to have a meeting with the external auditor, once a year without the presence of the Executive directors or any other member of the management team;

to review the connected transactions and ensure proper compliance with all the SET regulations and also to ensure adequate disclosures or conflict-of-interest disclosures;

to take care of any other matters assigned to it by the Board of Directors, such as reviewing the Companyûs financial and risk management policies, reviewing compliance with the Code of Corporate Conduct of the management, and reviewing with the companyûs management, all important reports which must be disclosed to the public according to the law (e.g. Management Discussion and Analysis (MD&A), etc.);

to report the activities of the Audit Committee in the companyûs annual report, which must be signed by the chairman of the Audit Committee, and to express in such annual report the Audit Committeeûs opinion on (i) the accuracy and completeness of the procedures for the preparation of the report and information disclosure, (ii) the sufficiency of the internal control system of the Company, (iii) 61

opinion on the suitability of the external auditor and appointment for another term, (iv) the number of Audit committee meetings held in the previous year and the attendance of each member in such meetings, (v) opinion on the connected transactions and any transactions that may lead to conflict of interest (vi) the compliance by the Company with rules and regulations of SET, SEC and other applicable laws, and report on any information that the shareholders and investors should be aware of under the scope of power of the duty that has been assigned by the Board of Director; 8.

to report the performance of the Audit Committee to the Board of Directors at least once every calendar quarter; and

to express its opinion on the performance, appointment, removal and determination of remuneration of the internal auditor.

7.2.3 Management PTL没s senior management during 2011-12 consisted of five persons as below: 1. Mr. Rohit Kumar Vashistha Managing Director 2. Mr. Vinod Sureka Chief Financial Officer 3. Mr. Manav Singh Business Head - SARALAM division 4. Mr. Chandrashekhar Kalvit Head - Operations 5. Mr. Ashish Ghosh Head - Sales & Marketing Power and duties of Managing Director 1. to monitor and supervise the day-to-day business operations and management of the Company. 2.

to undertake or perform duties in line with the policy, plan and budget approved by the board of directors and/or the Executive Committee (if any) of the Company.

to perform as the authorized person of the Company in administering the business in line with the objective, regulations, policy, rules, stipulations, orders and resolutions of the meeting of the Board and/or resolutions of the meeting of shareholders.

to appoint and manage the performance of the working committees to ensure benefit and efficiency as well as transparency in management, and be authorized to appoint and/or assign any person to specifically perform on his behalf. Such delegation of power and authority shall come under the purview of such certain authorization letter and/or comply with the regulations, stipulations or orders issued by the board of directors and/or the Company.

to determine mission, objectives, framework and policy of the Company including orders and supervision in overall for optimum benefit in administration.

Annual Report 2011-2012

62 Polyplex (Thailand) Public Company Limited

to follow up and assess the Companyûs operational results on a regular basis to cope with both internal and external risks.

to consider and approve expenditure spending in the normal course of business operations, such as transacting with banks regarding deposit accounts or procurement of raw materials for production.

to consider the recruitment and employment of personnel as well as transfer, rotation across functional lines/departments/divisions, or termination of employment of personnel, and determine rate of wages, remuneration, bonus and welfare package relating to personnel.

to issue orders, regulations, announcements and memorandum to ensure the operations come out in line with the policy and for the benefit of the Company as well as to maintain discipline in the organization.

10. to perform any other duties as occasionally assigned by the Board of Directors Power to approve any transactions (i) which may cause a conflict of interest with the Company or its subsidiary; or (ii) in which the interests of the Managing Director or other interested person may be in conflict with the Company or its subsidiary, under the applicable rules and regulations of the SET, do not fall within the scope of the powers and authorities of the Managing Director to act at his/her own discretion or to designate any person to act on his/her behalf. Typically, these transactions need the consideration and approval of the Board of Directors and/or the shareholdersû meeting in accordance with the Articles of Association of the Company and subject to applicable laws. 7.2.4 Role of Company Secretary The Company has appointed Mrs. Supritha Pai Kasturi as the Company Secretary. She is a qualified Chartered Accountant from the Institute of Chartered Accountants of India and has the requisite knowledge and experience to perform this function. She also performs the role of the Secretary to the Board of Directors and to the Audit Committee. Responsibilities of Company Secretary: Arrange the Board of Directorsû Meetings, Audit Committee Meetings and the Shareholdersû Meeting in accordance with the relevant laws and regulations. Prepare the Agenda/ supporting documents for the above meetings and ensure that the same is circulated to the concerned members, at least a week in advance of the meeting date, to allow sufficient time to review the documents. Prepare the Minutes of all the above Meetings and monitor subsequent compliance with the resolutions of those Meetings. Ensure that disclosures of information to regulatory agencies (SET/SEC and other relevant regulatory agencies) are made in accordance with the applicable laws and regulations. ●

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â&#x2014;?

Execute any additional duties assigned by the Board of Directors from time to time

7.2.5 Selection of members of the board of directors, independent directors and the audit committee The Company has no Nomination Committee to select and nominate any persons to be appointed as directors of the Company. In this regard, the Board will undertake the selection process, taking into account the experience, expertise and competency of the prospective persons and the qualifications required as per the criteria prescribed in the Public Limited Companies Act B.E. 2535 and as announced by the SEC and relevant agencies, as also the provisions of Articles of Association of the company. Nomination will be made at the shareholdersĂť meeting and election made under the procedures prescribed in the CompanyĂťs regulations as below: I)

Selection of members of the Board of Directors a) The Company is required to have a board of directors consisting of at least 5 persons. The board of directors must elect one of their members to be the Chairman and may elect another member to be a Vice-Chairman and any other positions as they see fit. At least one-half of the directors must reside in Thailand. A director need not be a shareholder of the company. b)

A meeting of shareholders must elect the directors in accordance with the following procedures and rules:a. Each shareholder has one vote for each share held; b. Each shareholder may exercise the votes in electing one or more persons to be the directors but the votes are indivisible; and c. The person who obtains the highest votes will be elected as a director in respective order according to the required number of directors, but if two or more persons obtain equal votes, the Chairman must exercise a casting vote.

At every general meeting of shareholders, one-third (1/3) of the directors, or if it is not a multiple of three, then number nearest to one-third (1/3) must retire from office.

There must be a drawing by lots to determine the directors retiring on the first and second years following the registration of the company. In each subsequent year, the directors who occupy the position for the longest period must retire. A retiring director is eligible for re-election.

Annual Report 2011-2012

64 Polyplex (Thailand) Public Company Limited

II)

Selection of members of the Audit Committee/Independent Director Audit Committee is composed of at least three independent directors with an office term of 2 years. The Company has a policy to select and nominate Audit Committee / Independent director in compliance with the SEC Notification no. KorJor. 12/2543 regarding application for and approval of offering of newly issued shares, with each of whom to have the following qualifications: a) Hold shares not exceeding 5% of the total shares with voting rights of the Company, an affiliated company, a subsidiary company, an associated company or a juristic person that may have conflict of interest, b)

Not be an employee or a staff member or an advisor who receives a regular salary or a person with controlling power of the Company, an affiliated company, a subsidiary company, an associated company or a juristic person that may have conflict of interest,

Not be a person having blood relation or legal relation in the manner of being any family member or spouse thereof of the executives, the major shareholders, the persons with controlling power or any persons to be nominated to the managerial positions or the persons with controlling power of the Company or a subsidiary company.

Have no business relation with the Company, an affiliated company, a subsidiary company, an associated company or any juristic person that may have conflict of interest in the manner that may hinder the use of individual没s independent judgment, and have no other nature that will hinder the individual没s provision of independent opinions relating to the Company没s operations.

In addition, at least one independent director appointed as an Audit Committee member must have sufficient knowledge and experience in finance and accounting areas so that he/she can review the reliability of the financial statements. Other qualifications must also be taken into account, comprising business experience, expertise in the field related to the business and ethical qualifications, to ensure maximum benefits to the Company. The appointment of Audit Committee members is subject to the same criteria and procedures as those in the appointment of directors of the Board. The vacating Audit Committee member upon completion of his/her office term of 2 years may be re-appointed by the Board of Directors for another term. In the event that there is a vacancy on the grounds other than the completion of office term, the Board shall select and appoint the person who possesses the required qualifications to fill the vacancy to complete the number of the Audit Committee 65

members as prescribed by the Board. The newly appointed Committee member shall be in the office only for the remaining period of the office term of the vacating member. 7.2.6 Remuneration for management a. Monetary remuneration Directors Before the transformation into a public company, PTL had five directors. These directors did not receive any meeting allowance from the Company. Since transformation into a Public Company in 2004, the Company has 8 Directors on the board. Until FY 2007-08, the Directors had renounced their right to receive any remuneration. However, from FY 2008-09, the independent directors are receiving remuneration as approved by the shareholders in the Annual General Meeting of the Company. For the FY 2011-12, The actual remuneration paid to the Independent Directors is Baht 4,200,000 as against the amount approved of Baht 4,200,0000. Details of the same are as under: S.No 1. 2. 3. 4. Note:

Name of Director Amount Approved (Baht) Actual Paid (Baht) Mr. Manu Leopairote Baht 125,000 per month Baht 1,500,000 Dr. Virabongsa Ramangkura Baht 75,000 per month Baht 900,000 Mr. Praphad Phodhivorakhun Baht 75,000 per month Baht 900,000 Mr. Shiraz Erach Poonevala Baht 75,000 per month Baht 900,000 The remuneration for Jan没 12 - Mar没 12 amouting to THB 1,050,000 period has been paid to the directors in the month of May没 12

In addition to the above remuneration, meeting sitting fees of Baht 10,000 per meeting attended has been paid to the Audit Committee members, which is as per the amount proposed and approved in the Shareholder meeting in July 2011. For the FY 2012-13, it is proposed to fix a remuneration of Baht 75,000 per month, same as in the previous year, to all the independent directors as mentioned below: 1. Mr. Manu Leopairote 2. Dr. Virabongsa Ramangkura 3. Mr. Praphad Phodhivorakhun 4. Mr. Shiraz Erach Poonevala Mr.Manu Leopairote, in his capacity as the Chairman of the Board of Directors and the Chairman of the Audit Committee would be entitled to an additional remuneration of Baht 25,000 per month, for each role. For the Audit Committee, each member would be entitled to a sitting fee of Baht 10,000 per meeting attended. Annual Report 2011-2012

66 Polyplex (Thailand) Public Company Limited

The above remuneration package, to the Independent directors and Audit committee members, would be proposed to the Shareholder meeting to be held in July 2012 for their consideration and approval. The remuneration details of the senior management, including 1 executive director of PTL is as below : 2007/08 2008/09 2009-10 2010-11 2011-12 (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) Number of executives 5 6 6 4 5 Salaries (In ù000û Baht) 9,085 9,389 9,753 7,611 10,054 Bonus and Others (In ù000û Baht) 9,245 8,199 10,325 10,292 19,257 Total 18,330 17,588 20,078 17,904 29,311 Remuneration (In ù000 Baht)

○

b. Other remuneration Directors -NoneExecutives -None7.2.7 Personnel As of March 31, 2012, PTL had a total workforce of 467 persons, 430 of whom are personnel at the plant in Rayong Province and 37 at the head office in Bangkok. The Company also has 42 expatriates, 12 of whom are at the head office in Bangkok and the remaining 30 in Rayong.

Number of employees As of As of As of As of As of Department March March March March March 31,2008 31,2009 31,2010 31, 2011 31, 2012 1. Executives 5 6 7 4 5 2. Production 140 137 162 161 171 3. Commercial, IT, Personnel & Adm. 50 47 35 37 42 4. Sales and Marketing 16 18 21 25 24 5. Chips plant 25 23 21 22 21 6. Metallizer 33 37 37 37 35 7. Extrusion Coating 19 38 53 46 55 8. Cast Polypropylene Project 2 51 56 52 9. Silicone Coating Project 23 55 10.PET Thick Film Project 6 11.Blown PP Film Project 1 Total 288 308 387 411 467 ○

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Employee (non-executive) remuneration (Bt. thousand) Remuneration

2007/08 2008/09 2009/10 2010/11 2011/12 (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) (Apr-Mar) No. of employees 283 302 380 407 462 Salaries & Wages 61,180 71,072 78,272 101,857 111,450 Overtime pay 6,985 6,655 7,350 11,206 13,527 Bonus 18,473 16,233 15,408 27,941 26,182 Provident fund* 595 1,841 2,102 2,489 2,928 Others 35,925 42,303 47,183 55,705 62,883 Total 123,158 138,104 150,316 199,198 216,770 * The Company started contributing to the provident fund since September 2004. The contribution of the employee and employer was 4% until FY 2010-11. During the year, the company revised the PF contribution rates and depending on the length of service, companyûs contribution is now in the range of 4-7%. ○

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There has been no labor dispute for the past years. HRD Policy The company realizes the importance of its staff as they are valuable assets and play a major role in the success and growth of the company. Therefore it has a policy to develop the efficiency, knowledge and skills of its staff at all levels by having well organized training programs on a periodic basis. Training programs are designed to improve various aspects of work life like technical competence, team building, and enhancement of leadership skills, time management skills etc thereby improving the quality of the working life of the employees. Feedback of employees participating in such trainings is taken in order to help improvement of quality of seminars and trainings to be conducted in future. Annual Report 2011-2012

68 Polyplex (Thailand) Public Company Limited

8. Good Corporate Governance & Internal Control 8.1 Corporate Governance 8.1.1 Policy on Corporate governance Polyplex realizes the significance of good corporate governance and makes every effort to implement the Corporate Governance principles laid down by the Stock Exchange of Thailand. The company has firm belief in transparency, accountability and ethical conduct in carrying out its operations. Accordingly, the Company has formulated a policy which emphasizes regular disclosures to the public and the shareholders. In addition, the Company adopts strict internal controls and audits in recognition of their importance. It also has several risk management policies, keeping in mind a good relationship and business ethic towards business partners, shareholders and all concerned parties. 8.1.2 Rights of shareholders The Company recognizes the importance of equal rights of all shareholders and considers all the shareholders as owners of the Company irrespective of the percentage of shares owned. The Company has a policy to report to shareholders regularly on progress of operations, either directly or through the Stock Exchange of Thailand or through information on its website after listing. Shareholders will be given fourteen days advance notice of all shareholder meetings, including the meeting agenda and related information. The shareholders would be encouraged to participate in the general meetings and their views and comments would be noted and followed up. In accordance with the good governance practice relating to equitable treatment of shareholders, the company also invites the shareholders to propose additional agenda for the Annual general meeting of the shareholders and gives sufficient time (about 30 days) to propose the Agenda. The shareholders also have the following rights which are exercised in the Annual Shareholding meetings: Re-appointment of Directors retiring by rotation and approval of the Director remuneration Approval of Auditor appointment and remuneration Approval of dividend payment ●

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8.1.3 Rights of stakeholders PTL has always provided equal importance to the requirements of all its stakeholders as under: Personnel : PTL considers all its personnel to be valuable assets, critical to the success and growth of the organization. The Company is ●

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Business partners

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Competitors

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Creditors

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Customers

●

Shareholders

●

Community/ Society

committed to providing a quality oriented work environment, with special emphasis on safety, along with fair and equitable remuneration. Apart from basic salary, Performance linked Bonus, Provident Fund contribution and Social Security Contribution, the Company also provides certain other benefits to its employees such as Overtime pay, Housing Allowance, Transport Allowance, Telephone allowance, Medical Insurance, Life Insurance coverage etc. It has always been the policy of PTL to develop long standing and growing relationships with all its business partners based on mutual benefit and guided by good business ethics. The company values the long standing relationship with its business partners, whether it is the banks that support the trade finance and project financing requirements of the Company, or the strong Distributors/Agent network across various parts of the globe, which help in market development and ensure smooth continuity of the business operations for the company. PTL will always abide by the framework of fair competition and would work towards market development and growth to the mutual benefit of the industry. To abide by the loan covenants and provide all information about the progress of the Company to its creditors as may be required for smooth business dealings. PTL is committed to creating customer satisfaction by ensuring consistency in the quality of its products and offering value proposition to its global customer base. PTL strives to conduct its business in a transparent and efficient manner with a view to constantly strive to enhance shareholder value. New project investments will be evaluated prudently to ensure good returns and increase value to the shareholders. PTL realizes and cares for the safety of society, environment and quality of life of people. It places priority on activities relating to the community and the society and also by compliance of applicable laws and regulations relating to the same. During FY 2011-12, the company organized Blood donation camps and encouraged employees to donate blood, organized Seedling plantations to promote nature conservation, extended support for Mangrove forest conservation and also gave donations to Orphanage.

Annual Report 2011-2012

70 Polyplex (Thailand) Public Company Limited

8.1.4 Shareholdersû meetings The Company has a policy to enable shareholders to attend meetings without undue effort. It endeavors to organize the shareholdersû meeting with equitable treatment for all participants and in strict accordance with legal procedures, from meeting invitations, proxy form for those who are unable to attend the meeting, and distribution of meeting documents to inform all concerned of the meeting agendas. The meeting venue and time will be convenient while the meeting session will allow adequate time for shareholders to ask questions on business operations or voice their opinion. 8.1.5 Leadership and vision The Board of Directors is the forum for review of plans, vision, strategies and key policies. Elaborate budgets have been formulated for all functional areas in the Company and a system of Key Result Areas (KRAs) has also been implemented for each department and individual as also at the corporate level to align interests and priorities across the organization. The Board of Directors would play a leading role in regular review of the actual operations vis-à-vis budgets as well as other key performance indicators. 8.1.6 Conflict of interest The policy is based on the principle that any decision to be made by personnel at all levels in business operations must be in the best interest of the Company. It is the duty of all personnel to avoid any transactions and/or dealings which could result in financial losses to the Company and result in personal monetary benefit. The Audit Committee is entrusted to watch over and review the internal controls and audit function to ensure their efficiency and also ensure adequate disclosures to be made as per the SEC/SET guidelines. 8.1.7 Business ethics PTL has a code of conduct for all personnel who emphasize observance of ethical practices, honesty and accountability. Responsibility towards all stakeholders and external agencies is encouraged in order to foster a good corporate culture and social responsibility. 8.1.8 Check and balance by non-executive directors The Company has altogether eight directors as detailed below: Status

○

Executive Directors Non-Executive Directors Audit Committee

Shareholdersû representative Directors Independent Directors ○

○

1 -

○

3 1 ○

○

3 ○

○

8.1.9 Integration or delegation of title and authority The Chairman of the Board of Directors is an independent director and is also the Chairman of the Audit Committee. Independent directors constitute 50% of the Board of Directors and thus composition of the Board would ensure fair and effective management monitoring. The Managing Director is the CEO in charge of day-to-day operations and has specified powers with certain key decisions requiring approval by the Board of Directors. 8.1.10 Remuneration for directors and executives The remuneration of the Board of Directors and the Audit Committee is proposed to the Shareholder meeting for their consideration and approval. The Managing Directorûs remuneration is fixed by the Board of Directors in discharge of duties as the CEO of the Company. The remuneration of the management is open for review by the shareholders who may set the appropriate policies and guidelines on this matter. 8.1.11 Board meetings The meetings of the Board of Directors are usually convened at least once every quarter to review the operations / quarterly financial results and other matters. There were four Board meetings conducted during the FY 2011-2012.Attendance of directors is as follows: Name Mr. Manu Leopairote Dr. Virabongsa Ramangkura Mr. Shiraz Erach Poonevala Mr. Sanjiv Saraf Mr.Rohit Kumar Vashistha Mr. Praphad Phodhivorakhun Mr. Pranay Kothari Mr. Ranjit Singh

Position Attendance Board Chairman & Audit Committee Chairman 4/4 Director & Audit Committee member 4/4 Director & Audit Committee member 3/4 Vice Chairman of the Board 3/4 Managing Director 4/4 Director 3/4 Director 3/4 Director 2/4

○

8.1.12 Supporting committees or sub-committees The Board of Directors has recommended and shareholders have approved an Audit Committee consisting of three independent directors. The Audit Committee members have the requisite qualifications under the relevant SET rules & guidelines. The powers and allocation of work have been clearly defined by the shareholders and include review of internal control systems, review of financial reports, connected transaction or transaction involving conflict of interest. The term of the Audit committee is 2 years and may be renewed by the Board of Directors every 2 years. 8.1.13 Internal control and audit system The Board of Directors exercises control through setting of annual budgets and operational objectives, periodical review of which is done from time to time. Meanwhile, Annual Report 2011-2012

72 Polyplex (Thailand) Public Company Limited

the Audit Committee oversees the internal controls and audit in the Company and suggests measures for improvement. 8.1.14 Board of Directorsû report The Board of Directors is responsible for the Companyûs financial statements. As a part of the annual report, the directors have commented on the financial results of the Company. 8.1.15 Relationship with investors The Company places significance on the timely disclosure of accurate information to its shareholders and investors. It has been participating in the SET Opportunity day every year to disseminate information about the Company and its operations to investors and analysts. The company also organized a factory visit for the shareholders, analysts and potential investors in February 2012, through the SET. As regards investor relations, the Company has a well-developed IR section in the company website. Investor queries can be sent to the IR website (investorrelations@polyplexthailand.com) and will be responded to by the management of PTL. The Investors/ Analysts can also register their e-mail IDûs and receive an IR alert message, when any information is updated on the Companyûs website. Further information regarding the Company may be obtained by contacting at tel. +66 26652706 - 8. Measures to prevent use of internal information for executivesû personal benefit The Company has a policy on supervision of usage of internal company information by its directors and management for their own benefit. The directors and management who come to possess internal company information are not permitted to buy or sell the securities of the Company for a specified period prior to its announcement of operating results.

8.2 Internal Controls At the 2/2012 board of directorsû meeting of PTL held on May 24, 2012 with all three audit committee members also attending, the board assessed PTLûs internal control by means of making inquiries with its management. Based on the assessment of PTLûs internal control system in five aspects, namely organization and environment, risk management, control of the executivesû operation, information technology system & information communication and follow-up system, the board viewed that PTL has adequate internal control with regard to the making of transaction with its major shareholders, directors, executives, or persons connected with the above mentioned persons. The board considered that the Companyûs adequate and appropriate internal control and follow-up of the operations would be able to safeguard its assets against any illegitimate use by the executives.

8.3 Connected Transactions 8.3.1 A summary of the connected transactions between PTL and the connected parties during the past three years is as follows Party having Relationship conflict of interest

Description of transaction

Polyplex PCL is the Corporation Companyûs major Ltd. (PCL) shareholder, owning directly and indirectly the 51% of the Companyûs share capital and the two parties have common directors.

○

Polyplex PCL is the Corporation Companyûs major Ltd. (PCL) shareholder, owning directly and indirectly the 51% of the Companyûs share capital and the two parties have common directors.

○

Net Amount Paid to Pricing policy PCL by PTL (Bt. 000ûs) 2009-10 2010-11 2011-12 The price of the 3,467 1,221 4,009 transaction between PCL and the Company was a normal price in general business practice and was the price as actually paid by PCL in advance for the Company without any extra charge by PCL.

○

PCL made advance payments on behalf of the Company for administrative expenses, which were mainly traveling expenses of employees, accommodations for employeesû family, educational fees for employeesû children, insurance claims of employees, insurance premium payments, project related expenses etc. The Company has given the appropriate accounting treatment to these expenses and/or collected these amounts from the employees and paid them back to PCL. PTL made payments on The price of the behalf of PCL, which were transaction mainly traveling and other between PCL and expenses of PCL the Company was employees and their a normal price in families. general business practice and was the price as actually paid by company in advance for PCL without any extra charge. Purchase of Raw material As per Transfer - Polyester Chips and Pricing policy of Polyester Film PCL (Study done by Ersnt & Young and TNMM [Transactional Net Margin] Method recommended for Transfer pricing ○

○

185

○

131

○

102

○

Polyplex PCL is the - 58,521 Corporation Companyûs major Ltd. (PCL) shareholder, owning directly and indirectly the 51% of the Companyûs share capital and the two parties have common directors. * The outstanding amount payable by PTL to PCL as on 31st March 2012 was Bt 13.5 Mn (within due date), in respect of raw material purchases (material in transit as at March 31st). The amount due from PTL to PCL in respect of the Debit note for expense reimbursement has been remitted before the year end.

Annual Report 2011-2012

74 Polyplex (Thailand) Public Company Limited

8.3.2 Necessity and reasonableness of the connected transaction The connected transaction involved the advance payments made by PCL on behalf of the Company for administrative expenses. The payments were made for such expenses as transportation, accommodations for employeesรป family, educational fees for employeesรป children, insurance claims of employees, project related expenses etc. The Company has given the appropriate accounting treatment to these expenses and/ or collected these amounts from the employees and paid them back to PCL. The reimbursement of advances/expenses was to PCL was at the actual prices incurred without any extra charge by PCL. The connected transaction also involved the advance payments made by the Company on behalf of PCL for administrative expenses, which were later re-imbursed by PCL to the Company. During the year, the connected transaction also involved some purchases of Raw materials i.e Polyester Chips and Polyester Film from PCL. All purchases were made at Armรปs Length Pricing at the Transactional Net Margin Method (TNMM) as recommended by Ernst & Young, India in the Transfer Pricing study done by them. The amount of Baht 13.5 million O/S to be paid to PCL as at the year end is in respect of some material which was in transit. 8.3.3 Measures or procedures for approval of the connected transaction The audit committee of PTL has examined the connected transaction described in the table above and viewed that it is in accordance with the normal business practice. For such transactions in the future, the Company can undertake the transactions and inform the audit committee on a quarterly basis. For any other future connected transactions, the Company will assign the concerned units to gather the relevant information and provide it to the audit committee to be used as a basis for its consideration on those transactions as to whether they are consistent with the normal business practice and the market price. The Company would follow the regulations of the SEC and SET in this regard. The audit committee has to consider and inform the board of directors for the approval. The directors who have a conflict of interest may not partake in the giving of comments on those connected transactions. 8.3.4 Policy for potential connected transactions For any connected transactions that may take place in the future, the Company has a policy to set appropriate conditions on the said transactions based on the reasons and necessity of the Company. The connected transactions performed over the past period were advance payments, made for such expenses as transportation, accommodations for employeesรป family, educational fees for employeesรป children, insurance claims of 75

employees etc and also some raw material procurements as explained above. There were no extra charges by the parent company regarding such cost and expenses as brand name and R & D, and so on. In performing any future connected transactions, PTL board of directors will comply with the law governing securities and exchange and the regulations, notifications and orders of the Stock Exchange of Thailand, as well as the regulations regarding disclosure of information about connected transactions and acquisition or disposal of core assets of companies or subsidiary companies according to the accounting standards defined by the Institute of Certified Accountants and Auditors of Thailand. Where the connected transaction involves any person who may have a conflict of interest, the Company will arrange for the audit committee to give opinion on the necessity and appropriateness of that transaction. In case the audit committee has no expertise in any such transaction, the Company will have an independent expert or its external auditor provide opinion on that transaction to be used as a basis of decision-making by the board of directors or the shareholders, as the case may be. The Company will disclose such connected transactions in the notes to the financial statements duly audited by its external auditor.

Annual Report 2011-2012

76 Polyplex (Thailand) Public Company Limited

9. Financial Position and Operational performance 9.1 Financial statements Auditor

○

Year

Name of auditor

CPA no.

Auditing firm

2011/12 (April 1, 2011-Mar 31, 2012) 2010/11 (April 1, 2010-Mar 31, 2011) 2009/10 (April 1, 2009-Mar 31, 2010) 2008/09 (Apr 1, 2008-Mar 31, 2009) 2007/08 (Apr 1, 2007- Mar 31, 2008) 2006/2007 (Apr 1, 2006 - Mar 31, 2007) 2003-04 to 2005-06 (Apr 1, 2003 - Mar 31, 2006)

Mr.Narong Puntawong

3315

Ernst & Young Office Limited

○

Mr.Narong Puntawong ○

○

Mr. Vichien Thamtrakul

○

3183

○

Ernst & Young Office Limited ○

○

Ernst & Young Office Limited ○

○

Ernst & Young Office Limited ○

○

2803 ○

○

Ernst & Young Office Limited

3315

Mr.Pisit Chiwaruangroch ○

○

3315

Mr.Narong Puntawong ○

○

3315

Mr.Narong Puntawong ○

○

3315

Mr.Narong Puntawong ○

○

KPMG Phoomchai Audit Ltd. ○

○

KPMG Phoomchai Audit Ltd.

Auditorûs report For all the past years, including the year ended on March 31st 2012, the Auditors have given an unqualified opinion that the financial statements were fairly presented and prepared in accordance with generally accepted accounting principles. The Company had set up subsidiaries, namely Polyplex (Singapore) Pte. Ltd. (PSPL) in July 2004, Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi (PE) in September 2004, Polyplex (Americas) Inc. in January 2006 and Polyplex Trading (Shenzhen) Co. Ltd in 2009. In 2011, two new subsidiaries were formed in the USA. An Investment Holding Company named Polyplex Americas Holding Inc. (PAH), and Polyplex USA LLC (PU), the Company under which the new PET Thin film line project is being implemented. PAH is 100% held by Polyplex (Thailand) Plc (PTL) and PU is 100% held by PAH. The financial statements of last 3 years, for both Consolidated and Standalone, latest being the year ended on 31st March 2012, have been given for the purpose of comparison and for the appreciation of the change in revenues and profitability over the years.

Annual Report 2011-2012

78 Polyplex (Thailand) Public Company Limited

Polyplex (Thailand) Public Company Limited Balance Sheet Unit : Baht 000ûs Unconsolidated 2010/2011 2011/2012 April -March April - March Amount % Amount %

2009/2010 April - March Amount %

○

Assets Current Assets Cash and cash equivalents Current investments Accounts receivable Amounts due from related party Inventories Other current assets Total Current Assets Non-Current Assets Investment in subsidiary Land, premises and equipment-net Intangible assets-net Other non current assets Total Non-current Assets Total Assets ○

○

2009/2010 April - March Amount %

108,797 1.80 42,042 0.58 29,641 0.47 711,418 8.02 - 164,947 2.26 644,582 10.68 1,181,339 16.17 805,876 12.86 1,167,444 13.17 60,646 0.68 411,888 6.83 470,777 6.45 564,604 9.01 1,116,293 12.59 42,876 0.71 132,752 1.82 81,238 1.30 105,000 1.18 1,208,144 20.02 1,991,857 27.27 1,481,359 23.64 3,160,801 45.74 ○

○

2,113,486 2,629,228 82,499 4,825,213 6,033,356

35.03 43.58 1.37 79.98 100.00

○

1,936,415 3,115,042 260,825 5,312,282 7,304,139 ○

○

26.51 42.65 3.57 72.73 100.00 ○

○

1,313,492 3,118,711 353,089 4,785,292 6,266,650

Consolidated 2010/2011 April - March Amount %

2011/2012 April - March Amount %

1,231,009 164,947 1,896,159 221,816 1,732,304 212,333 5,458,568

1,532,173 1,396,692 1,623,792 411,744 4,964,401

○

10.32 1.38 15.89 1.86 14.52 1.78 45.74 ○

○

13.22 12.05 14.01 3.55 42.82 ○

○

20.96 49.77 5,618,255 63.36 5,979,206 50.11 6,268,572 54.07 5,140 0.06 5,228 0.04 5,882 0.05 5.63 82,547 0.93 489,899 4.11 353,966 3.05 76.36 5,705,943 54.26 6,474,333 54.26 6,628,420 57.18 100.00 8,866,744 100.00 11,932,901 100.00 11,592,820 100.00

○

Polyplex (Thailand) Public Company Limited Balance Sheet

Unit : Baht 000ûs Unconsolidated 2010/2011 2011/2012 April -March April - March Amount % Amount %

2009/2010 April - March Amount %

○

Liabilities & Shareholdersû Equity Current Liabilities Accounts payable Dividend payable Long-term loans-due within one year Short-term loans from financial institutions Other current liabilities Total current liabilities Non-current Liabilities Long-term loans-net of amount due within one year Other non-current liabilities Total Liabilities Shareholdersû Equity Issued & Paid-up Share Capital Preferred shares Ordinary shares Premium on ordinary shares Translation adjustment Retained earnings (deficits) Total Shareholdersû Equity Minority Interest Total Liabilities and Shareholdersû Equity

510,356 192,139

○

8.46 3.18

821,531 11.25 256,001 3.50

602,327 271,996

Consolidated 2010/2011 April - March Amount %

2009/2010 April - March Amount %

9.61 4.34

854,975 454,064

9.64 1,290,564 5.12 387,200

50,000 0.83 80,000 1.28 52,266 0.59 194,484 80,276 1.33 106,458 1.46 79,215 1.26 135,878 1.53 189,958 832,771 13.80 1,183,990 16.21 1,033,538 16.49 1,497,184 16.89 2,062,206

10.82 1,092,932 3.24 363,760

○

1,231,404 20.41 1,120,200 15.34 1,156,340 18.45 2,352,620 26.53 1,504,733 6,052 0.10 4,456 0.05 3,258 2,064,175 34.21 2,304,191 31.55 2,195,930 35.04 3,854,260 29.92 3,570,197 ○

○

800,000 1,370,460 1,798,721 3,969,181 ○

○

13.26 800,000 10.95 800,000 22.71 1,370,460 18.76 1,370,460 29.81 2,829,489 38.74 1,900,261 65.79 4,999,949 68.45 4,070,721 ○

○

12.77 21.87 30.32 64.96 ○

○

800,000 1,370,460 (388,776) 3,211,091 4,992,775 19,709 ○

○

9.02 15.46 (4.38) 36.21 69.86 0.22 ○

○

2011/2012 April - March Amount %

9.43 3.14

1.63 326,745 2.82 1.59 189,509 1.63 17.28 1,972,946 17.02 ○

○

12.61 1,250,517 10.79 0.03 9,768 0.08 29.92 3,233,231 27.89 ○

○

800,000 6.70 800,000 6.90 1,370,460 11.48 1,370,460 11.82 (316,111) (2.65) (316,738) (2.73) 6,481,976 54.32 6,479,285 55.89 8,336,325 69.86 8,333,007 71.88 26,380 0.22 26,583 0.23 ○

○

6,033,356 100.00 7,304,139 100.00 6,266,650 100.00 8,866,744 100.00 11,932,901 100.00 11,592,820 100.00

Annual Report 2011-2012

80 Polyplex (Thailand) Public Company Limited

Polyplex (Thailand) Public Company Limited Statement of Income and Retained Earnings Unit : Baht 000ûs Unconsolidated 2010/2011 2011/2012 April -March April - March Amount % Amount %

2009/2010 April - March Amount %

○

Revenues Net sales Other revenues Gain on foreign exchange Total Revenues Costs and Expenses Cost of sales Selling and administrative expenses Loss of foreign exchange Management Benefit expenses Total Expenses Profit (loss) before interest expenses Interest expenses Income Tax Net profit (loss) after income tax Net loss of minority interest Net profit (loss) Earnings (losses) per share (Bt.) ○

○

Consolidated 2010/2011 April - March Amount %

2009/2010 April - March Amount %

2011/2012 April - March Amount %

3,174,656 95.18 4,980,737 97.38 4,560,647 93.92 7,125,366 97.61 11,183,174 98.79 10,143,111 98.82 85,376 2.56 58,745 1.15 295,316 6.08 111,323 1.53 106,586 0.94 120,697 1.18 75,315 2.26 75,517 1.48 62,832 0.86 30,410 0.27 3,335,347 100.00 5,115,000 100.00 4,855,962 100.00 7,299,520 100.00 11,320,169 100.00 10,263,808 100.00 ○

○

2,546,428 278,709 23,189 2,848,326 487,021 (39,074) 447,947 447,947 0.56 ○

○

76.35 8.36 0.70 85.40 14.60 (1.17) 13.43 13.43 ○

○

3,104,616 311,026 21,024 3,436,667 1,678,333 (35,565) 1,642,767 1,642,767 2.05 ○

○

60.70 3,831,385 78.90 5,394,355 73.90 6,502,517 57.44 7,831,563 6.08 333,606 6.87 685,410 9.39 755,461 6.67 855,707 - 221,776 4.57 - 122,298 0.41 49,084 0.67 48,531 0.43 67.19 4,386,767 90.34 6,128,849 83.96 7,306,510 64.54 8,809,568 32.81 469,195 9.66 1,170,671 16.04 4,013,659 35.46 1,454,239 (0.70) (34,054) (0.70) (114,655) (1.57) (92,728) (0.82) (56,140) - (12,177) (0.17) (27,882) (0.25) (34,187) 32.12 435,142 8.96 1,043,839 14.30 3,893,049 34.39 1,363,912 - (4,453) (0.06) (10,164) (0.09) (2,235) 32.12 435,142 8.96 1,039,386 14.24 3,882,885 34.30 1,361,678 0.54 1.30 4.85 1.70 ○

○

76.30 8.34 1.19 85.83 14.17 (0.55) (0.33) 13.29 (0.02) 13.27 ○

○

Polyplex (Thailand) Public Company Limited Cash Flow Statement Unit : Baht 000ûs Unconsolidated Consolidated 2009/2010 2010/2011 2011/2012 2009/2010 2010/2011 2011/2012 April-March April-March April-March April-March April-March April-March

○

Cash flow from operating activities Net profit (loss) 447,947 Adjustment to reconcile net profit of net cash provided by operating activities Depreciation and amortization 162,014 Increase (decrease) allowance for doubtful debts 667 Allowance for diminution in value of inventories (reversal) 1,709 Dividend income (4,489) Interest Expense 37,309 Income Tax expense Gain on disposal of property, plant and equipment (823) Unrealized losses (gains) on foreign exchange (100,555) Exchange loss on the redemption of investment in subsidiary 29,561 Gains on sales of current investments (1,841) Net loss of minority interest Profit (Loss) from operation before changes in operating assets and liabilities 571,500 Decrease (Increase) in operating assets Accounts receivable 11,938 Balance due from/to a related company Inventories (99,879) Other current assets 4,717 Other non-current assets (978) Increase (Decrease) in operating liabilities Accounts payable 132,242 Other current liabilities 597 Income tax paid Other non- current liabilities Cash flow provided from (used in) operating activities 620,135 ○

○

1,642,767

435,142

1,039,386

3,882,885

1,361,678

190,413

196,282

356,731

357,538

369,432

(233)

(25)

1,852

783

279

(17,289) (9,858) 33,934 -

2,720 (217,596) 33,003 -

1,575 104,658 12,177

(17,289) 76,002 27,882

2,720 45,078 34,187

(402)

(668)

(610)

(2)

(99,795)

20,508

(101,239)

(97,579)

19,969

37,407

253,268

(472) -

(3,538) -

(1,841) 4,453

(472) 10,164

(3,538) 2,235

1,776,472

719,763

1,417,084

4,239,304

2,085,305

(528,037)

371,036

152,713

(723,653)

496,000

(41,599) (89,258) 3,994

(96,548) 51,514 1,222

(8,406) (157,992) (18,665) (890)

(161,170) (598,525) (105,941) 3,997

105,741 25,872 1,221

156,367 26,492 -

(78,613) (27,381) 1,682

296,808 (4,683) (24,011) 2,500

281,323 38,614 (14,624) (1,199)

(57,671) 5,727 (42,530) 2,282

○

1,304,431

○

942,676

○

1,654,457

○

2,958,128

○

2,621,946

○

Cash flow from operating activities Decrease (increase) in current investments 350,541 Dividend from subsidiary 4,489 Increase in advance payment for purchases of assets (7,528) Increase in Investment in subsidiary 265,735 Increase (decrease) in accounts payable for purchases of fixed assets 22,120 Purchases of property, plant and equipment (581,187) Increase in intangible assets Proceeds from sales of property, plant and equipment 873 Net cash used in investing activities 55,042 Cash flow from financing activities Interest Paid (44,004) Increase (Decrease) in short term loans from financial institutions 50,000 Dividend Paid (692,000) Dividend paid to minority shareholders Increase/(decrease) in long-term loans 102,058 Cash provided from financing activities (583,947) Currency Translation changes Increase in cash and cash equivalents 91,231 Cash and cash equivalents at the beginning of period (April 1) 17,566 Cash and Cash equivalents at the end of period (March 31) 108,797 ○

○

(164,475) 9,858

168,485 217,596

350,541 -

(164,475) -

168,485 -

(182,321) 139,665

(93,486) 369,655

(7,528) -

(411,349) -

134,712 -

161,359

(145,631)

22,120

161,359

(145,631)

(676,237) -

(192,207) -

(617,742) (58)

(760,722) (731)

(824,058) (1,433)

411 (711,739)

324,412

○

(34,285)

○

(112,363)

(50,000) 80,000 (612,000) (1,360,000)

(51,828) (692,000)

36,838

○

(54,066)

142,218 132,261 (612,000) (1,360,000) (278)

(146,756) ○

70,089 (597,837) ○

(74,766)

(1,418)

41,049 ○

(2,187)

(778,852) ○

○

(275,697) ○

○

(659,447) (1,279,489) (1,004,365) (1,323,679) (1,559,689) - (119,668) 59,342 (163,256)

○

(66,755) ○

○

(12,401)

108,797

Annual Report 2011-2012

○

(40,538)

82 Polyplex (Thailand) Public Company Limited

1,125 1,718 (251,543) (1,174,201) ○

○

42,042

○

278,881

42,042 ○

○

29,641

○

519,590

432,538 ○

○

711,418

○

301,164

711,418 ○

○

1,231,009

○

1,231,009 ○

○

1,532,173

○

Polyplex (Thailand) Public Company Limited Financial Statement Unconsolidated Consolidated 2009/2010 2010/2011 2011/2012 2009/2010 2010/2011 2011/2012 April-March April-March April-March April-March April-March April-March Liquidity Ratios Current ratio Quick ratio Cash flow current ratio Receivable current ratio Avg. debt collection period Inventory turnover period Avg. selling period Payable current ratio Loan repayment period Cash cycle Profitability Ratios Gross profit margin Operating profit margin Other profit margin Cash to profit margin Net profit margin Return on equity Efficiency Ratios Return on assets Return on fixed assets Asset turnover Financial Policy Ratios Debt to equity ratio Interest coverage ratio Commitment coverage ratio (cash basis) Pay out ratio

(time) (time) (time) (time) (day) (time) (day) (time) (day) (day)

1.45 0.90 0.71 4.83 74.57 110.69 3.25 6.41 56.18 21.64

1.68 1.17 1.29 5.46 65.99 88.87 4.05 5.73 62.78 7.25

1.43 0.81 0.85 4.59 78.43 97.18 3.70 6.27 57.40 24.73

2.11 1.25 1.14 5.70 63.20 19.00 18.94 8.18 44.02 38.12

2.65 1.60 1.66 7.30 49.31 15.68 22.96 6.86 52.50 19.77

2.52 1.48 1.30 6.16 58.44 14.37 25.05 7.18 50.14 33.34

(%) (%) (%) (%) (%) (%)

19.79% 11.01% 2.56% 108.47% 13.43% 11.39%

37.67% 31.42% 1.15% 74.53% 32.12% 36.63%

15.99% 8.68% 6.08% 123.80% 8.96% 9.59%

24.29% 14.67% 1.53% 116.94% 14.24% 21.63%

41.85% 35.10% 0.94% 69.25% 34.30% 58.06%

22.79% 14.35% 1.18% 141.62% 13.27% 16.29%

(%) (%) (time)

7.39% 25.23% 0.55

24.63% 63.83% 0.77

6.41% 20.26% 0.72

11.71% 24.89% 0.82

37.34% 73.13% 1.09

11.58% 28.27% 0.87

(time) (time)

0.52 16.61

0.46 52.54

0.54 19.54

0.77 13.28

0.43 47.03

0.39 32.44

(time) (%)

0.83 40%

1.50 40%

2.10 31%

1.81 40%

2.44 40%

2.16 31%

9.2 Explanation and analysis of operational performance and financial status 9.2.1 Operational performance PTL, a subsidiary of PCL, was incorporated on March 26, 2002 to engage in the production and distribution of PET film (Polyethylene Terephthalate Film or Polyester Film) mainly for export markets focusing on packaging, industrial and electrical segments. The Company commenced operations from its first production line on April 2, 2003 and the second production line on November 12 of the same year. The Companyûs factory is situated in Siam Eastern Industrial Park, Rayong on a land area of 20 rai 22 sq. wah which was later expanded by another land area of 8 rai 28.9 sq. wah for implementation of the captive PET resin project. Another plot of land with an area of 35 rai, 2 nang and 54.80 square wah was bought opposite to the factory, where The Companyûs Extrusion Coating project, the Cast Polypropylene Project and the Silicone Coating project have been set up. The Blown PP project and the Extrusion Coated Film line II projectsare also being set up on the same plot of land. The PET Thick Film line, along with the new PET resin plant, project is being implemented in the new plot of land purchased in 2010, adjacent to the existing factory in Rayong, with an area of 35 rai, 2 Nang and 66.5 square wah. All our operational product lines in Thailand have the following certifications: ISO 14001:2004 certification on Environment Management system ISO 9001:2008 certification on Quality Management system OHSAS 18001:2007 certification on Occupational Health and Safety Management system ISO 22000:2005 certification on Food Safety standards TPM Excellence Award (Category A) ● ● ●

● ●

All our product lines in Turkey have the following certifications: ISO 14001:2004 certification on Environment Management system ISO 9001:2008 certification on Quality Management system OHSAS 18001:2007 certification on Occupational Health and Safety Management system BRC/IoP - certification on Global Standard For Packaging and Packaging Materials (For Plain and Metallized Film lines)

● ● ●

●

Polyplex group aims to become one of the world market leaders in PET film industry by continuously expanding its market share through regular expansions in capacity. The Thin PET film line in US would be adding another 31,000 MT per annum in the Companyûs combined capacity. By venturing into the manufacture of related products such as BOPP film (In India) and CPP film (In Thailand), which are other Packaging substrates used by Converters, in addition to PET thin film, Polyplex is moving towards establishing itself as a Preferred packaging substrate provider as against just a PET thin Annual Report 2011-2012

84 Polyplex (Thailand) Public Company Limited

film supplier. Apart from this, in order to further diversify its product range, the group has regularly been expanding into new value added products such as Silicone coated film (In India - 2007, Thailand - 2012), Extrusion coated films (In Thailand - 2008), increasing its Metallized film capacities in Turkey and Thailand in May 2008 and the Blown PP film and Extrusion Coated Film (Line 2) projects which are under implementation in Thailand. The Company is also venturing into Thick PET film and is currently in the process of setting up this project in Thailand. Polyplex group has set out clear business strategies: 1) Focus on product development and technical services to penetrate high growth and high margin markets, 2) Cost leadership 3) Boosting delivery efficiency through focus on distributed manufacturing and logistics 4) Diversifying the product portfolio to minimize the risk of cyclical impact of the PET film industry, to increase stability of Earnings 5) Customer satisfaction through supply of consistent quality products 6) Judicious mix of On-shore, Off-shore and Near-shore strategy. The demand-supply imbalance in the PET Thin film industry which resulted in a sharp increase in the selling prices in year 2010, witnessed a correction in year 2011, with new capacities coming into the market, especially in the Asian region and resulting in a more balanced demand-supply situation. As a result, selling prices of polyester film dropped sharply. The industry also saw a sharp increase in the major raw material prices (PTA/ MEG) due to Crude oil price surge. Due to the combined effect of reduced selling prices and increased raw material costs, there was a sharp decline in value addition levels in FY 2011-12. The highlights of the year没s performance are as follows: TOTAL REVENUES Consolidated: Sales Revenue: The consolidated sales revenue has decreased to Baht 10,143 million, (Baht 1,040 million or 9.30% decline over previous year). Decrease in revenues is mainly on account of a significant drop in selling prices of Polyester films, as compared to the extra ordinary price levels seen in previous year, due to the oversupply situation created by the new capacities that were added in 2011. Additional sales volumes from the new Silicone Coating line (which commenced commercial production in March 2012) and higher utilizations in the existing Extrusion Coated Film Line and CPP Film line in Thailand have helped to partly offset the impact of lower selling prices of PET films.

Table illustrating consolidated sales revenue from Exports and Domestic sales is as below: 2009-10 2010-11 2011-12 Bt. million % Bt. million % Bt. million % Exports 5,965.27 83.72 9,611.07 85.94 8,495.31 83.75 Domestic sales 1,160.09 16.28 1,572.10 14.06 1,674.80 16.25 Total 7,125.36 100.00 11,183.17 100.00 10,143.11 100.00 Note: Sales made by the distribution company in the US/China has been considered as Exports. Previous year figures have been regrouped accordingly. Market

○

The value additions [VA = Selling price - Raw Material Cost] during the year for PTL and PE are shown below. In comparison to the FY 2010-11 when the value addition levels witnessed an exceptional surge, the VAûs in FY 2011-12 got gradually corrected to normal levels.

Q1 2010-11 Q2 2010-11 Q3 2010-11 Q4 2010-11 Q1 2011-12 Q2 2011-12 Q3 2011-12 Q4 2011-12 1.01 1.53

1.51 2.01

2.44 3.08

2.16 2.79

1.61 2.09

0.90 1.38

0.83 1.33

0.67 1.22

Q1 2010-11

Q2 2010-11

Q3 2010-11

Q4 2010-11

Q1 2011-12

Q2 2011-12

Q3 2011-12

Q4 2011-12

0.83

1.25

1.97

2.00

1.31

0.78

0.66

0.54

1.36

1.78

2.41

2.38

1.73

1.23

1.22

1.08

Other Income: The other income has increased to Baht 120.69 million from Baht 106.59 million in the previous year, mainly due to higher other income at Thailand on account of some creditor balances written off and also higher income from miscellaneous sales. Standalone: Sales Revenue: The Companyûs total sales revenue is mainly driven by Exports, with 75-80% of its total sales revenue coming from exports. Annual Report 2010-2011

86 Polyplex (Thailand) Public Company Limited

Table illustrating the Companyûs sales revenue from export and domestic sales is below: Market

○

Exports Domestic sales Total ○

○

2009-10 Bt. million % 2,496.48 78.64 678.17 21.36 3,174.65 100.00 ○

○

2010-11 2011-12 Bt. million % Bt. million % 3,950.99 79.33 3,640.71 79.83 1,029.75 20.67 919.94 20.17 4,980.74 100.00 4,560.65 100.00 ○

○

In the financial year 2011-12, the Company achieved total sales revenues of Baht 4,561 million, a decrease of Baht 420 million or 8.4% over the previous year. The decrease is mainly due to decrease in selling prices of polyester film due to oversupply situation, partly offset by higher sales volumes of other product lines as explained above Other Income: The other income has increased to Baht 295.32 million from Baht 58.7 million, mainly due to dividend income of Baht 217 million from the companyûs subsidiaries, which includes a maiden dividend of Baht 195 million from the Singapore subsidiary company and also on account of some creditor balances written off. TOTAL EXPENSES Consolidated The key elements of the Companyûs cost structure are raw materials, packing, electricity & fuel, depreciation, staff cost and selling & administrative expenses. Cost of sales (COS) amounted to Baht 7,832 million as compared to Baht 6,551 million of previous year, representing 88.9% of the total expenses, slightly lower than 89.7% of the previous year. Cost of sales includes mainly the raw material costs, packing costs, utilities, depreciation on building and machinery, staff costs etc. A broad break up of COS is given below: Description 2011-12 2010-11 2009-10 Raw materials and consumables used (incl.change in inventory) 79.2% 78.2% 75.6% Depreciation (in COS) 4.6% 5.1% 6.1% Salaries, wages and other employee benefits (in COS) 5.5% 5.7% 5.4% Utilities (Power/Natural Gas/ Chilled water etc) 6.2% 7.2% 8.7% Others 4.5% 3.8% 4.2% 100.0% 100.0% 100.0% ○

○

The increase in the COS in absolute terms is Baht 1,281 million (or 19.6%), which is mainly on account of higher prices of PTA and MEG as well as other raw material used by other product lines. Increase in the volume of CPP, Extrusion coated films also contributed to the higher COS in current year.

The selling expenses amounted to Baht 581 million or 6.6% of total expenses as compared with Baht 546 million or 7.5% in the previous year. It includes shipment costs for the exported products, inland transportation charges, inland insurance on domestic sales, commission on sales, credit insurance charges and other selling expenses. The increase in selling expenses is mainly due to higher sale volumes this year and also due to higher freight rates. As a % to total expenses, it is lower than previous year since total expenses have been higher this year due to the Exchange loss of Baht 122 million as compared to an exchange gain of Baht 30 million last year. The administrative expenses amounted to Baht 275 million or 3.1% of total expenses as compared with Baht 209 million or 2.9% in the previous year. The administrative expenses have been higher than the previous year due to overall increase in scale of operations due to new products in Thailand and also higher administrative expenses in the subsidiaries. The company recorded a total exchange loss of Baht 122 million as compared to an exchange gain of Baht 30 million in the previous year. The decrease is mainly due to the net exchange loss at Thailand on account of Preference Share redemption of the Singapore subsidiary due to lower exchange rate prevailing on the redemption date, as compared with the historical exchange rate, at which the investment was being carried in the books. This loss was partly offset by some exchange gain from subsidiaries and also exchange gain in Thailand on the USD denominated Accounts Receivables. The finance charges have reduced from Baht 93 million to Baht 56 million, mainly due to the repayments, including some prepayment of loans by the subsidiary in Turkey for better deployment of surplus funds. Standalone Cost of sales (COS) amounted to Baht 3,831 million, representing 87.3% of the total expenses, higher than Baht 3,123 million or 90.9% of the previous year. The main reason for the higher COS is higher production volumes as well as higher average raw material prices during the year. A broad breakup of the COS is given below: Description Raw materials and consumables (incl.change in all inventory) Depreciation (in COS) Salaries, wages and other employee benefits (in COS) Utilities (Power/Natural Gas/ Chilled water etc) Others

2011-12 2010-11 2009-10 79.4% 78.3% 78.3% 4.9% 5.8% 6.0% 6.4% 6.8% 5.8% 7.5% 7.9% 8.7% 1.8% 1.2% 1.2% 100.0% 100.0% 100.0% ○

Annual Report 2011-2012

88 Polyplex (Thailand) Public Company Limited

○

The selling expenses amounted to Baht 263 million or 6 % of total expenses as compared with Baht 260 million or 7.6% in the previous year. The increase in selling expenses is mainly due to higher sales volumes. The administrative expenses amounted to Baht 70 million or 1.6% of total expenses, higher compared with Baht 54 million or 1.6% in the previous year. Higher administrative expenses are on account of increase in scale of operations. The Company has recorded an Exchange loss of Baht 222 million, as compared to an exchange gain of Baht 76 million in the previous year. The loss is mainly due to the exchange loss on account of Preference Share redemption of the Singapore subsidiary due to lower exchange rate prevailing on the redemption date, as compared with the historic exchange rate, at which the investment was being carried in books. The finance charges have reduced from Baht 36 million to Baht 34 million, due to repayment of loans and also due to lower interest rates. Profit margins - Gross Profit, Operating Profit and Net profit ratios Gross profit margin on a consolidated basis has been 22.8% as compared to 41.9% of previous year. On a standalone basis, The Company had a gross profit margin of 16.0% in 2011-12, which is lower than 37.7% in the previous year, mainly due to drop in the sales realization, coupled with increase in the raw material costs. On a consolidated basis, the operating profit margin in the current year has decreased from 35.1% to 14.4%. And on a standalone basis, it has decreased from 31.4% to 8.7%, mainly due reasons of lower average sales realization and higher raw material and other costs during the year, as explained above. Net profit margin on a consolidated basis has been 13.3%, as compared to 34.3% of the previous year and on a standalone basis it has been 9.0% as compared to 32.1% of previous year. 9.2.2 Financial status TOTAL ASSETS As at 31st March 2012, The Company没s consolidated total assets were Baht 11,593 million, lower by 2.9% as compared to Baht 11,933 million in the previous year. On a Standalone basis, the total assets as at 31st March 2012 were Baht 6,267 million, lower by about 14.2% compared to Baht 7,304 million of previous year. The main components of Total Assets are Current assets, Fixed assets, Investments and other non-current assets. A brief summary of the movement in the various components of total assets is given below:

Accounts receivable The Companyûs consolidated Net Accounts Receivables as of March 31, 2012 stood at Baht 1,397 million which is lower compared to Baht 1,896 million as of March 31, 2011 or a decrease of 26.3%. The decrease in receivables is mainly due to the drop in selling prices in current year. The Companyûs Standalone Net Accounts Receivables as of 31st March, 2012 were Baht 806 million, as against Baht 1,181 million in the previous year, or a decrease of 31.8%. The decrease in receivables is mainly due to the significant decrease in selling prices as explained above. Inventories On a consolidated basis, the total inventories have reduced from 1,732 million to 1,624 million, a decrease of Baht 108 million or 6.3%. On a standalone basis, there is an increase from Baht 471 million to Baht 565 million or 19.9%. The decrease in inventory levels is mainly due to lower stock of finished goods in Polyplex Americas Inc compared to March 2011. On a standalone basis, the increase is mainly in raw material stock due to higher inventory of polyester chips and also inventory of raw material for the new Silicone Coating Film line, and also some increase in work in process inventory. Net Fixed Assets Consolidated Net Fixed Assets (including capital work in progress -CWIP, Goodwill and Other Intangible Assets) have increased by Baht 290 million from Baht 5,984 million to Baht 6,274 million, due to the net impact of the following: Increase due to additions to fixed assets - Baht 832 million, mainly on account of the additions in the Silicone Coating Line which was capitalized in March 2012, and Capital work in progress relating to other projects under implementation in Thailand and USA, apart from other normal CAPEX. ●

●

Reduction on account of fixed assets disposed/written off during the year - Baht 70 million (Gross book value, net of accumulated depreciation)

●

Decrease on account of Translation adjustment - Baht 103 million (net of translation impact on accumulated depreciation), mainly due to translation of subsidiaries Net Fixed Assets, denominated in Euro, USD and RMB, into THB for the purpose of consolidation.

●

Decrease on account of depreciation charged during the year - Baht 369 million

The Company (standalone) Net Fixed Assets have increased by Baht 4 million, from Baht 3,115 million to Baht 3,119 million, due to the net impact of the following:

Annual Report 2011-2012

90 Polyplex (Thailand) Public Company Limited

❍

Increase due to net addition to fixed assets - Baht 200 million mainly on account of addition to Building/Machinery relating to the Silicone Coating project, capital work in progress relating to the PET Thick Film project, Blown PP and Extrusion Coated Film projects and Normal CAPEX in existing plants

●

Decrease on account of depreciation charged during the year - Baht 196 million

Investment in subsidiaries During the year, the Company redeemed USD 34.3 million worth Preference Shares of Polyplex (Singapore) Pte Ltd (PSPL) The Company invested USD 22.0 million in Equity shares of the new Company Polyplex Americas Holding Inc (PAH), incorporated in the USA. PAH has further invested in another Company - Polyplex USA LLC (PU), under which the project for PET Thin Film manufacture is being implemented. Return on assets On a consolidated basis also, the return on assets has been 11.6% as compared to 37.3% in the previous year, mainly due to decrease in profitability during the current year. On a Standalone basis, the Companyûs return on assets has been 6.4% as compared to 24.6% in the previous year, mainly due to decrease in profitability during the current year. 9.2.3 Liquidity Cash flow For the year 2011-12, the Company and its subsidiaries generated net cash from operating activities amounting to Baht 2,622 million and Baht 168 million from redemption of liquid investments. Out of these, Baht 765 million (net of sales of fixed assets) was expended for purchase, including advances for machinery & equipment (mainly for the Silicone Coating project and other ongoing projects at Thailand and USA) and other fixed assets, Baht 54 million was paid as finance charges on the long term and short term borrowings and, Baht 143 million net outflow was on account of loan movement (long term and short term bank borrowings). There was an outflow of Baht 1,360 million on account of dividend paid by the Company for 2010-11 and Interim dividend for 2011-12 and Baht 2.2 million of dividend payout by PA to the minority shareholders. The balance thereof, partly offset by reduction on account of translation adjustment of Baht 163 million, along with the opening balance of Baht 1,231 million resulted in a net closing balance of Baht 1,532 million.

During the year 2011-12, the Company, on a standalone basis, had generated net cash from operating activities of Baht 943 million, Redemption of Preference Share investment in Polyplex (Singapore) Pte Ltd - Baht 1,046 million, dividend from the Singapore/US subsidiaries of Baht 217 million, Baht 168 million from redemption of liquid investments and Baht 121 million net inflow on account of loan movement (long term and short term bank borrowings). Of these, Baht 676 million was invested in the new subsidiary in the USA, Baht 431 million was used for purchase of fixed assets & other assets (mainly for the Silicone Coating Project and Thick PET Film line project), Baht 40 million was paid as finance charges on the Long/short term loans. There was an outflow of Baht 1,360 million on account of dividend for 2010-11 and Interim dividend for FY 2011-12. The deficit thereof together with the opening balance of Baht 42 million resulted in a net closing balance of Baht 30 million. Liquidity ratio In 2011-12, consolidated current ratio was 2.52 and quick ratio was 1.48. The Companyûs (standalone) current ratio and quick ratio were 1.43 and 0.81 respectively. Consolidated average debt collection period during 2011-12 was 58 days along with Account payables period of 50 days and average selling period of 25 days, resulting in a cash cycle of 33 days as against a cash cycle of 20 days of previous year. The average debt collection period of The Company (standalone) during 2011-12 was 78 days along with Accounts payable period of 57 days and average selling period of 4 days resulting in cash cycle of 25 days as against a cash cycle of 7 days in previous year. 9.2.4 Sources of funds Sources of funds consist of long term and short term loans from financial institutions and shareholdersû equity. TOTAL LIABILITIES Current Liabilities As at 31st March, 2012, consolidated current liabilities stood at Baht 1,973 million, a decrease of Baht 89 million from Baht 2,062 million in the previous year, mainly due to the following: Decrease in Trade and other payables by Baht 198 million, mainly due to reduction in payables for Fixed assets due to payments made to the vendors of Silicone Coating project in Thailand ●

●

Increase in other liabilities by Baht 4 million ( mainly provision for expenses)

●

Decrease in current portion of long term loans by Baht 23 million due to prepayment of loans by the subsidiary in Turkey

●

Decrease in Income tax payable by Baht 5 million, mainly due to lower tax in the subsidiary in the USA due to lower taxable profits this year.

Annual Report 2011-2012

92 Polyplex (Thailand) Public Company Limited

●

The above decrease is partly offset by a net increase in short term borrowings Baht 132 million, at Thailand and the subsidiary in US due to increase in working capital requirement

As at 31st March, 2012, The Companyûs Standalone current liabilities stood at Baht 1,034 million, a decrease of Baht 150 million from Baht 1,184 million in the previous year, mainly due to decrease in payables for Fixed assets (Baht 140 Million), Trade payables (Baht 79 Million), and decrease in other current liabilities (Baht 27 Million), partly offset by increase in Short term borrowings by Baht 80 million and increase in current portion of loans (Baht 16 Million) Term Debts On a consolidated basis, the term debt (net of current portion) has decreased by Baht 254 million from Baht 1,505 million to Baht 1,251 million. The decrease in consolidated debt is mainly on account of loan repayments, including prepayment of loans during the year by the subsidiary in Turkey (approx. Euro 5 Million) for better deployment of surplus funds. This is partially offset by additional borrowings at Thailand for the Silicone Coating project and net exchange loss on loan restatements in Thailand. The Companyûs term debt (net of current portion) has increased from Baht 1,120 million to Baht 1,156 million due to additional borrowings at Thailand for the Silicone Coating project and also due to the exchange loss on the USD loan restatements, partly offset by exchange gain on Euro loan restatement and also the loan repayments made during the year. Leveraging & interest coverage ratio The net debt equity ratio (debt only - short term and long term, including current portion, after netting off cash & cash equivalents and current investments) of 0.01 on a consolidated basis and 0.34 for the Company standalone are quite comfortable. Debt equity ratio (for total debt, including current + non-current liabilities), is 0.39 on a consolidated basis and 0.54 for the Company standalone, which are also quite comfortable. The consolidated interest coverage ratio was 32.4 times as against 47 in previous year. Decrease in the interest coverage ratio is mainly due to decrease in EBITDA during the current year, as well as due to lower interest costs. The Companyûs standalone interest coverage ratio was 19.5 times as against 52.5 times in previous year. Decrease in interest coverage ratio is mainly on account of decrease in the EBITDA during the year.

Commitments As at 31 March 2012, company had the following commitments and contingent liabilities: (a) The Company had commitments totaling Baht 221 million under various service agreements. These agreements terminate between May 2012 and September 2016. (b) The Company没s foreign exchange contracts outstanding at 31 March 2012 are summarized below. Bought Sold Foreign currency amount amount (Million) (Million) US dollar

1.62

18.98

Swiss franc

1.35

Euro

0.68

2.53

35.97

Japanese yen

Contractual exchange rate Bought Sold (Baht per 1 foreign currency unit) Baht 30.4600 -32.0863 per USD 1 Baht 31.6988 -40.9692 per CHF 1 Baht41.1600 - 41.6000 per EUR 1 -

Baht 30.5146 -32.2094 per USD 1

Baht 40.5600-41.7100 per EUR 1 Baht 0.3753 - 0.3756 per JPY 1

The Company没s subsidiary in Turkey had the following forward exchange contracts outstanding at 31st March, 2012: Bought Amt Contractual Exchange Rate YTL Buy 1,700,000 TL1.8220-1.8370 per USD1 EUR Buy 1,000,000 USD1.3084 - 1.3085 per EUR1 (c)

As at 31 March 2012, The Company and its subsidiaries had capital commitments of approximately Baht 2,082 million relating to the construction of building and acquisition of machinery and equipment for the upcoming projects. For the Company Standalone, the capital commitments amounted to Baht 1,178 million.

(d)

As at 31 March 2012, the Company is committed for rentals (under Operating Lease agreements) as follows: Thousand Baht Payable within: 1 years 4,797 2 to 5 years 4,835

(e)

The Company has given short term guarantees worth USD 20.0 million against working capital facilities of its subsidiaries. The Company has also given a guarantee of EUR 4.5 million for the long term loans taken by the Turkey subsidiary.

Annual Report 2011-2012

94 Polyplex (Thailand) Public Company Limited

Apart from above, as at 31 March 2012 there were outstanding bank guarantees of approximately Baht 63.8 million and EUR 25.9 million issued by the banks on behalf of the Company and its subsidiaries in respect of certain performance bonds as required in the normal course of business. Shareholdersรป equity The Companyรปs shareholdersรป equity on a consolidated basis reduced marginally from Baht 8,336 million to Baht 8,333 million, which is after accounting for dividend payment of Baht 1,360 million by the Company (1,080 million relating to final dividend of FY 2010-11 and Baht 280 million of Interim dividend for FY 2011-12). On a standalone basis, the decrease in shareholder equity is Baht 929 million from Baht 5,000 million to Baht 4,071 million mainly due to dividend payout of Baht 1,360 during the year and adjustment of Baht 4 million for liability until March 2011 provided towards Employee Benefits, under the new accounting Standard (IAS 19) Employee Benefits. This reduction is partly offset by profits during the year of Baht 435 million. Return on equity On a consolidated basis, the Return on equity has been 16.3% as compared to 58.1%, in the previous year due to decrease in profitability. The ROE of the Company Standalone for 2011-12 has been 9.6% as compared to 36.6% in previous year mainly due to decrease in profitability for the year. The Company has a policy to pay dividend at 40% of consolidated net profits, taking into account economic conditions, growth plans, future deployment opportunities, the Companyรปs financial position and liquidity and subject to the approval by the shareholders. For the year 2011-12, the Companyรปs board has proposed a dividend of Baht 0.52 per share, out of which, Baht 0.35 per share has already been paid in August 2011 as Interim dividend and the balance of Baht 0.17 per share is payable in August 2012, subject to the approval of shareholders in the Annual General meeting in July 2012. The lower than 40% dividend payout ratio for current year is mainly to conserve funds for supporting the ongoing expansions, envisaging a capital outlay of about 200 million USD at PTL and its new subsidiary in the USA.

9.3 Main factors which may affect the future operational performance and financial position In comparison with the previous year, the FY 2011-12 was a more challenging year for the Polyester Film industry with new capacity additions coming on board and correcting the demand supply imbalance witnessed in the previous year. As a result, selling prices declined to normal levels as in the historic past (excluding FY 2010-11 which was extra ordinary). The raw material prices also soared due to global crude oil price surge, thereby squeezing margins of polyester film manufacturers across the globe.

The key challenges for the company in the coming year would be the following: Raw material price volatility and any significant upward movement in prices, which the company might not be able pass on completely to the end customers Successful implementation of the Thick PET film line, Blown PP and Thermal Lamination Line 2 in Thailand and the Thin PET film line in USA. Impact of FX fluctuations on profits of the company. The company is exposed to 2 types of risks, one on the operational profits as well as the restatement of the assets/ liabilities of the company on a standalone basis and secondly, on the conversion of the subsidiaries没 P&L accounts, which are denominated in USD, Euro and RMB, into THB currency for the purpose of consolidation. However, The Company is confident of retaining its competitive edge due to various reasons: 1. Benefit from its various projects, the past projects and the ones under implementation as under: a. PTL and PE have both derived significant benefits from the captive PET resin production to serve its raw material demand on costs, quality and security of availability. The main advantages of a captive resin plant are lower cost of production because of efficiencies in raw material sourcing as also a lower conversion cost besides ensuring timely availability of raw material for the film plants. Easy availability of PTA and MEG would reduce the supply risk although cost of the same still remains a matter of concern for any PET film manufacturer as it has a direct impact on the margins of every manufacturer. Captive production of resin would also allow the company to develop new specialty film products. b. Metallizer plants in Thailand and Turkey have helped improve the product mix. With the start up of the second Metallizer plants in Turkey and Thailand in May 2008, the company没s capacity to produce value added films and sell additional volumes to its existing as well as new customers has increased significantly. This has helped the Company to increase the share of specialty films in the overall sales portfolio. c. The Extrusion coating plant in Thailand, which commenced operations in April没08, has further helped the company to reduce their exposure to commodity grades of film and increase the proportion of value added films and other specialty grades of film. Owing to the successful operation of the first line and the shortage in capacity to meet the growing demand in Europe and USA, the Company has decided to invest in a second line and is in the process of setting up this project in Thailand. d. The CPP line which started in Thailand in March 2010 will help the company broad base its product offerings to the converters and move towards becoming a complete packaging solution provider for its customers, rather than just a PET film supplier. e. The Silicone Coating project which commenced commercial production in March 2012 will further diversify the product portfolio of the company and add a highly value added product in its portfolio. Annual Report 2011-2012

96 Polyplex (Thailand) Public Company Limited

The Thick PET film line, under implementation in Thailand will also help further diversify the product portfolio and mitigate the risk associated with the cyclical nature of the Thin PET film industry, as Thick PET film is a relatively more stable industry.

Polyplex has been deriving benefits from the larger size and distributed manufacturing operations across 3 existing locations (and the 4th manufacturing unit being set up in USA) whereby it has qualified as a preferred global supplier with many multinational and large customers with global operations.

Polyplex has been able to establish itself as a reliable supplier of consistent quality products

Polyplex had also invested significantly in distribution, through the acquisition of a company in USA (Polyplex (Americas) Inc. (PA) and the investment in Polyplex (Trading) Shenzhen Co Ltd, China. The Investment in PA has lead to a better market penetration and improved customer service for North American markets and it is evident from the increasing sales volumes of PA. The Company is in the process of implementing a Thin PET film line project in the USA. With its extensive market reach in the North American region, the Company remains confident that this decision, backed by its near shoring strategy will enable it to service its customers in a more efficient manner.

9.4 Remuneration for auditor/s 1.

Audit fee The Company paid audit fee as below: A total of Baht - paid to the auditor/s for the past fiscal year; and A total of Baht 2,175,000.00 paid to the accounting firm the auditor/s work for, or the person or business related to the auditor/s and the accounting firm for the past fiscal year.

Non-audit fee The Company made payment for other services, i.e. examination of compliance with conditions of promotion certificates, and legal and tax advisory services, including BOI and tax audit services, as follows: A total of Baht - paid to the auditor/s for the past fiscal year and Baht - payable in the future for the service not yet fully done for the past fiscal year; and A total of Baht 721,750 paid to the accounting firm the auditor/s work for, or the person or business related to the auditor/s and the accounting firm for the past fiscal year, and Baht 560,000 payable in the future for the service not yet fully done for the past fiscal year.

Report of Independent Auditor To the Shareholders of Polyplex (Thailand) Public Company Limited I have audited the accompanying consolidated statements of financial position of Polyplex (Thailand) Public Company Limited and its subsidiaries as at 31 March 2012 and 2011, and the related consolidated statements of income, comprehensive income, changes in shareholders没 equity and cash flows for the years then ended, and have also audited the separate financial statements of Polyplex (Thailand) Public Company Limited for the same periods. These financial statements are the responsibility of the Company没s management as to their correctness and the completeness of the presentation. My responsibility is to express an opinion on these financial statements based on my audits. The consolidated financial statements as at 31 March 2012 and 2011 and for the years then ended include the financial statements of certain subsidiaries which were audited by other auditors, whose reports have been furnished to me. My opinion on the consolidated financial statements, insofar as they relate to the amounts included for these subsidiaries, is based solely on the reports of those other auditors. These consolidated financial statements reflect total assets of those subsidiaries as at 31 March 2012 and 2011 of approximately Baht 1,720.4 million and Baht 1,156.1 million, respectively, total revenues for the years ended 31 March 2012 and 2011 of approximately Baht 2,527.0 million and Baht 2,541.1 million, respectively, and profit for the years ended 31 March 2012 and 2011 of approximately Baht 68.0 million and Baht 67.1 million, respectively. 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 auditors referred to in the previous paragraph provide a reasonable basis for my opinion. In my opinion, based on my audits and the reports of the other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Polyplex (Thailand) Public Company Limited and its subsidiaries and of Polyplex (Thailand) Public Company Limited as at 31 March 2012 and 2011, the results of their operations and cash flows for the years then ended in accordance with generally accepted accounting principles. Without qualifying my opinion on the aforementioned financial statements, I draw attention to Note 3 to the financial statements. During the current year, the Company adopted a number of revised and new accounting standards as issued by the Federation of Accounting Professions, and applied them in the preparation and presentation of its financial statements.

Narong Puntawong Certified Public Accountant (Thailand) No. 3315 Ernst & Young Office Limited Bangkok: 18 May 2012 Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 98

Statements of financial position Polyplex (Thailand) Public Company Limited and its subsidiaries As at 31 March 2012 and 2011 (Unit: Baht)

Note

Assets Current assets Cash and cash equivalents 8 Current investments Trade receivables 7, 9 Inventories 10 Other current assets Advance payment for purchase of goods 7 Others Total current assets Non-current assets Investments in subsidiaries 11 Property, plant and equipment 12 Goodwill Other intangible assets 13 Other non-current assets Advance payment for purchases of assets Others Total non-current assets Total assets

Consolidated financial statements 2012 2011

1,532,172,762 1,231,008,609 - 164,946,931 1,396,691,807 1,896,159,409 1,623,791,836 1,732,304,430

Separate financial statements 2012 2011

29,641,023 42,041,807 - 164,946,931 805,875,522 1,181,339,397 564,604,348 470,776,718

305,064,743 327,520,752 6,962,067 75,172,272 106,679,672 106,628,352 74,275,686 57,579,905 4,964,400,820 5,458,568,483 1,481,358,646 1,991,857,030 - 1,313,491,892 1,936,414,851 6,268,571,648 5,979,205,759 3,118,710,965 3,115,042,451 3,874,351 3,874,351 2,007,443 1,353,643 345,315,837 480,027,593 344,484,861 250,998,855 8,650,268 9,871,557 8,604,003 9,826,112 6,628,419,547 6,474,332,903 4,785,291,721 5,312,282,269 11,592,820,367 11,932,901,386 6,266,650,367 7,304,139,299

The accompanying notes are an integral part of the financial statements. 99

Statements of financial position (continued) Polyplex (Thailand) Public Company Limited and its subsidiaries As at 31 March 2012 and 2011 (Unit: Baht)

Note

Liabilities and shareholders没 equity Current liabilities Short-term loans from financial institutions 14 Trade and other payables 15 Current portion of long-term loans from financial institutions 17 Income tax payable Other current liabilities Total current liabilities Non-current liabilities Long-term loans from financial institutions, net of current portion 17 Provision for long-term employee benefits 16 Total non-current liabilities Total liabilities

Consolidated financial statements 2012 2011

326,744,800 194,483,944 1,092,932,141 1,290,563,859

80,000,000 602,326,785

821,530,701

363,759,992 387,200,147 271,996,222 256,001,425 20,891,111 25,767,349 168,618,002 164,190,477 79,215,427 106,458,108 1,972,946,046 2,062,205,776 1,033,538,434 1,183,990,234

1,250,516,899 1,504,733,243 1,156,339,503 1,120,200,422 9,767,671 3,257,658 6,051,667 1,260,284,570 1,507,990,901 1,162,391,170 1,120,200,422 3,233,230,616 3,570,196,677 2,195,929,604 2,304,190,656

The accompanying notes are an integral part of the financial statements. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 100

Separate financial statements 2012 2011

Statements of financial position (continued) Polyplex (Thailand) Public Company Limited and its subsidiaries As at 31 March 2012 and 2011 (Unit: Baht)

Note

Shareholders没 equity Share capital Registered 960,000,000 ordinary shares of Baht 1 each Issued and fully paid up 800,000,000 ordinary shares of Baht 1 each Share premium Retained earnings Appropriated - statutory reserve 18 Unappropriated Exchange differences on translation of financial statements in foreign currency Equity attributable to owners of the Company Non-controlling interests of the subsidiary Total shareholders没 equity Total liabilities and shareholders没 equity

Consolidated financial statements 2012 2011

960,000,000

Separate financial statements 2012 2011

960,000,000

800,000,000 800,000,000 800,000,000 800,000,000 1,370,460,000 1,370,460,000 1,370,460,000 1,370,460,000 96,000,000 96,000,000 96,000,000 96,000,000 6,383,284,536 6,385,976,165 1,804,260,763 2,733,488,643 (316,737,834) 8,333,006,702 26,583,049 8,359,589,751 11,592,820,367

(316,111,008) 8,336,325,157 4,070,720,763 4,999,948,643 26,379,552 8,362,704,709 4,070,720,763 4,999,948,643 11,932,901,386 6,266,650,367 7,304,139,299

The accompanying notes are an integral part of the financial statements. 101

Income statements Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011 (Unit: Baht) Consolidated financial statements 2012 2011

Note

Revenues Sales Other income Exchange gain Dividend income Others Total revenues Expenses Cost of sales Selling expenses Administrative expenses Exchange loss Total expenses Profit before finance cost and corporate income tax Finance cost Profit before corporate income tax Corporate income tax Profit for the year

Separate financial statements 2012 2011

10,143,110,995 11,183,173,844 4,560,646,524 4,980,737,003 30,409,607 75,517,202 - 217,596,131 9,858,356 120,696,524 106,585,826 77,719,578 48,887,092 10,263,807,519 11,320,169,277 4,855,962,233 5,114,999,653

Profit attributable to: Equity holders of the Company Non-controlling interests of the subsidiary

Basic earnings per share 22 Profit attributable to equity holders of the Company

7,831,562,679 6,551,048,934 3,831,384,958 3,122,520,851 580,889,370 546,066,964 263,126,493 260,250,217 274,817,927 209,394,337 70,479,707 53,895,955 122,298,108 - 221,775,751 8,809,568,084 7,306,510,235 4,386,766,909 3,436,667,023 1,454,239,435 4,013,659,042 (56,140,406) (92,727,935) 1,398,099,029 3,920,931,107 (34,186,625) (27,882,009) 1,363,912,404 3,893,049,098

469,195,324 1,678,332,630 (34,053,722) (35,565,397) 435,141,602 1,642,767,233 435,141,602 1,642,767,233

1,361,677,853 3,882,884,885 2,234,551 10,164,213 1,363,912,404 3,893,049,098

435,141,602 1,642,767,233

1.70

The accompanying notes are an integral part of the financial statements. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 102

4.85

0.54

2.05

Statements of comprehensive income Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011 (Unit: Baht) Consolidated financial statements 2012 2011

Profit for the year Other comprehensive income: Exchange differences on translation of financial statements in foreign currency Other comprehensive income for the year Total comprehensive income for the year Total comprehensive income attributable to: Equity holders of the Company Non-controlling interests of the subsidiary

1,363,912,404 3,893,049,098

(470,676) (470,676)

69,449,896 69,449,896

Separate financial statements 2012 2011

435,141,602 1,642,767,233

1,363,441,728 3,962,498,994

435,141,602 1,642,767,233

1,361,051,027 3,955,550,107 2,390,701 6,948,887 1,363,441,728 3,962,498,994

435,141,602 1,642,767,233

The accompanying notes are an integral part of the financial statements. 103

Annual Report 2011-2012

104 Polyplex (Thailand) Public Company Limited

Statements of changes in shareholders没 equity Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011 (Unit: Baht)

Balance as at 31 March 2010 Total comprehensive income for the year Dividend paid (Note 23) Dividend paid by subsidiary Balance as at 31 March 2011 Balance as at 31 March 2011 Cumulative effect of change in accounting policy for employee benefits (Note 3) Total comprehensive income for the year Dividend paid (Note 23) Dividend paid by subsidiary Balance as at 31 March 2012

Issued and fully paid-up Share share capital premium 800,000,000 1,370,460,000 800,000,000 1,370,460,000

Consolidated financial statements Equity attributable to the owners of the company Retained earnings Exchange defferences on Equity translation of Total equity attributable to Appropriated financial attributable non-controlling statutory statements in to owners of interests of the reserve Unappropriated foreign currency the company subsidiaries 96,000,000 3,115,091,280 (388,776,230) 4,992,775,050 19,708,757 - 3,882,884,885 72,665,222 3,955,550,107 6,948,887 - (612,000,000) - (612,000,000) (278,092) 96,000,000 6,385,976,165 (316,111,008) 8,336,325,157 26,379,552

Total shareholder没s equity 5,012,483,807 3,962,498,994 (612,000,000) (278,092) 8,362,704,709

800,000,000 1,370,460,000

96,000,000 6,385,976,165 (316,111,008) 8,336,325,157

26,379,552 8,362,704,709

800,000,000 1,370,460,000

(4,369,482) (4,369,482) - 1,361,677,853 (626,826) 1,361,051,027 - (1,360,000,000) - (1,360,000,000) 96,000,000 6,383,284,536 (316,737,834) 8,333,006,702

(4,369,482) 2,390,701 1,363,441,728 - (1,360,000,000) (2,187,204) (2,187,204) 26,583,049 8,359,589,751

The accompanying notes are an integral part of the financial statements.

Statements of changes in shareholders没 equity (continued) Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011 (Unit: Baht)

Balance as at 31 March 2010 Total comprehensive income for the year Dividend paid (Note 23) Balance as at 31 March 2011 Balance as at 31 March 2011 Cumulative effect of change in accounting policy for employee benefits (Note 3) Total comprehensive income for the year Dividend paid (Note 23) Balance as at 31 March 2012

The accompanying notes are an integral part of the financial statements.

Issued and fully paid-up share capital 800,000,000 800,000,000

Separate financial statements Retained earnings Appropriated Share statutory premium reserve Unappropriated 1,370,460,000 96,000,000 1,702,721,410 - 1,642,767,233 - (612,000,000) 1,370,460,000 96,000,000 2,733,488,643

800,000,000 1,370,460,000 800,000,000 1,370,460,000

Total 3,969,181,410 1,642,767,233 (612,000,000) 4,999,948,643

96,000,000 2,733,488,643 4,999,948,643 (4,369,482) (4,369,482) - 435,141,602 435,141,602 - (1,360,000,000) (1,360,000,000) 96,000,000 1,804,260,763 4,070,720,763

105

Cash flow statements Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011 (Unit: Baht) Consolidated financial statements 2012 2011

Cash flows from operating activities Profit before tax 1,398,099,029 Adjustments to reconcile profit before tax to net cash provided by (paid from) operating activities: Depreciation and amortisation 369,431,898 Doubtful debts (doubtful debts recovery) 279,485 Decrease (increase) of inventory to net realisable value 2,719,948 Gains on sales of current investments (3,538,306) Gain on sales of property, plant and equipment (2,000) Provision for long-term employee benefits 7,270,420 Unrealised loss (gain) on exchange rate 19,968,774 Exchange loss on the redemption of investment in subsidiary 253,267,774 Dividend income Interest expenses 45,078,053 Profit from operating activities before changes in operating assets and liabilities 2,092,575,075 Operating assets (increase) decrease Trade and other receivables 495,999,770 Inventories 105,740,733 Other current assets 25,872,063 Other non-current assets 1,221,289 Operating liabilities increase (decrease) Trade and other payables (57,671,241) Other current liabilities 5,726,528 Payment of long-term employee benefits (4,988,344) Cash from operating activities 2,664,475,873 Cash paid for corporate income tax (42,529,867) Net cash from operating activities 2,621,946,006

3,920,931,107

435,141,602 1,642,767,233

357,538,292 782,822

196,282,069 (24,912)

190,412,784 (232,677)

(17,289,445) (471,844) (609,888) (1,198,803) (97,579,224)

2,719,948 (3,538,306) 1,682,185 20,508,036

(17,289,445) (471,844) (401,758) (99,794,864)

37,406,615 253,267,774 - (217,596,131) 76,002,321 33,002,697

37,406,615 (9,858,356) 33,933,956

4,275,511,953

721,444,962 1,776,471,644

(723,652,740) (598,524,624) (267,111,292) 3,997,342

371,036,374 (528,037,054) (96,547,579) (41,598,868) 51,514,424 (89,258,294) 1,222,109 3,994,228

281,323,022 38,614,107 3,010,157,768 (14,623,514) 2,995,534,254

(78,613,381) 156,367,007 (27,380,864) 26,492,324 942,676,045 1,304,430,987 942,676,045 1,304,430,987

The accompanying notes are an integral part of the financial statements. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 106

Separate financial statements 2012 2011

Cash flow statements (continued) Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011 (Unit: Baht) Consolidated financial statements 2012 2011

Cash flows from investing activities Decrease (increase) in current investments Increase in investments in subsidiary Cash received from the redemption of investments in subsidiary Dividend received from subsidiary Decrease (increase) in advance payment for purchases of assets Increase (decrease) in other payables for purchases of fixed assets Proceeds from sales of property, plant and equipment Purchases of property, plant and equipment Increase in intangible assets Net cash from (used in) investing activities Cash flows from financing activities Increase (decrease) in short-term loans from financial institutions Increase (decrease) in long-term loans from financial institutions Cash paid for interest expenses Dividend payment Dividend paid to non-controlling interests Net cash used in financing activities Increase (decrease) in translation adjustment Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year

Separate financial statements 2012 2011

168,485,237 (164,475,087) 168,485,237 (164,475,087) - (675,954,680) -

- 1,045,609,865 - 217,596,131

134,711,756 (411,349,277) (145,630,991)

139,664,868 9,858,356

(93,486,006) (182,320,540)

161,359,029 (145,630,991)

161,359,029

70,088,959 1,718,289 411,037 (824,057,986) (760,722,249) (192,207,407) (675,314,913) (1,433,493) (731,215) (597,836,518) (1,174,200,510) 324,412,149 (710,817,250)

132,260,856

142,217,816

80,000,000

(50,000,000)

(275,697,230) (778,852,400) 41,049,022 36,837,506 (54,065,921) (74,766,192) (40,538,000) (35,206,545) (1,360,000,000) (612,000,000) (1,360,000,000) (612,000,000) (2,187,204) (278,092) (1,559,689,499) (1,323,678,868) (1,279,488,978) (660,369,039) (163,255,836) 21,935,613 301,164,153 519,590,489 1,231,008,609 711,418,120 1,532,172,762 1,231,008,609

(12,400,784) 42,041,807 29,641,023

(66,755,302) 108,797,109 42,041,807

The accompanying notes are an integral part of the financial statements. 107

Notes to consolidated financial statements Polyplex (Thailand) Public Company Limited and its subsidiaries For the years ended 31 March 2012 and 2011

General information Polyplex (Thailand) Public Company Limited (çThe Companyé) is a public company incorporated and domiciled in Thailand. Its parent company is Polyplex Corporation Limited, which was incorporated in India. The Company is principally engaged in the manufacture and distribution of polyester films, metallized films, extrusion coated films, cast polypropylene films, silicone coated films and PET resins. The registered addresses of the Companyûs head office and factories are as follows: Head office: 75/26 Ocean Tower II, 18th Floor, Soi Sukhumvit 19, Sukhumvit Road, Kwaeng North Klongtoey, Khet Wattana, Bangkok. Factory 1: Siam Eastern Industrial Park, 60/24 Moo 3, Tambol Mabyangporn, Amphur Pluakdaeng, Rayong. Factory 2: Siam Eastern Industrial Park, 60/91 Moo 3, Tambol Mabyangporn, Amphur Pluakdaeng, Rayong.

Basis of preparation 2.1 The financial statements have been prepared in accordance with accounting standards enunciated under the Accounting Professions Act B.E. 2547 and their presentation has been made in compliance with the stipulations of the Notification of the Department of Business Development dated 28 September 2011, issued under the Accounting Act B.E. 2543. The financial statements in Thai language are the official statutory financial statements of the Company. The financial statements in English language have been translated from the Thai language financial statements. The financial statements have been prepared on a historical cost basis except where otherwise disclosed in the accounting policies. 2.2 Basis of consolidation a) The consolidated financial statements include the financial statements of the Company (çthe Companyé) and the following subsidiary companies (çthe subsidiariesé):

Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 108

Companyûs name

Percentage of shareholding 2012 2011 Percent Percent Polyplex (Americas) Inc. Distribution of plastic film United States of America 80.24 80.24 Polyplex (Singapore) Pte. Ltd. Investment holding company Singapore 100.00 100.00 Polyplex America Holdings Inc. Investment holding company United States of America 100.00 Polyplex Europa Polyester Film Sanayi Ve Ticaret Manufacture and distribution Turkey 100.00 100.00 Anonim Sirketi (100% owned by Polyplex of polyester film and chips (Singapore) Pte. Ltd.) Polyplex Trading (Shenzhen) Co., Ltd. Distribution of plastic film The Peopleûs Republic 100.00 100.00 (100% owned by Polyplex (Singapore) Pte. Ltd.) of China Polyplex USA LLC (100% owned by Manufacture and distribution United States 100.00 Polyplex America Holdings Inc.) of polyester film of America

b) c) d)

e) f)

Nature of business

Country of incorporation

Subsidiaries are fully consolidated, being the date on which the Company obtains control, and continue to be consolidated until the date when such control ceases. The financial statements of the subsidiaries are prepared using the same significant accounting policies as the Company. The assets and liabilities in the financial statements of overseas subsidiary companies are translated to Baht using the exchange rate prevailing on the end of reporting period, and revenues and expenses translated using monthly average exchange rates. The resulting differences are shown under the caption of çExchange differences on translation of financial statements in foreign currencyé in the statements of changes in shareholdersû equity. Material balances and transactions between the Company and its subsidiary companies have been eliminated from the consolidated financial statements. Non-controlling interests represent the portion of profit or loss and net assets of the subsidiaries that are not held by the Company and are presented separately in the consolidated profit or loss and within equity in the consolidated statement of financial position.

2.3 The separate financial statements, which present investments in subsidiaries under the cost method, have been prepared solely for the benefit of the public.

Adoption of new accounting standards during the year During the current year, the Company adopted a number of revised and new accounting standards, issued by the Federation of Accounting Professions, as listed below. Accounting standards: TAS 1 (revised 2009) Presentation of Financial Statements TAS 2 (revised 2009) Inventories TAS 7 (revised 2009) Statement of Cash Flows 109

TAS 8 (revised 2009) Accounting Policies, Changes in Accounting Estimates and Errors TAS 10 (revised 2009) Events after the Reporting Period TAS 11 (revised 2009) Construction Contracts TAS 16 (revised 2009) Property, Plant and Equipment TAS 17 (revised 2009) Leases TAS 18 (revised 2009) Revenue TAS 19 Employee Benefits TAS 23 (revised 2009) Borrowing Costs TAS 24 (revised 2009) Related Party Disclosures TAS 26 Accounting and Reporting by Retirement Benefit Plans TAS 27 (revised 2009) Consolidated and Separate Financial Statements TAS 28 (revised 2009) Investments in Associates TAS 29 Financial Reporting in Hyperinflationary Economies TAS 31 (revised 2009) Interests in Joint Ventures TAS 33 (revised 2009) Earnings per Share TAS 34 (revised 2009) Interim Financial Reporting TAS 36 (revised 2009) Impairment of Assets TAS 37 (revised 2009) Provisions, Contingent Liabilities and Contingent Assets TAS 38 (revised 2009) Intangible Assets TAS 40 (revised 2009) Investment Property Financial reporting standards: TFRS 2 Share-Based Payment TFRS 3 (revised 2009) Business Combinations TFRS 5 (revised 2009) Non-current Assets Held for Sale and Discontinued Operations TFRS 6 Exploration for and Evaluation of Mineral Resources Financial Reporting Standard Interpretations: TFRIC 15 Agreements for the Construction of Real Estate Accounting Standard Interpretations: SIC 31 Revenue-Barter Transactions Involving Advertising Services These accounting standards do not have any significant impact on the financial statements, except for the following accounting standard: TAS 19 Employee Benefits This accounting standard requires employee benefits to be recognised as expense in the period in which the service is performed by the employee. In particular, an entity has to evaluate and make a provision for post-employment benefits or liabilities arising from other defined benefit plans and other long-term employee benefits using actuarial techniques. The Company and its subsidiaries previously accounted for such employee benefits when they were incurred. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 110

The Company and its subsidiaries have changed this accounting policy in the current year and recognise the liability in the transition period through an adjustment to the beginning balance of retained earnings in the current year. The change has the effect of decreasing the profit of the Company and its subsidiaries for the year ended 31 March 2012 by Baht 1.7 million, or Baht 0.002 per share (Separate financial statements: decreasing profit by Baht 1.7 million, or Baht 0.002 per share). The cumulative effect of the change in the accounting policy of Baht 4.4 million has been separately presented in the statements of changes in the shareholders没 equity.

New accounting standards not yet effective The Federation of Accounting Professions issued the following new/revised accounting standards that are effective for fiscal years beginning on or after 1 January 2013. Accounting standards: TAS 12 Income Taxes TAS 20 (revised 2009) Accounting for Government Grants and Disclosure of Government Assistance TAS 21 (revised 2009) The Effects of Changes in Foreign Exchange Rates Financial reporting standards: TFRS 8 Operating Segments Accounting Standard Interpretations: SIC 10 Government Assistance - No Specific Relation to Operating Activities SIC 21 Income Taxes - Recovery of Revalued Non-Depreciable Assets SIC 25 Income Taxes - Changes in the Tax Status of an Entity or its Shareholders The Company没s management believes that these accounting standards will not have any significant impact on the financial statements for the year when they are initially applied, except for the following accounting standard: TAS 12 Income Taxes This accounting standard requires an entity to identify temporary differences, which are differences between the carrying amount of an asset or liability in the accounting records and its tax base, and to recognise deferred tax assets and liabilities under the stipulated guidelines. At present, the management is evaluating the impact on the financial statements in the year when this standard is adopted.

111

Significant accounting policies 5.1 Revenue recognition Sales of goods Sales of goods are recognised when the significant risks and rewards of ownership of the goods have passed to the buyer. Sales are the invoiced value, excluding value added tax, of goods supplied after deducting discounts and allowances. Interest income Interest income is recognised on an accrual basis based on the effective interest rate. Dividends Dividends are recognised when the right to receive the dividends is established. 5.2 Cash and cash equivalents Cash and cash equivalents consist of cash in hand and at banks, and all highly liquid investments with an original maturity of three months or less and not subject to withdrawal restrictions. 5.3 Trade receivables Trade receivables are stated at the net realisable value. Allowance for doubtful accounts is provided for the estimated losses that may be incurred in collection of receivables. The allowance is generally based on collection experiences and analysis of debt aging. 5.4 Inventories Finished goods and work in process are valued at the lower of cost (average method) and net realisable value. Cost includes all production costs and attributable factory overheads. Raw materials, spare parts and factory supplies are valued at the lower of cost (average method) and net realisable value and are charged to production costs whenever consumed.

5.5 Investments Investments in subsidiaries are accounted for in the separate financial statements using the cost method. The weighted average method is used for computation of the cost of investments. In the event the Company reclassifies investments from one type to another, such investments will be readjusted to their fair value as at the reclassification date. The differences between the carrying amount of the investments and their fair value on the date of reclassification are recorded in profit or loss or recorded as surplus (deficit) from changes in the value of investments in shareholders没 equity, depending on the type of investment that is reclassified. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 112

5.6 Property, plant and equipment/Depreciation Land is stated at cost. Buildings and equipment are stated at cost less accumulated depreciation and allowance for loss on impairment of assets (if any). Depreciation of buildings and building improvements, machinery and equipment is calculated by reference to their costs on the straight-line basis. Depreciation of other equipment is calculated on the sum of the year digits basis. The estimated useful lives of plant and equipment are as follows: Buildings and building improvements - 20, 50 years Machinery and equipment - 4 - 20 years Furniture, fixtures and office equipment - 3 - 10 years Motor vehicles - 5 - 7 years Depreciation is included in determining income. No depreciation is provided on land, machinery in transit, and assets under installation and construction.

5.7 Borrowing costs Borrowing costs directly attributable to the acquisition, construction or production of an asset that necessarily takes a substantial period of time to get ready for its intended use or sale are capitalised as part of the cost of the respective assets. All other borrowing costs are expensed in the period they are incurred. Borrowing costs consist of interest and other costs that an entity incurs in connection with the borrowing of funds. 5.8 Intangible assets Intangible assets acquired through business combination are initially recognised at their fair value on the date of business acquisition while intangible assets acquired in other cases are recognised at cost. Following the initial recognition, the intangible assets are carried at cost less any accumulated amortisation and any accumulated impairment losses. Intangible assets with finite lives are amortised on a systematic basis over the economic useful life and tested for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method of such intangible assets are reviewed at least at each financial year end. The amortisation expense is charged to profit or loss. A summary of the intangible assets with finite useful lives is as follows: Useful lives Computer software 3 - 5 years

113

5.9 Goodwill Goodwill is initially recorded at cost, which equals to the excess of cost of business combination over the fair value of the net assets acquired. If the fair value of the net assets acquired exceeds the cost of business combination, the excess is immediately recognised as gain in profit or loss. Goodwill is carried at cost less any accumulated impairment losses. Goodwill is tested for impairment annually and when circumstances indicate that the carrying value may be impaired.

5.10 Related party transactions Related parties comprise enterprises and individuals that control, or are controlled by, the Company and its subsidiaries, whether directly or indirectly, or which are under common control with the Company and its subsidiaries. They also include associated companies and individuals which directly or indirectly own a voting interest in the Company and its subsidiaries that gives them significant influence over the Company and its subsidiaries, key management personnel, directors and officers with authority in the planning and direction of the operations of the Company and its subsidiaries.

5.11 Foreign currencies Transactions in foreign currencies are translated into Baht at the exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated into Baht at the exchange rate ruling at the end of reporting period. Gains and losses on exchange are included in determining income.

5.12 Impairment of assets At the end of each reporting period, the Company and its subsidiaries perform impairment reviews in respect of the property, plant and equipment and other intangible assets whenever events or changes in circumstances indicate that an asset may be impaired. The Company and its subsidiaries also carry out annual impairment reviews in respect of goodwill. An impairment loss is recognised when the recoverable amount of an asset, which is the higher of the asset没s fair value less costs to sell and its value in use, is less than the carrying amount. An impairment loss is recognised in profit or loss.

5.13 Employee benefits Short-term employee benefits Salaries, wages, bonuses and contributions to the social security fund are recognised as expenses when incurred. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 114

Post-employment benefits and other long-term employee benefits Defined contribution plans The Company and its employees have jointly established a provident fund. The fund is monthly contributed by employees and by the Company. The fund没s assets are held in a separate trust fund and the Company没s contributions are recognised as expenses when incurred. Defined benefit plans and other long-term employee benefits The Company has obligations in respect of the severance payments it must make to employees upon retirement under labor law and other employee benefit plans. The Company treats these severance payment obligations as a defined benefit plan. In addition, the Company provides other long-term employee benefit plan, namely long service awards. The obligation under the defined benefit plan and other long-term employee benefit plans is determined by a professionally qualified independent actuary based on actuarial techniques, using the projected unit credit method. For the first-time adoption of TAS 19 Employee Benefits, the Company elected to recognise the transitional liability, which exceeds the liability that would have been recognised at the same date under the previous accounting policy, through an adjustment to the beginning balance of retained earnings in the current year.

5.14 Provisions Provisions are recognised when the Company and its subsidiaries have a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. 5.15 Income tax Income tax is provided in the accounts at the amount expected to be paid to the taxation authorities, based on taxable profits determined in accordance with tax legislation.

Significant accounting judgements and estimates The preparation of financial statements in conformity with generally accepted accounting principles at times requires management to make subjective judgements and estimates regarding matters that are inherently uncertain. These judgements and estimates affect reported amounts and disclosures; and actual results could differ from these estimates. Significant judgements and estimates are as follows: Allowance for doubtful accounts In determining an allowance for doubtful accounts, the management needs to make judgement and estimates based upon, among other things, past collection history, aging profile of outstanding debts and the prevailing economic condition. 115

Property plant and equipment/Depreciation In determining depreciation of plant and equipment, the management is required to make estimates of the useful lives and residual values of the plant and equipment and to review estimate useful lives and residual values when there are any changes. In addition, the management is required to review property, plant and equipment for impairment on a periodical basis and record impairment losses when it is determined that their recoverable amount is lower than the carrying amount. This requires judgements regarding forecast of future revenues and expenses relating to the assets subject to the review. Post-employment benefits under defined benefit plans and other long-term employee benefits The obligation under the defined benefit plan and other long-term employee benefit plans is determined based on actuarial techniques. Such determination is made based on various assumptions, including discount rate, future salary increase rate, mortality rate and staff turnover rate.

Related party transactions During the years, the Company and its subsidiaries had significant business transactions with related parties. Such transactions, which are summarised below, arose in the ordinary course of business and were concluded on commercial terms and bases agreed upon between the Company and those related parties. Consolidated Separate financial statements financial statements 2012 2011 2012 2011 Transactions with subsidiaries (eliminated from the consolidated financial statements) Sales of goods -

724.4

Dividend income Purchases of raw materials

217.6 -

Transactions with related companies Purchases of raw materials 806.9

1,052.2

58.5

1.2

4.0

Other expenses

6.9

(Unit: Million Baht) Transfer pricing policy

795.3 With reference to market prices 9.9 As declared 20.0 With reference to market prices - With reference to market prices 1.2 With reference to market prices

As at 31 March 2012 and 2011, the balances of the accounts between the Company and those related companies are as follows: Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 116

(Unit: Baht) Consolidated financial statements 2012 2011

Trade receivables - related parties Subsidiaries Advance payment for purchases of goods - related party Parent company 218,210,589 221,816,318 Trade payables - related party Parent company 13,504,100 -

Separate financial statements 2012 2011

220,340,827

378,803,344

13,504,100

Directors and management没s remuneration During the years ended 31 March 2012 and 2011, the Company and its subsidiaries had employee benefit expenses payable to their directors and management as below.

Short-term employee benefits Post-employment benefits Total

Consolidated financial statements 2012 2011 64.1 48.5 0.3 64.4 48.5

(Unit: Million Baht) Separate financial statements 2012 2011 33.3 21.0 33.3 21.0

Guarantee obligations with related parties The Company has outstanding guarantee obligations with its related parties, as described in Note 26.4 to the financial statements.

Cash and cash equivalents (Unit: Baht)

Cash Bank deposits Total

Consolidated financial statements 2012 2011 2,153,536 2,191,193 1,530,019,226 1,228,817,416 1,532,172,762 1,231,008,609

Separate financial statements 2012 2011 715,836 1,066,700 28,925,187 40,975,107 29,641,023 42,041,807

As at 31 March 2012, bank deposits in saving accounts and fixed deposits carried interests between 0.05 and 10.10 percent per annum (2011: between 0.05 and 3.90 percent per annum).

Trade receivables The balances of trade receivables as at 31 March 2012 and 2011, aged on the basis of due dates, are summarised below. 117

(Unit: Baht) Consolidated financial statements 2012 2011

Trade receivables - unrelated parties Not yet due 1,334,327,849 Past due Up to 3 months 54,481,450 3 - 6 months 8,704,432 Over 6 months 2,754,781 Total 1,400,268,512 Less: Allowance for doubtful debts (3,576,705) Net 1,396,691,807 Trade receivables - related parties Not yet due Total Total trade receivables - net 1,396,691,807

Separate financial statements 2012 2011

1,843,558,451

565,916,431

778,672,433

50,486,427 1,354,090 4,140,736 1,899,539,704

13,682,969 5,935,295 1,161,726 586,696,421

21,856,496 1,246,683 1,947,079 803,722,691

(3,380,295) 1,896,159,409

(1,161,726) 585,534,695

(1,186,638) 802,536,053

1,896,159,409

220,340,827 220,340,827 805,875,522

378,803,344 378,803,344 1,181,339,397

10. Inventories (Unit: Baht) Consolidated financial statements Reduce cost to Cost net realisable value Inventories - net 2012 2011 2012 2011 2012 2011 528,826,911 568,546,262 (4,125,185) (3,480,840) 524,701,726 565,065,422 197,821,611 251,056,821 (2,127,516) - 195,694,095 251,056,821 512,851,088 411,063,359 - 512,851,088 411,063,359

Finished goods Work in process Raw materials Spare parts and factory supplies 179,795,586 153,712,573 Goods in transit 210,749,341 351,406,255 Total 1,630,044,537 1,735,785,270

(6,252,701)

- 179,795,586 153,712,573 - 210,749,341 351,406,255 (3,480,840) 1,623,791,836 1,732,304,430 (Unit: Baht)

Finished goods Work in process Raw materials Spare parts and factory supplies Goods in transit Total

Separate financial statements Reduce cost to Cost net realisable value Inventories - net 2012 2011 2012 2011 2012 2011 34,479,873 46,165,994 (1,195,090) (602,658) 33,284,783 45,563,336 107,807,288 98,957,181 (2,127,516) - 105,679,772 98,957,181 314,283,862 244,159,023 - 314,283,862 244,159,023 93,999,960 73,171,260 17,355,971 8,925,918 567,926,954 471,379,376

Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 118

(3,322,606)

- 93,999,960 73,171,260 - 17,355,971 8,925,918 (602,658) 564,604,348 470,776,718

11. Investments in subsidiaries These represent investments in ordinary shares and preference shares in the following subsidiary companies: (Unit: Baht)

Company没s name

Ordinary shares Polyplex (Singapore) Pte. Ltd. Polyplex (Americas) Inc. Polyplex America Holdings Inc. Preference shares Polyplex (Singapore) Pte. Ltd. Polyplex (Americas) Inc.

Separate financial statements Shareholding percentage Cost 2012 2011 2012 2011 Percent Percent

Paid-up capital 2012 2011

EUR 0.8 million USD 1.3 million USD 22.0 million

EUR 0.8 million USD 1.3 million

EUR 8.4 million USD 4.2 million

EUR 34.5 million USD 4.2 million

Total investments in subsidiaries

Dividend received for the year ended 31 March 2012 2011

100.00

41,440,000

41,440,000 191,316,375

80.24

41,660,675

100.00

675,954,680 759,055,355

100.00

96.15

4,672,723

1,995,261

83,100,675 195,989,098

1,995,261

414,580,537 1,713,458,176

3,192,273

139,856,000 139,856,000 18,414,760 554,436,537 1,853,314,176 21,607,033 1,313,491,892 1,936,414,851 217,596,131

7,863,095 7,863,095 9,858,356

During the current year, the Company invested a total of USD 22.0 million, equivalent to approximately Baht 676.0 million, in Polyplex America Holdings Inc., which is a holding company that invested in Polyplex USA LLC. During the current year, the Company received Baht 1,045.6 million from the redemption of EUR 26.1 million of the preference shares of Polyplex (Singapore) Pte. Ltd. This redemption resulted in loss on exchange rate amounting to Baht 253.3 million. As a result, as at 31 March 2012, the Company had investments in 39,100 preference shares of this company (2011: 161,600 shares). These preference shares are non-cumulative and non-participative preference shares. The Company is entitled to receive dividend at a rate not to exceed 7% per annum, in the year in which dividend is declared. The preference shares of Polyplex (Americas) Inc. are non-cumulative and non-voting preference shares.

119

Annual Report 2011-2012

120 Polyplex (Thailand) Public Company Limited

12. Property, plant and equipment (Unit: Baht)

Land Cost 31 March 2010 Purchases Disposals Transfer in/(Transfer out) Capitalised interest Translation adjustment 31 March 2011 Purchases Disposals Transfer in/(Transfer out) Capitalised interest Translation adjustment 31 March 2012

181,918,443 93,445,575 47,130,627 962,060 323,456,705 52,674,329 (70,020,978) (2,973,024) 303,137,032

Consolidated financial statements Furniture, Buildings and Machinery fixtures and Assets under building and office Motor installation and Machinery improvements equipment equipment vehicles construction in transit 1,018,668,130 774,703 5,109,627 (7,423,318) 1,017,129,142 5,581,745 207,831,464 (22,635,045) 1,207,907,306

5,698,519,177 5,130,932 (1,118,997) 33,182,729 (34,812,205) 5,700,901,636 19,155,010 568,563,899 (111,697,117) 6,176,923,428

81,208,219 4,170,150 (10,137,774) 2,232,544 (547,626) 76,925,513 14,324,660 (191,044) 5,102,609 (1,713,668) 94,448,070

34,319,250 2,554,997 (3,572,895) 557,688 (296,156) 33,562,884 7,178,374 1,520,961 (522,835) 41,739,384

17,191,792 637,446,361 (88,213,215) 921,953 89,398 567,436,289 725,143,868 (766,741,355) 7,743,176 3,944,678 537,526,656

16,277,578 16,277,578 (16,277,578) -

Total 7,031,825,011 759,800,296 (14,829,666) 921,953 (42,027,847) 7,735,689,747 824,057,986 (70,212,022) 7,743,176 (135,597,011) 8,361,681,876

(Unit: Baht)

Land

Accumulated depreciation 31 March 2010 - 102,599,181 1,238,394,014 50,759,852 21,816,818 Depreciation for the year - 33,067,653 309,731,287 8,573,034 5,534,661 Disposals (699,373) (10,063,454) (2,958,438) Translation adjustment (26,404) 49,019 (126,370) (167,492) 31 March 2011 - 135,640,430 1,547,474,947 49,143,062 24,225,549 Depreciation for the year - 34,449,090 318,672,455 10,362,095 5,238,190 Disposals (125,063) Translation adjustment (2,189,604) (28,361,332) (951,500) (468,091) 31 March 2012 - 167,899,916 1,837,786,070 58,428,594 28,995,648 Net book value 31 March 2011 323,456,705 881,488,712 4,153,426,689 27,782,451 9,337,335 567,436,289 31 March 2012 303,137,032 1,040,007,390 4,339,137,358 36,019,476 12,743,736 537,526,656 Depreciation for the year 2011 (Baht 331.8 million included in manufacturing cost, and the balance in selling and administrative expenses) 2012 (Baht 344.5 million included in manufacturing cost, and the balance in selling and administrative expenses)

Total - 1,413,569,865 - 356,906,635 - (13,721,265) (271,247) - 1,756,483,988 - 368,721,830 (125,063) - (31,970,527) - 2,093,110,228

16,277,578 5,979,205,759 - 6,268,571,648 356,906,635 368,721,830

121

Annual Report 2011-2012

122 Polyplex (Thailand) Public Company Limited

(Unit: Baht)

Land Cost 31 March 2010 Purchases Disposals Transfer in/(Transfer out) Capitalised interest 31 March 2011 Purchases Disposals Transfer in/(Transfer out) Capitalised interest 31 March 2012

103,181,652 93,445,575 196,627,227 196,627,227

Buildings and Machinery building and improvements equipment 436,107,857 2,875,843,071 774,703 5,130,932 4,700,000 2,391,020 441,582,560 2,883,365,023 5,581,744 19,155,012 206,396,453 522,466,748 653,560,757 3,424,986,783

Separate financial statements Furniture, fixtures and Assets under office Motor installation and Machinery equipment vehicles construction in transit 38,948,240 3,800,630 (9,188,650) 24,500 33,584,720 13,220,280 (29,000) 46,776,000

18,599,396 1,714,800 (2,155,929) 18,158,267 4,660,596 22,818,863

17,071,933 554,170,695 (7,115,520) 921,953 565,049,061 149,589,775 (712,585,623) 7,743,176 9,796,389

16,277,578 16,277,578 (16,277,578) -

Total 3,489,752,149 675,314,913 (11,344,579) 921,953 4,154,644,436 192,207,407 (29,000) 7,743,176 4,354,566,019

(Unit: Baht)

Land

Buildings and Machinery building and improvements equipment

Separate financial statements Furniture, fixtures and Assets under office Motor installation and Machinery equipment vehicles construction in transit

Accumulated depreciation 31 March 2010 - 64,430,053 755,227,160 31,329,607 9,537,681 Depreciation for the year - 22,023,483 160,048,338 4,100,998 4,239,965 Disposals (9,179,371) (2,155,929) 31 March 2011 - 86,453,536 915,275,498 26,251,234 11,621,717 Depreciation for the year - 23,114,580 163,396,742 5,833,383 3,937,364 Disposals (29,000) 31 March 2012 - 109,568,116 1,078,672,240 32,055,617 15,559,081 Net book value 31 March 2011 196,627,227 355,129,024 1,968,089,525 7,333,486 6,536,550 565,049,061 31 March 2012 196,627,227 543,992,641 2,346,314,543 14,720,383 7,259,782 9,796,389 Depreciation for the year 2011 (Baht 182.1 million included in manufacturing cost, and the balance in selling and administrative expenses) 2012 (Baht 186.5 million included in manufacturing cost, and the balance in selling and administrative expenses)

Total - 860,524,501 - 190,412,784 - (11,335,300) - 1,039,601,985 - 196,282,069 (29,000) - 1,235,855,054

16,277,578 3,115,042,451 - 3,118,710,965 190,412,784 196,282,069

123

As at 31 March 2012, certain equipment items of the Company and its subsidiaries have been fully depreciated but are still in use. The gross carrying amount (before deducting accumulated depreciation) of those assets amounted to approximately Baht 42.6 million (2011: Baht 33.6 million) (The Company only: Baht 20.3 million, 2011: Baht 14.3 million). The Company and its subsidiaries have pledged their assets amounting to approximately Baht 2,128.7 million (2011: Baht 2,933.3 million) as collateral against credit facilities received from financial institutions (The Company only: Baht 1,944.6 million, 2011: Baht 2,087.1 million).

13. Intangible assets Details of intangible assets (computer software) are as follows: Baht Cost As at 31 March 2010 Purchases Translation adjustment As at 31 March 2011 Purchases Translation adjustment As at 31 March 2012 Accumulated amortisation As at 31 March 2010 Amortisation expenses for the year Translation adjustment As at 31 March 2011 Amortisation expenses for the year Translation adjustment As at 31 March 2012 Net book value As at 31 March 2011 As at 31 March 2012 Amortisation expenses for the year 2011 2012

Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 124

4,377,974 731,215 (25,388) 5,083,801 1,433,493 (232,274) 6,285,020 3,111,874 631,657 (13,373) 3,730,158 710,068 (162,649) 4,277,577 1,353,643 2,007,443 631,657 710,068

14. Short-term loans from financial institutions (Unit: Baht) Separate financial statements 2012 2011 -

Interest rate Consolidated (percent per financial statements annum) 2012 2011 Short-term loans from bank LIBOR + 1.5% 246,744,800 194,483,944 Promissory note (packing credit) 3.45% 80,000,000 - 80,000,000 Total 326,744,800 194,483,944 80,000,000

Short-term loans from bank as at 31 March 2012 represent the US dollar loans of USD 8.0 million (2011: USD 6.4 million) obtained by a subsidiary company. These loans are guaranteed by the Company.

15. Trade and other payables (Unit: Baht) Consolidated financial statements 2012 2011 Trade payables - related party 13,504,100 Trade payables - unrelated parties 1,018,140,212 1,088,573,615 Other payables for purchases of fixed assets 61,287,829 201,990,244 Total trade and other payables 1,092,932,141 1,290,563,859

Separate financial statements 2012 2011 13,504,100 527,534,856 619,540,457 61,287,829 602,326,785

201,990,244 821,530,701

16. Provision for long-term employee benefits Provision for long-term employee benefits as at 31 March 2012, which is compensations on employees没 retirement, was as follows:

Balance at beginning of year Cumulative effect of change in accounting policy for employee benefits adjusted against beginning balance of retained earnings (Note 3) Current service cost Interest cost Benefits paid during the year Translation adjustment Balance at end of year

Consolidated financial statements 3,257,658

4,369,482 6,769,079 501,341 (4,988,344) (141,545) 9,767,671

(Unit: Baht) Separate financial statements -

4,369,482 1,501,098 181,087 6,051,667

Long-term employee benefit expenses included in the profit or loss for the year ended 31 March 2012 amounted to Baht 7.3 million (The Company only: Baht 1.7 million). 125

Principal actuarial assumptions at the valuation date were as follows: Consolidated financial statements 2012 2011

Separate financial statements 2012 2011

(% per annum) (% per annum) (% per annum) (% per annum)

Discount rate 4.2 and 10.0 Future salary increase rate (depending on age of employee) 3.0 - 8.0

4.2 and 10.0

4.2

3.0 - 8.0

17. Long-term loans from financial institutions

Loans Floating rate loans (Euribor + 0.6% to 3.125%) Floating rate loans (Libor + 1.5% to 2.0%) Fixed rate loans (3.83% to 5.54%) Total Less: Current portion Net

Repayment schedule

Consolidated financial statements 2012 2011

(Unit: Baht) Separate financial statements 2012 2011

Repayable as from April 2006 to December 2017 349,311,853 774,374,084 163,370,687 269,134,871 Repayable as from October 2009 to September 2016 1,115,104,962 922,875,871 1,115,104,962 922,875,871 Repayable as from April 2006 to July 2016 149,860,076 194,683,435 149,860,076 184,191,105 1,614,276,891 1,891,933,390 1,428,335,725 1,376,201,847 (363,759,992) (387,200,147) (271,996,222) (256,001,425) 1,250,516,899 1,504,733,243 1,156,339,503 1,120,200,422

The Company没s loan facilities are secured by the mortgage of land, premises and machinery of the Company. The subsidiary没s loan facilities are secured by the mortgage of its land and premises and the pledge of its machinery, and are guaranteed by the Company as described in Note 26.4 to the financial statements. The loan agreements contain covenants that, among other things, require the Company and its subsidiaries to maintain a certain debt to equity ratio and debt service coverage ratio, and require a subsidiary to maintain a particular current ratio. The Company entered into two interest rate swap agreements with a bank, under which the Company agreed to swap a floating interest rate of LIBOR for a fixed interest rate of 2.61 percent per annum on principal of USD 4.16 million and to swap a floating interest rate of LIBOR for a fixed interest rate of 3.54 percent per annum on principal of USD 2.29 million. The swap agreements will mature on 31 July 2016. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 126

18. Statutory reserve Pursuant to Section 116 of the Public Limited Companies Act B.E. 2535, the Company is required to set aside to a statutory reserve at least 5 percent of its net profit after deducting accumulated deficit brought forward (if any), until the reserve reaches 10 percent of the registered capital. The statutory reserve is not available for dividend distribution. 19. Expenses by nature Significant expenses by nature are as follows: (Unit: Baht) Consolidated financial statements 2012 2011

Salaries, wages and other employee benefits 553,489,678 Depreciation and amortisation 369,431,898 Loss on diminutions in value of inventories (Reversal) 2,719,948 Raw materials and consumables used 5,688,151,904 Changes in inventories of finished goods and work in process 92,954,561

Separate financial statements 2012 2011

513,304,039 357,538,292

249,981,404 196,282,069

217,102,054 190,412,784

(17,289,445)

2,719,948

(17,289,445)

4,545,330,391

3,040,289,714

2,453,210,489

(402,236,698)

2,836,014

(7,810,539)

20. Corporate income tax No corporate income tax was payable for the years since the Company has been granted promotional privileges under the Investment Promotion Act B.E. 2520 by the Board of Investment and has tax loss brought forward in excess of profit from non-promoted operations for the years. Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi, a subsidiary and being a manufacturing company which operates in a Free Trade Zone, is eligible to benefit from corporate tax exemptions, until the end of the financial year of full membership of Turkey to the European Union. However, this exemption is limited to the earnings related to the sale of manufactured goods.

21. Promotional privileges The Company has received promotional privileges from the Board of Investment for the manufacture of polyester films, metallized films, extrusion coated films, cast polypropylene films, silicone coated films and PET resins. As a promoted company, the Company must comply with certain conditions and restrictions provided for in the promotional certificates. 127

The Company没s sales for the years ended 31 March 2012 and 2011 divided according to promoted and non-promoted operations are set out below. (Unit: Baht) Separate financial statements Promoted operations Non-promoted operations Total 2012 2011 2012 2011 2012 2011 Sales Domestic sales Export sales Total sales

917,290,529 1,029,784,828 3,619,290,171 3,948,639,016 4,536,580,700 4,978,423,844

3,328,601 20,737,223 24,065,824

917,550 920,619,130 1,030,702,378 1,395,609 3,640,027,394 3,950,034,625 2,313,159 4,560,646,524 4,980,737,003

22. Basic earnings per share Basic earnings per share is calculated by dividing profit for the year attributable to equity holders of the Company (excluding other comprehensive income) by the weighted average number of ordinary shares in issue during the year. 23. Dividends

Dividends Final dividends for 2010

Approved by Annual General Meeting of the shareholders on 22 July 2010 Interim dividends for 2011 Board of Directors没 meeting on 28 October 2010 Total dividends for fiscal year 2011

Total dividends

(Unit: Baht) Dividend per share

140,000,000

0.175

472,000,000 612,000,000

0.590 0.765

Final dividends for 2011

Annual General Meeting of the shareholders on 28 July 2011 1,080,000,000 Interim dividends for 2012 Board of Directors没 meeting on 26 July 2011 280,000,000 Total dividends for fiscal year 2012 1,360,000,000

1.350 0.350 1.700

24. Segment information The Company and its subsidiaries没 operations involve principally a single industry segment, the manufacture and distribution of polyester films, metallized films, extrusion coated films, cast polypropylene films and PET resins, and are carried on in two geographic areas in Thailand and overseas countries, as operated by subsidiaries. The financial information of the Company and its subsidiaries by geographical segment, for the years ended 31 March 2012 and 2011 are as follows: Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 128

(Unit: Million Baht)

Thailand Overseas countries 2012 2011 2012 2011 Sales to external customers 3,836.2 4,185.4 6,306.9 6,997.8 Inter-segment sales 724.4 795.3 972.5 1,176.3 Total sales 4,560.6 4,980.7 7,279.4 8,174.1 Segment income 469.2 1,678.3 1,182.3 2,531.0 Unallocated income and expenses: Finance cost Corporate income tax Non-controlling interests of the subsidiary Profit for the year As at 31 March 2012 and 2011 Property, plant and equipment 3,118.7 3,115.0 3,149.9 2,864.2 Unallocated assets Total assets

Elimination of inter-segment revenues 2012 2011 (1,696.9) (1,971.6) (1,696.9) (1,971.6) (197.3) (195.6)

Consolidation 2012 2011 10,143.1 11,183.2 10,143.1 11,183.2 1,454.2 4,013.7 (56.1) (92.7) (34.2) (27.9) (2.2) (10.2) 1,361.7 3,882.9

6,268.6 5,979.2 5,324.2 5,953.7 11,592.8 11,932.9

Transfer prices between segments are as set out in Note 7 to the financial statements.

25. Provident fund The Company and its employees have jointly established a provident fund in accordance with the Provident Fund Act B.E. 2530. Both employees and the Company contributed to the fund monthly at the rates of 4 - 7 percent (2011: 4 percent) of basic salary. The fund, which is managed by a licensed fund manager, will be paid to employees in accordance with the fund rules. During the year ended 31 March 2012, the Company contributed Baht 3,663,926 (2011: Baht 2,727,617) to the fund. 26. Commitments and contingent liabilities 26.1 Capital commitments As at 31 March 2012, the Company and its subsidiaries had capital commitments of approximately Baht 2,081.8 million (2011: Baht 1,184.0 million), relating to the construction of building and acquisition of machinery and equipment (The Company only: Baht 1,178.1 million, 2011: Baht 547.3 million). 26.2 Operating lease commitments The Company has entered into several lease agreements in respect of the lease of office building space and equipment.

129

Future minimum rentals payable under these leases as at 31 March 2012 are as follows: Thousand Baht Payable: in up to 1 year 4,797 in over 1 and up to 5 years 4,835

26.3 Service agreements As at 31 March 2012, the Company had commitments totaling Baht 221.0 million under various service agreements (2011: Baht 6.1 million). These agreements expire between May 2012 and September 2016. 26.4 Guarantees The Company has given short-term guarantees worth USD 20.0 million (2011: USD 20.0 million) against working capital facilities obtained by its subsidiary (Polyplex (Americas) Inc.). In addition, the Company has given a guarantee of EUR 4.5 million (2011: EUR 6.7 million) for the long-term loans obtained by its subsidiary (Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi). As at 31 March 2012, there were outstanding bank guarantees of approximately Baht 63.8 million and EUR 25.9 million (2011: Baht 43.8 million and EUR 9.9 million) issued by the banks on behalf of the Company and its subsidiaries in respect of certain performance bonds as required in the normal course of businesses (The Company only: Baht 63.8 million, 2011: Baht 43.8 million).

27. Financial instruments 27.1 Financial risk management The Company and its subsidiariesĂť financial instruments, as defined under Thai Accounting Standard No. 107 Ă§Financial Instruments: Disclosure and PresentationsĂŠ, principally comprise cash and cash equivalents, trade and other receivables, investments, trade and other payables, and short-term and long-term loans. The financial risks associated with these financial instruments and how they are managed is described below. Credit risk The Company and its subsidiaries are exposed to credit risk primarily with respect to trade receivables and other receivables. The Company and its subsidiaries manage the risk by adopting appropriate credit control policies and procedures and considering credit insurance contracts from time to time, and therefore do not expect to incur material financial losses. In addition, the Company and its subsidiaries do not have high concentration of credit risk since they have a large customer base. The maximum exposure to credit risk is limited to the carrying amounts of receivables and other receivables as stated in the statements of financial position. Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 130

Interest rate risk The Company and its subsidiaries没 exposure to interest rate risk relates primarily to its cash at banks, bank overdrafts, and short-term and long-term borrowings. However, since most of the Company and its subsidiaries没 financial assets and liabilities bear floating interest rates or fixed interest rates which are close to the market rate, the interest rate risk is expected to be minimal. In addition, the Company considers interest rate swap agreements from time to time so as to reduce exposure to the interest rate risk. Significant financial assets and liabilities as at 31 March 2012 classified by type of interest rates are summarised in the table below, with those financial assets and liabilities that carry fixed interest rates further classified based on the maturity date, or the repricing date if this occurs before the maturity date. Consolidated financial statements Fixed interest rates Floating NonWithin 1-5 Over 5 interest interest 1 year years years rate bearing Total (Million Baht) Financial Assets Cash and cash equivalents Trade receivables Financial liabilities Short-term loans from financial institutions Trade and other payables Long-term loans

1,190.9 341.3 1,532.2 See Note 8 - 1,396.7 1,396.7 1,190.9 1,738.0 2,928.9

80.0 37.7 117.7

112.2 112.2

246.7 326.7 See Note 14 - 1,092.9 1,092.9 1,464.4 - 1,614.3 See Note 17 1,711.1 1,092.9 3,033.9

Separate financial statements Fixed interest rates Floating NonWithin 1-5 Over 5 interest interest 1 year years years rate bearing Total (Million Baht) Financial Assets Cash and cash equivalents Trade receivables Financial liabilities Short-term loans from financial institutions Trade and other payables Long-term loans

Interest rate (% p.a.)

27.5 27.5

80.0 37.7 117.7

112.2 112.2

1,278.4 1,278.4

2.1 805.9 808.0

Interest rate (% p.a.)

29.6 See Note 8 805.9 835.5

80.0 See Note 14 602.3 602.3 - 1,428.3 See Note 17 602.3 2,110.6

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As at 31 March 2012, the Company had interest rate swap agreements with a bank to swap floating interest rate to fixed interest rate, as described in Note 17 to the financial statements.

Foreign currency risk The Company and its subsidiaries没 exposure to foreign currency risk arise mainly from trading transactions that are denominated in foreign currencies. The Company and its subsidiaries seek to reduce this risk by entering into forward exchange contracts when it considers appropriate. Generally, the forward contracts mature within one year. The Company没s balances of financial assets and liabilities denominated in foreign currencies as at 31 March 2012 are summarised below. Financial assets (Million) 13.78 3.01 35.93 -

Foreign currency US dollar Euro Japanese yen Swiss franc

Financial liabilities (Million) 41.88 4.28 2.42 2.70

Average exchange rate as at 31 March 2012 (Baht per 1 foreign currency unit) 30.8431 41.1741 0.3755 34.1646

The Company没s foreign exchange contracts outstanding at 31 March 2012 are summarised below.

US dollar

Bought amount (Million) 1.62

Sold amount (Million) 18.98

Swiss franc

1.35

Euro

0.68

2.53

Japanese yen

35.97

Foreign currency

Contractual exchange rate Bought Sold (Baht per 1 foreign currency unit) Baht 30.4600 Baht 30.5146 32.0863 per USD 1 32.2094 per USD 1 Baht 31.6988 40.9692 per CHF 1 Baht 41.1600 Baht 40.5600 41.6000 per EUR 1 41.7100 per EUR 1 Baht 0.3753 0.3756 per JPY 1

As at 31 March 2012, a subsidiary had forward foreign exchange contracts as follows: Bought amount Contractual exchange rate TL 1.70 million TL 1.8220 - 1.8370 per USD 1 EUR 1.00 million USD 1.3084 - 1.3085 per EUR 1

Annual Report 2011-2012 Polyplex (Thailand) Public Company Limited 132

27.2 Fair values of financial instruments Since the majority of the Company and its subsidiariesû financial instruments are short-term in nature or bear floating interest rates, their fair value is not expected to be materially different from the amounts presented in the statements of financial position. A fair value is the amount for which an asset can be exchanged or a liability settled between knowledgeable, willing parties in an armûs length transaction. The fair value is determined by reference to the market price of the financial instrument or by using an appropriate valuation technique, depending on the nature of the instrument.

28. Capital management The primary objective of the Companyûs capital management is to ensure that it has appropriate capital structure in order to support its business and maximise shareholder value. As at 31 March 2012, the Groupûs debt-to-equity ratio was 0.39:1 (2011: 0.43:1) and the Companyûs was 0.54:1 (2011: 0.46:1). 29. Reclassification To comply with the Notification of the Department of Business Development relating to the financial statement presentation as described in Note 2 to the financial statements and as the result of the adoption of revised and new accounting standards as described in Note 3 to the financial statements, certain amounts in the financial statements for the year ended 31 March 2011 have been reclassified to conform to the current yearûs classification, without any effect to the previously reported profit or shareholdersû equity. 30. Approval of financial statements These financial statements were authorised for issue by the Companyûs authorised directors on 18 May 2012.

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Annual Report 2011-2012

134 Polyplex (Thailand) Public Company Limited

Information of Director and Management of the Company as on 31.3.2012 Name-Surname

1 Mr.Manu Leopairote

Position

Board Chairman & Audit Committee Chairman

Age (Years)

Education/Training

69 ë Bachelorûs degree Economics (Hons.), Thammasat University ë Masterûs degree M.Sc. (Econ.), University of Kentucky, USA ë Ph.D in Business Administration (Honorary), Thammasat University ë Certificate, Industrial Development, Nagoya, Japan ë The National Defense College, Class 34 ë Certificate, Thai Institute of Directors (IOD) - The Role of Chairman Program (RCM), Class 3/2001 - Directors Certification Program (DCP), Class 30/2003 ë Decoration - Knight Grand Cross (First Class) of the Most Noble Order of the Crown of Thailand - Knight Grand Cross (First Class) of the Most Exalted Order of the White Elephant - Knight Grand Cordon (Special Class) of the Most Noble Order of the Crown of Thailand - Knight Grand Cordon (Special Class) of the Most Exalted Order of the White Elephant

Relation % of Shareholding among family within Company -

Working Experiences in the 5 preceding years Period

Position

Company / Type of Business

2004-Present Board Chairman & Chairman Polyplex (Thailand) Plc. of the Audit Committee 1999-2004 Permanent Secretary, Ministry of Industry Ministry of Industry 2002-2003 Chairman 2003-Present Counselor of State 2005-2010

Chairman

1994-2008

Chairman of the Executive Board Chairman

2002-2006

2002-2004 Chairman 2010 - Present Chairman 2004 - Present Chairman 2006 - Present Chairman

Asian Productivity Council, Japan The Council of State(Trade and Industry) Neighboring Countries Economic Development Agency TECHNONET ASIA, Singapore Small and Medium Enterprise Development Bank of Thailand PTT Public Co.,Ltd ARIP Public Company Limited Khon Kaen Sugar Industry Public Company Limited Siam Steel International Public Company Limited

Information of Director and Management of the Company as on 31.3.2012 Name-Surname

2 Mr.Sanjiv Saraf

3 Mr.Pranay Kothari

Position

Director & Vice Chairman

Director

Age (Years)

Education/Training

54 ë Bachelorûs degree Agricultural Engineering, Indian Institute of Technology, Kharagpur

53 ë Fellow Chartered Accountant - Institute of Chartered Accountants of India ë Associate Company Secretary - The Institute of Company Secretaries of India

Relation % of Shareholding among family within Company -

Working Experiences in the 5 preceding years Period

Position

Company / Type of Business

2006-Present 2004 - Juneû08 May, 2011 - Present 2004 - Marchû08 2004 - Present

Director Director General Manager & CEO

Polyplex (Americas) Inc. Polyplex (Asia) Pte. Ltd. Polyplex (Asia) Pte. Ltd.

Director Director & Chairman

2002 - Julyû10 Julyû10 - Present Mayû02 - Present 2011 - Present 2006 - Present 2004 - Marchû08 2004 - Decû12 2004 - Present

Managing Director Vice - Chairman Chairman Director Director Director Director Director

Polyplex (Singapore) Pte. Ltd. Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi, Turkey Polyplex (Thailand) Plc. Polyplex (Thailand) Plc. Polyplex Corporation Ltd. Polyplex America Holding Inc. Polyplex (Americas) Inc. Polyplex (Asia) Pte. Ltd. Polyplex (Singapore) Pte. Ltd. Polyplex Europa Polyester Film Sanayi Ve Ticaret Anonim Sirketi, Turkey Polyplex (Thailand) Plc. Polyplex Corporation Ltd. Polyplex Resins Sanayi Ve Ticaret Anonim Sirketi

2002 - Present Director 1996 - Present Executive Director 2011 - Present Director

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Annual Report 2011-2012

136 Polyplex (Thailand) Public Company Limited

Information of Director and Management of the Company as on 31.3.2012 Name-Surname

4 Mr.Ranjit Singh

5 Dr.Virabongsa Ramangkura

Position

Director

Director & Audit Committee member

Age (Years)

Education/Training

55 ë Bachelorûs degree Mechanical Engineering, Birla Institute of Technology & Science, Pilani, India ë Masterûs degree MBA, India of Institute of Management, Ahmedabad

69 ë Bachelorûs degree First Class Honors, B.A. in Political Science, Chulalongkorn University ë Masterûs Degree Economics, University of Pennsylvania, U.S.A. ë Ph.D.(Econonmics), University of Pennsylvania, U.S.A. ë Doctor of Law (Honorary), Webster University, USA ë Decoration - Knight Grand Cordon (Special Class) of the most Exalted Order of the White Elephant - Knight Grand Cordon (Special Class) of the most Noble Order of the Crown of Thailand

Relation % of Shareholding among family within Company -

Working Experiences in the 5 preceding years Period

July 2007 Executive director - Present 2004 - Marchû08 Director 2004 - Present Director

2002 - Present 2011 - Present -

Position

2004 - Present Nov. 2011 Present 1994 - Present 1995 - Present 2004 - Present 2005 - Present 2006 - Present 2005 - Present 2000 - Present Present 2008 - Present 2004 - Present

Company / Type of Business Polyplex Corporation Ltd.

Polyplex (Asia) Pte. Ltd. Polyplex Europa Polyester Film Sanayi Ve Ticaret Anoim Sirketi, Turkey Director Polyplex (Thailand) Plc. Director Polyplex Resins Sanayi Ve Ticaret Anonim Sirketi Director & Audit Committee Polyplex (Thailand) Plc. member Chairman Strategic Formulation Committee for Reconstruction and Future Development (SCRF) Chairman Bangkok Expressway Public Co., Ltd. Chairman of the Double A (1991) Public Co., Ltd. Executive Board Chairman Thai-Lao Association for Friendship Chairman Finansa Co., Ltd. Chairman South East Asia Energy Co., Ltd. Chairman Bang-Mod Hospital Co., Ltd. Chairman Nam Ngum 2 Power Company Limited Director Thailand Development Research Institute Foundation Chairman of the Advisory King Power International Co., Ltd. Board Advisory Chairman Areeya Property Public Co., Ltd.

Information of Director and Management of the Company as on 31.3.2012 Relation % of Working Experiences in the 5 preceding years Name-Surname Position Age Education/Training Shareholding among (Years) family within Period Position Company / Type of Business Company 6 Mr.Praphad Director 66 ë HND in Business Administration 2004 - Present Director Polyplex (Thailand) Plc. Phodhivorakhun from Sheffield College of Present Chairman of Board Kang Yong Electric Pcl. Technology, Sheffield, England. of Directors ë Bachelorûs degree Political Science, Present Chairman of Board of Mitsubishi Electric Kang Yong Ramkhamhaeng University Directors Wattana Co., Ltd. ë Post Graduate Degree, Present Chairman of Board of Siam City Leasing and Factoring Pcl. National Defense College Directors of Thailand Present Chairman of Board of Yokohama Rubbers (Thailand) Co., Ltd. ë Master Degree Directors - Business Administration (MBA), Present Chairman of Board of Kang Yongû Group of Companies Public Administration (MPA) Directors Ramkhamhaeng University Present President K. Y. Intertrade Co., Ltd. - Honourary Doctorate Degree Present President Nitto Seiko (Thailand) Co., Ltd. in Business Administration Present Director Kulthorn Kirby Pcl. Rajabhat University of Lampang Present President Thai Refrigeration Components Co., Ltd. Present Chairman of University Rajamangala University of Council Technology Rattanakosin. Present Member of the International Ritsumeikan Asia Pacific University, Advisory Committee Japan 7 Mr.Shiraz Erach Poonevala Director & Audit 48 ë Bachelor of Commerce 2004 - Present Director & Audit Comittee Polyplex (Thailand) Pcl. Committee Member Sydenham College of Commerce, member India March 2008 - Director - Investment G.P. Group of Companies Limited ë Master of Commerce Present Sydenham College of Commerce, 2005 - March Senior Vice President Seamico Securities Plc. India 2008 ë Associate Chartered Accountant 2002 - 2005 Director Paragon Partners Co.,Ltd. Institute of Chartered Accountants of India

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Annual Report 2011-2012

138 Polyplex (Thailand) Public Company Limited

Information of Director and Management of the Company as on 31.3.2012 Name-Surname

Position

8 Mr.Rohit Kumar Vashistha Managing Director

9 Mr.Vinod Sureka

Chief Financial Officer

10 Mr.Manav Singh

Business Head - SARALAM

Relation % of Working Experiences in the 5 preceding years Shareholding among family within Period Position Company / Type of Business Company 41 ë Bachelorûs degree in Metallargy, Mayû10 - Present Managing Director Polyplex (Thailand) Plc. IT -BHU, India Mayû08 - Aprilû10 Director & Profit Center Head Polyplex (Thailand) Plc. ë Masterûs degree Marû08 - Present Director Polyplex (Asia) Pte. Limited. International business, Indian Mayû08 - Present Director Polyplex (Singapore) Pte. Limited. Institute of Foreign Trade, India Juneû09 - Present Chairman Polyplex Trading (Shenzhen) ë Directors Certification Program Company Limited (DCP) Class 123/2009, IOD 2003 - 2008 Head - Sales & Marketing Polyplex (Thailand) Plc. 1996 - 2002 Head (International Trade) Tata Steel 37 ë Bachelor of Commerce, August 2008 - Chief Financial Officer Polyplex (Thailand) Plc Calcutta University, INDIA, Present ë Chartered Accountant, The Institute Juneû09 - Present Director Polyplex Trading (Shenzhen) of Chartered Accountants of India Co. Limited. (ICAI) Septû11 - Present Director Polyplex (Asia) Pte. Limited. Decû11 - Present Director Polyplex (Singapore) Pte. Limited. December 2001 - Finance Manager Indorama Iplik San. Ve. Tic. A.S., July 2008 Turkey 37 ë BTech (Mech Engg.) July 2008 - Business Head - SARALAM Polyplex (Thailand) Plc - Jamia Millia Islamia College Present ë MBA International Business April 2005 - Marketing Manager Polyplex (Thailand) Plc (Indian Institute of Foreign Trade) April 2008

Age (Years)

Education/Training

Information of Director and Management of the Company as on 31.3.2012 Name-Surname

Position

Age (Years)

11 Mr. Ashish Ghosh

Head - Sales & Marketing

12 Mr. Chandrashekhar Kalvit

Head Operations

Relation % of Working Experiences in the 5 preceding years Education/Training Shareholding among family within Period Position Company / Type of Business Company ë Bachelorûs / Masterûs Degree in November 2009 - Head - Sales & Marketing Polyplex (Thailand) Plc Science - Jiwaji University, Present Gwalior - INDIA December 1995 - AVP - Marketing SRF Limited -Manufacture of ë Masterûs degree in Business November 2009 Polyester Film, Nylon Tyre Chord Administration - BIT Ranchi, INDIA fabric, Engineering plastics ë Bachelorûs Degree in Technology April 2011 - Head Operations Polyplex (Thailand) Plc (Chemical Engineering) Present Laxminarayan Institute of Oct 2007 - President JBF RAK LLC Ras AI Khaimah U.A.E. Technology, Nagpur University March 2011 Feb 2004 - President JBF Industries Lt Mumbai Oct 2007

139