End Growth Rate (%) (%) Domestic Market 3.81 3.74 Export Market 7.08 7.06 2 Reference: Research Center, Krung Thai Bank 39 Sales Price per Unit Sales price per unit of can and end are varied by the price of aluminum on London Metal Exchange and other cost of production. Sales price varies in different markets. Sales price is set from the total cost of production at that time and added with the mark-up margin according to the historical average of mark-up margin in 2004, 2005, and the first half of 2007. The mark-up margin in 2006 is excluded from the calculation as TBC had a particularly high mark-up margin from a stocking of raw material before an increase in aluminum price in mid 2006. The projected mark-up margin is as follows: Mark-up Margin (%) Domestic Market Can 24.00 End 14.00 Export Market Can 10.00 End 11.00 (3) Cost of Good Sold Cost of good sold is based on the cost of production, which consists of fixed costs and variable costs. Fixed costs consist of wages, maintenance and repairing expenses, depreciation, and other expenses. Variable costs include aluminum cost, other direct material costs, utilities expenses, packaging costs,and other lube and chemical costs. Fixed Costs: labor cost is projected to grow at the rate of 5% per year. Maintenance and repair expense is assumed to grow at 10% per year except for the second can line machine, of which the maintenance and repair expense is equal to 40% of that of the first can line in the first year. The maintenance and repairing expense of the second can line machine is expected to grow at 5% in the first five years, and then at 10% afterwards. All other fixed costs is assumed to grow at the rate of the headline inflation, which is equal to 1.75% per year. Variable costs consist of aluminum costs, other direct material costs, packaging costs, utilities expense, and other lube and chemical costs. o Net aluminum cost includes raw aluminum cost, conversion cost, and income from sales of scrap. Aluminum cost depends on the aluminum price traded on London Metal Exchange. The projected aluminum price is based on Price Risk Management Report by Commodity Metal Management Company. From 2013 onward, the aluminum price is projected to remain constant. 40 Year Aluminum Price (USD/Ton)3 2007 2,691.66 2008 2,535.00 2009 2,325.00 2010 2,165.00 2011 2,225.00 2012 2,390.00 2013 onward 2,545.00 o Conversion cost is based on that stated on the contract with the suppliers which will be renewed every 3 years. Conversion Cost is projected to step up at the historical growth rate on each contract renewal. Year Conversion Cost (USD/Ton) 2007 630.00 2010 678.00 2013 730.00 2016 onward 786.00 o Income from sales of scrap per ton equals to 90% of aluminum price in London Metal Exchange within the same year. Loss of manufacturing process for cans and ends are 2.2% and 1.1% respectively. o Cost of Aluminum ingots, conversion cost, and income from sales of scrap comprise net aluminum cost which represents 75% of cost of goods sold. o Other variable costs per unit such as other direct material costs,packaging costs, utilities expenses and other lube & chemical costs in 2007 are assumed to be equal to the variable costs per unit in the first half of 2007. Afterwards, other variable costs per unit are expected to grow at the headline inflation of 1.75% per year. Depreciation Depreciation is calculated by using straight-line method according to TBC accounting policy. Building, machine, and office equipment is depreciated for 20, 15, and 5 years respectively. (4). Selling and Administration Expenses Selling and administration expenses are composed of major items, for example, salary, licensing fee, promotion expenses, freight, rebate, and duty. IFA assumes that salary grows at 5% per year as per TBC policy. Travel expenses, entertainment expenses, and other expenses grow at the headline inflation of 1.75% per year. However, freight, duty, and rebate are variable costs. Assuming that rebate and duty per unit are fixed for the entire projection period while freight per unit in 2007 is equal to that of the first half of 2007 after 3 Source: CRU: Price Risk Management Report by Commodity Metals Management Company as of August 2007 41 that it will grow at the headline inflation of 1.75% per year. As for licensing fee, the amount of licensing fee follows the Licensing Agreement with Ball Corporation. (5) Cash Cycle Accounts Receivable Days Accounts receivable days equal to 62 days based on the historical average from 2005 and 2006. Accounts Payable Accounts payable days equal to 122 days based on the historical average from 2005 and 2006. Inventory Inventory Days equal to 113 days based on the historical average from 2005 and 2006. (6) Capital Expenditure TBC invests in the second can line with the investment cost of 720 million baht in 2007. The second can line will start the commercial run in 2008. In 2011, TBC plans to expand the capacity of the second can line that could start the production in 2012. The expansion will cost around 2 million US dollars.Moreover, there is a maintenance capital expenditure of 20 million baht every year. (7) Debt Schedule Liabilities in 2006 include current portion of long-term debt of 250 million baht with the interest rate of 5.75% per year. TBC will repay for the total amount in 2007. Furthermore, TBC has issued the promissory notes for short-term investment in the second can line in 2008. The total amount of short-term debt as of September 18th, 2007 was 460 million baht. TBC will repay all amounts of promissory notes within 2007. In addition, TBC will acquire long-term debt to replace the promissory notes by 600 million baht. Such long-term debt will be repaid in equal installment in each month until the end of 2009 with 4.35% interest rate. As for the second can line expansion in 2012, TBC will use internally generated funds of around 2 million US dollars (which equals to 67.32 million baht at the forecasted exchange rate of 33.66 baht per USD). (8) Debt to Total Capitalization Ratio Debt to total capitalization ratio is equal to 0.29 times to reflect its debt to total capitalization policy (9) Discount Rate As the Independent Financial Advisor uses the free cash flow to equity, which is a free cash flow after debt repayment. Therefore, the discount rate used is the cost of equity which equals to 8.74% per year, the details of which are as follow: 42 The cost of equity (Ke) is calculated from Capital Asset Pricing Model (CAPM). Ke = Rf + ?(Rm-Rf) Risk free rate (Rf) = The rate of return from investment in any riskless securities. The risk free rate is 4.81% based on a yield to maturity of a ten-year-to- maturity government bond. (Information as of October 4th, 2007 from Bank of Thailand) Market return (Rm) = The annual average rate of return from investment in Stock Exchange of Thailand for 31-year tenor equals 12.00%. Beta (?) = Slope represents the relationship between stock price and the stock market index of 0.55 times As for share valuation, the Independent Financial Advisor uses the cost of equity of those listed companies which operate in similar business to that of TBC. These comparable firms are listed companies in Thailand as well as listed companies in the foreign stock exchange such as the US, United Kingdom, and Japan. Then, the cost of equity is adjusted with sovereign risk of Thailand and the inflation rate differential between Thailand and foreign countries. The result is the discount rate of 8.74%. (10). Terminal Value The terminal value growth rate after 2017 is assumed at the headline inflation of 1.75% per year. Result of Share Valuation with Discounted Cash Flow to Equity (after Debt Repayment) Method The Independent Financial Advisor uses the cash flow after interest and princip repayment based on the future prospect of TBC operation, excluding additional benefits.Then, the cash flow is discounted by the cost of equity (Ke) at the rate of 8.74% reflects the Beta (?) of comparable firms that are listed on the Stock Exchange of Thailand and foreign stock exchange. These betas (?) are adjusted with country risk of Thailand and the inflation rate differential between Thailand and foreign countries. The share valuation result indicates TBC share value of 41.22 baht per share. TBC Share Valuation Result TBC share valuation results based on different valuation methodologies compared with the settled price are as follow: 43 Valuation Methodology Value Settled Price (Baht/Share) Book Value Approach 12.98 21.48 Adjusted Book Value Approach 16.96 21.48 P/E Multiple Approach 21.48 21.48 P/BV Approach 18.43 21.48 Discounted Cash Flow Approach 41.22 21.48 Independent Financial Advisor Opinion TBC share acquisition price in this connected transaction of 21.48 baht per share is lower than the share value based on the discounted cash flow approach, which is the most suitable approach in the Independent Financial Advisor opinion. However, the calculated share value from different share valuation approaches may not reflect its true value due to some limitations as stated below: The book value approach is appropriate for a company that does not utilizes its resources efficiently. This approach reflects only the management policy and past operating performance without taking a future prospect of the company into consideration. Under the market comparable approach, the price per earning ratio and price per book value ratio based on the SET-listed company in packaging sector is used to calculate the share value. These comparable companies are different from the target company on several aspects such as business characteristics, management policy, financial status and operating performance. The share valuation result can be used to determine TBC share value compared with listed companies operating in the same industry. The Independent Financial Advisor is of the opinion that the share valuation by discounted cash flow approach is the most appropriate methodology as the share value is based on the projected cash flow after debt repayment, which is discounted at the cost of equity. Therefore, the share value reflects the future prospect of the target company while the non-cash items such as depreciation and amortization do not affect the cash flow. The assumptions under this share valuation approach are based on the operating performance and the potential of TBC as discussed with TBC management. Therefore, the Independent Financial Advisor is of the opinion that TBC share acquisition of 21.48 baht per share is fair and beneficial to BJC as such acquisition price is lower than 41.22 baht per share computed by the discounted cash flow method, which, in the Independent Financial Advisor opinion, most reflects the true value of TBC shares. 3.2 The Fairness of the Conditions of the Connected Transaction The payment for TBC share acquisition shall be made in a one-time cash payment in full amount to all sellers simultaneously on a normal business practice, and thus, such condition is considered fair. 44 4. Independent Financial Advisor Opinion The Financial Advisor suggests the shareholders to approve this transaction for the following reasons: This Connected Transaction is reasonable for the following reasons: o This transaction leads to the expansion of packaging business of BJC to aluminum packaging business which provides BJC for the growing trend of portable packaging business, and change in changes in life-style of worldwide consumers. This transaction is considered a horizontal integration of packaging business. BJC will get benefits from this transaction, in terms of economy of scale, economy of scope, and safeguard against competitors with substitute products, especially beverage packaging such as glass bottles and plastic bottles. o BJC also obtains benefits from gaining the market share in aluminum can market because TBC is the second largest can maker in Thailand with a market share of around 34%. BJC can also expand its customer base through TBC existing customers, most of which are famous and have strong financial status in both domestic and export market. Furthermore, TBC share acquisition also helps BJC generate sales revenue from aluminum can business immediately compared to building the aluminum can business from scratch, which requires more time to build up new factory, pitch for customers, and gain recognition from customers. Furthermore, building an aluminum can business from scratch causes BJC a risk of cost overrun, and the opportunity cost of generating sales revenue during the construction period. The Advantages of the Connected Transaction o TBC has a good financial condition and performance. In 2006, TBC gained a net profit of 242 million baht and return on equity of 20.04%. Moreover,the current ratio indicated that TBC has adequacy of current assets to cover current liabilities. o BJC will get benefit from the production technological transfer and know how of raw material procurement from Ball Corporation, the owner of aluminum can production technology from USA. The advantage from technology transfer will help BJC manage its cost structure more efficiently. If BJC does not acquire TBC shares, it will lose an opportunity to expand into the aluminum can business. Therefore, BJC is necessary to acquire TBC to maintain its competitive edge. In addition, BJC may use its internally generated funds, or proceeds from bond issuance, or long-term loans from financialinstitution, all choices of which the Financial Advisor is of the opinion that BJC's financial status would not be significantly adversely affected. BJC is necessary to undertake the transaction with the connected persons as the Chayavivatkuls, Ball South East Asia Holding Company Limited, and othershareholders do not wish to sell their TBC shares. Furthermore, by maintaining the Chayavivatkuls and Ball South East Asia Holding Company Limited as TBC shareholders will benefit BJC in that TBC will still be managed by experienced management team, and also supported by world-renowned technological expert in aluminum can production.TBC share price of 21.48 baht per share is considered fair because such acquisition price is lower than 41.22 baht per share computed by the discounted 45 cash flow method, which, in the Independent Financial Advisor opinion, most reflects the true value of TBC shares. The condition of the transaction is considered fair as all sellers will receive a one-time cash payment in full amount, which is a normal business practice. For the consideration of this connected transaction, if the shareholders approve this connected transaction, BJC will pay total amount of 1,074.00 million baht (at TBC share price of 21.48 baht per share for 50.00 million shares) to the sellers, which are connected persons. As the result, BJC will be a major shareholder of TBC holding 50% ownership in TBC in place of its connected persons while TBC will become a subsidiary of BJC. SICCO Advisory Company Limited, the Independent Financial Advisor, hereby certifies that the opinion expressed herein have been prudently made in compliance with the professional standards with due regard to the shareholders' benefits. Best regards, SICCO Advisory Company Limited Mr. Siripong Sutharoj Mr. Chakkris Uthayophas Director Director 46