Beer Thai (1991) Public Co., Ltd. Beer Cosmos Brewery Company Limited Beer Thai Asia Pacific Brewery Co., Ltd. Beer San Miguel Beer (Thailand) Co., Ltd. Beer 2. Exported Customers Company Country F&N CC Beverage Sdn. Bhd. Malaysia Cambrew Ltd. Cambodia Angkor Beverage Co., Ltd. Cambodia United Breweries Ltd. India Capacity and Capacity Expansion in the Future At present, there are two main categories of machine which are a can manufacturing line with the maximum capacity of 900 million cans per year and an end manufacturing line with the maximum capacity of 1,585 million ends per year. In 2007, the installation of the second can line will be completed and the manufacturing will commence in 2008. The second can line will help de-bottle neck the manufacturing process and enhance the product lines. The maximum capacity of can lines will increase to 1,200 million cans per year. The investment cost of the second can line is approximately 720 million baht. In 2011, TBC plans a further capacity expansion in can line of 200 million cans per year to reach a targeted capacity of 1,400 million cans per year with the investment cost of USD 2 million. 22 List of Shareholders List of shareholders of TBC as of September 26th, 2007 Number of Name Shares (Shares) % Group of Ball Corporation Ball South East Asia Holding Company Limited 6.67 6.67 Group of Police General Pow Sarasin Police General Pow Sarasin 1.33 1.33 Group of Chayavivatkul Family Mr. Montree Chayavivatkul 12.00 12.00 Mr. Sathit Chayavivatkul 10.00 10.00 Mr. Saroj Chayavivatkul 10.00 10.00 Mr. Sakon Chayavivatkul 5.00 5.00 Ms. Saovaluk Chayavivatkul 5.00 5.00 Group of Companies under TCC Holding Songvard Riverside Company Limited 26.00 26.00 T.C.C. Industrial Park Company Limited 11.50 11.50 Surasate Company Limited 7.70 7.70 Charoen Wannasilp Company Limited 4.80 4.80 Total 100.00 100.00 Ball Corporation supplies technology for manufacturing process while The Chayavivatkul, are the founder and the key man, and TCC Holding Company Limited is a strategic partner. 23 Industry Overview Food and beverage packages in Thailand are made of various types of raw materials i.e. plastic, glass, paper, and metal. Metal packages, especially iron and aluminum cans,have been on a growing trend and competes directly with plastic packages. Aluminum cans are better than iron cans in that it is light in weights and does not oxidize, easy for transportation, and preserve the quality of tastes. There are a few players in aluminum can industry in Thailand i.e. Bangkok Can Manufacturing Company Limited, who is the rank first among aluminum can maker in Thailand, Thai Beverage Can Company Limited, who is rank second of can maker, and Crown Bevcan and Closures (Thailand) Company Limited. Customers of aluminum can manufacturers are major beverage firms such as beer and soft drink since aluminum is resilient to acid and pressure. Growth in aluminum can industry, therefore, depends on growth of beverage industry. Research Center of Krung Thai Bank forecasted a 4.4% growth rate of beer production volume in 2006. Thai Health Promotion Foundation, indicated that an excise tax rate adjustment on August 28th, 2007 caused the excise tax on distilled liquor to increase by 9-12 baht per bottle. Meanwhile, beer, wine, and spy cooler are better off as these are unaffected by excise tax adjustment. An attempt to increase the excise tax on beer was discarded as beer is tax on value rather than alcohol content and was 320 baht per litre more than excise tax on distilled liquor. Moreover, the alcohol content in beer is lower than that of distilled liquor or white spirits. From excise tax adjustment reason, consumers may shift from distilled liquor to beer and cause beer consumption, and thus, demand for beer packages to grow. Thai consumers are more health conscious over the past few years and cause green tea and fruit juice to tap into the market share of soft drink. Research Center of Krung Thai Bank indicated that growth in soft drink industry decreased continuously over the past three years. Soft drink production decreased by 2.70% and 24.80% in 2006 and 2005 respectively. However, in 2007, soft drink production is predicted to grow by 2.60% and may cause demand for soft drink packages to grow as well. In the export market, TBC major customers are based in ASEAN and India. Based 1 on CIA World Fact Book , ASEAN countries with increasing GDP growth rate included Malaysia with 5.20% in 2006 and 5.90% in 2007 and Laos with a GDP growth rate of 7.30% in 2006 and 7.40% in 2007. ASEAN countries with decreasing GDP growth rate included Cambodia and Vietnam, especially Cambodia with a GDP growth rate of 13.40% in 2006, and 7.20% in 2007, and Vietnam with a GDP growth rate of 8.50% in 2006, and 8.20% in 2007. However, India had an increase in GDP growth rate from 8.40% in 2006 to 9.20% in 2007. There are a few factors that adversely affect aluminum can industry. For one thing,there is no primary aluminum industry that produces aluminum foils or sheets from ingots.Therefore, aluminum sheets have to be imported. In addition, Research Center at Kasikorn Bank indicated that a surge in aluminum price is caused by an rapid boost in the demand for aluminum in China, which represents 20% of the world demand for aluminum. Moreover, a stock of goods ahead and the weakening US dollar has led hedge funds to speculate in the commodity futures market, and thus, causes aluminum price to rise as well. Such irregular aluminum price surge would unavoidably adversely affect industries that use aluminum as raw material. 1 Source: www.cia.gov 24 World Demand for Aluminum (million Tones) Country 2004 2005 2006 (E) China 6.20 7.20 8.10 USA 6.60 6.80 7.00 Europe 7.30 7.40 6.80 Other Asia 4.30 4.50 4.70 Japan 2.40 2.40 2.50 CIS 1.00 1.00 1.20 Others 3.30 3.62 3.80 Total 31.10 32.92 34.10 *Source: 1. Macquire Research, October 2005 2. U.S. Geographical Survey, Mineral Commodity Summaries, January 2006 25 - Financial Statement & Financial Ratio Performance and Financial Status Thai Beverage Can Company Limited's financial status and performance is as follows Consolidated 2004 2005 2006 2007 Asset (Audited) (Audited) (Audited) (Unreviewed) Current assets Cash and deposits at 90,576,451 47,635,628 35,516,222 57,613,409 financial institution Trade accounts 285,359,720 344,035,156 445,312,518 384,647,847 receivable Can line 2 down payment - - - 151,935,205 Inventories 517,496,738 562,657,512 558,594,073 608,930,962 Other current assets 47,597,694 41,426,123 26,080,399 35,461,105 Total current assets 941,030,603 995,754,419 1,065,503,212 1,238,588,528 Non-current assets Property, plant and 1,242,303,194 1,225,546,809 1,205,666,462 1,185,878,575 equipment, net Deferred tax assets 192,826,149 127,079,556 40,763,569 9,339,547 Other non-current assets 3,000 4,500 13,500 13,500 Total non-current 1,435,132,343 1,352,630,865 1,246,443,531 1,195,231,622 assets Total assets 2,376,162,946 2,348,385,284 2,311,946,743 2,433,820,150 26 Consolidated Liabilities and 2004 2005 2006 2007 shareholders' equity (Audited) (Audited) (Audited) (Unreviewed) Current liabilities Short-term loans from 215,000,000 425,000,000 - 230,000,000 financial institutions Trade accounts payable 602,801,165 515,777,895 708,029,631 763,581,121 Current portion of long-term - - 250,000,000 130,000,000 loans from financial institutions Short-term loans and 56,843,625 - - - advances from related parties Machinery Payable 25,243,226 2,867,226 - 10,458,147 Other current 43,326,805 38,369,511 55,543,053 41,735,925 liabilities Total current 943,214,821 982,014,632 1,013,572,684 1,175,775,193 liabilities Non-current liabilities Long-term loans from - 250,000,000 - - financial institution Total non-current liabilities - 250,000,000 - - Total liabilities 943,214,821 1,232,014,632 1,013,572,684 1,175,775,193 Shareholders' equity Share capital Authorized share 1,500,000,000 1,000,000,000 1,000,000,000 1,000,000,000 capital Issued and paid-up 1,500,000,000 1,000,000,000 1,000,000,000 1,000,000,000 capital Retained Earning (Deficit) Appropriated Legal Reserve - - 6,000,000 20,000,000 Unappropriated -67,051,875 116,370,652 292,374,059 238,044,956 Total shareholders'1,432,948,125 1,116,370,652 1,298,374,059 1,258,044,956 equity Total liabilities 2,376,162,946 2,348,385,284 2,311,946,743 2,433,820,149 and shareholders' equity 27 Consolidated Income Statement 2004 2005 2006 2007 (Audited) (Audited) (Audited) (Unreviewed) Revenues Revenue from sales 1,755,403,826 2,172,719,372 2,449,123,613 1,312,758,361 of goods Other income 18,685,018 21,524,065 9,295,825 6,543,227 Total revenues 1,774,088,844 2,194,243,437 2,458,419,438 1,319,301,588 Expenses Cost of sale of goods 1,446,662,416 1,741,373,196 1,894,285,214 1,115,778,603 Selling and 150,291,861 194,268,283 207,756,420 81,745,412 administrative expenses Total expenses 1,596,954,277 1,935,641,479 2,102,041,634 1,197,524,015 Profit before 177,134,567 258,601,958 356,377,804 121,777,573 interest and income tax expenses Interest expense 2,066,699 9,432,838 28,058,410 5,680,115 Income tax expenses 28,377,060 65,746,593 86,315,987 31,424,022 Net profit 146,690,808 183,422,527 242,003,407 84,673,436 Basic earning per share 0.98 1.23 2.42 1.69* *Annualized 28 Financial Ratio of TBC Consolidated Financial Ratio 2004 2005 2006 30 Jun 07 (Audited) (Audited) (Audited) (Unreviewed) Liquidity Ratio Current Ratio (Times) 1.00 1.01 1.05 1.05 Quick Ratio (Times) 0.40 0.40 0.47 0.51 Operating Cash Flow to Current Liabilities Ratio (Times) NA 0.16 0.60 0.19 Account Receivable NA 6.90 6.21 6.33 Turnover (Times)* Receivable Days (Days) * NA 52.14 58.01 56.90 Inventory Turnover (Times) * NA 3.22 3.38 3.82 Inventory Days * NA 111.65 106.54 94.17 Account Payable NA 3.11 3.10 3.03 Turnover (Times)* Payable Days (Days) * NA 115.62 116.29 118.70 Cash Cycle (Days) * NA 48.17 48.27 32.37 Profitability Ratio Gross Profit Margin (%) 17.59% 19.85% 22.65% 15.01% Operating Profit Margin (%) 9.03% 10.91% 14.17% 8.78% Cash to Profit Ratio (Times) 2.01 0.64 1.73 1.76 Net Profit Margin (%) 8.27% 8.36% 9.84% 6.42% ROE (%) * NA 14.39% 20.04% 13.25% Efficiency Ratio ROA (%) * NA 7.76% 10.39% 7.14% Return on Fixed Asset (%) * NA 20.91% 27.64% 23.40% Assets Turnover (Times) * NA 0.93 1.06 1.11 Financial Policy Ratio Debt to Equity Ratio (Times) 0.66 1.10 0.78 0.93 Interest Coverage Ratio (Times) NA 24.17 25.47 42.21 Debt Service Coverage Ratio (Cash basis) (Times) NA 0.22 0.60 0.47 Dividend Yield (%) 0.00 33% 52% 0.00 *Annualized 29 Financial Status Assets Total assets of TBC at the end of the second quarter of 2007 was 2,433.82 million baht, which increased by 121.87 million baht or 5.27% from that of December 31st, 2006.Current assets increased by 173.09 million baht while non-current assets decreased by 51.21 million baht. Current assets as of the first half of 2007 increased by 16.24% from that of 2006 as cash and deposits at financial institution increased by 22.10 million baht or 62.22% from a faster cash collection period as evidenced by a decrease in account receivable by 60.66 million baht or 13.62% decline. In addition, inventory increased by 50.34 million baht or 9.01% from an increase in the production activity to prepare for sales at year end. Moreover, TBC made a down payment for the second can line in an amount of 151.93 million baht according to the capacity expansion in 2008. Other current assets consisted of refundable aluminum purchase VAT net of sales VAT, unearned discount on purchase of other raw material. In the first half of 2007, other current assets increased by 9.38 million baht while other non-current assets decreased by 51.21 million baht from that of 2006. Other non-current assets decreased as a result of a decrease in unamortized corporate income tax by 31.42 million baht and a decrease in property, plant, and equipment by 19.79 million baht from depreciation. Liabilities As of the second quarter of 2007, total liabilities increased by 162.20 million baht or 16.00% from that of 2006 due to the following reasons. TBC drew down short-term funding of 230 million baht used as bridge financing for can line expansion before securing a long-term loan. In addition, account payable increased by 55.55 million baht or 7.85% while current portion of long-term debt decreased by 120 million baht or 48%. TBC had no long-term liabilities. Shareholders' Equity TBC Shareholders' equity as of the second quarter of 2007 was 1,258.04 million baht, which decreased by 40.32 million baht or 3.11% from that of 2006 due to the following reasons. Unappropriated retained earnings decreased by 54.32 million baht which was caused by the net profit of 84.67 million, a dividend payment of 125 million baht (or 1.25 baht per share according to the Board of Directors' resolution in March 2007), and an increase in the legal reserve by 14 million baht. Legal reserve, therefore, increased from 6 million baht in 2006 to 20 million baht at the end of second quarter of 2007. 30 Operating Performance Revenues In 2006, TBC had sales revenue of 2,449.12 million baht, which increased by 276.40 million baht or 12.72% from that of 2005 as TBC developed new customer base and as the domestic and foreign beverage industry has been growing. TBC sales revenue peaks in the first and fourth quarters each year as it moves seasonally following the pattern of sales revenue and promotion activities of beverage industry. Its major domestic customers include Beer Thip Brewery (1991) Company Limited (beer Chang manufacturer), ThaiNamthip Company Limited (Coke manufacturer), and Serm Suk Public Company Limited (Pepsi manufacturer). TBC major foreign customers include F&N CC Beverage Sdn. Bhd. (Malaysia), Cambrew (Cambodia), and United Breweries Ltd. (India). For the first half of 2007, TBC sales revenue was 1,312.76 million baht, which increased by 149.14 million baht or 12.82% from that of the same period of 2006 since TBC expanded its customer base and beverage industry has been growing in both domestic and international markets. In addition, other income was 9.30 million baht and 6.54 million baht in 2006 and the first half of 2007 respectively. Other income included income from coating and revenue from sales of other materials.Cost of Goods Sold Cost of goods sold in baht amount increased over the past three years. In 2006, the cost of goods sold was 2,102.04 million baht, which increased by 166.40 million baht or 8.60% from that of 2005. However, the cost structure, cost of goods sold as a proportion of sales revenue, decreased continuously from 82.41%, to 80.15%, to 77.35% in 2004, 2005,and 2006 respectively since TBC could lock in the lower aluminum price before an upward adjustment. For the first half of 2007, TBC had a cost of goods sold of 1,175.77 million baht,which increased by 227.53 million baht or 25.62%. The cost of goods sold as a proportion of sales revenue was 84.99%, which increased from 76.33% of the same period of the previous year. This was because the aluminum price was less volatile in such period, and therefore, the benefit of locking into the aluminum price diminished. The operating performance in the first half of 2007 reflects TBC performance under a normal situation. Selling and Administration Expenses Selling and administration expenses consist of freight, travelling expense, and entertaining expenses, promotion and advertising expenses. In 2006, selling and administration expenses were 207.76 million baht, implying an increase by 13.49 million baht, or 6.94% from that of last year. As of the first half of 2007, selling and administration expenses equaled 81.75 million baht, which decreased by 32.54 million baht or 15.66% compared to the same period of previous year. Net Profit The net profit of TBC increased continuously over the past three years, which equaled to 146.69 million baht, 183.42 million baht and 242.00 million baht in 2004, 2005,and 2006 respectively. The main factor was because of an increase in sales revenue, and efficient production cost management through a stocking of aluminum material before an increase in aluminum price. 31 As of the first half of 2007, TBC generated a net profit of 84.67 million baht, which decreased from that of the same period in the earlier year. The reason was that there was less fluctuation in aluminum price during this period. As the result, a stocking of aluminum yield less positive effect to the cost of goods sold than the previous year, although TBC had higher sale revenue during the first half of 2007. Liquidity Analysis Current Ratio of TBC is quite stable over the past three years, indicating that the current assets were adequate to cover all current liabilities. Cash cycle period of 2006 was close to that of 2005, which equaled to 48.17 and 48.27 days respectively. However, the cash cycle period as of the first half of 2007 decreased to 32.37 days as TBC could reduce the inventory days. Profitability Analysis TBC's profitability improved continuously from 2004 to 2006. Its gross profit margin, operating profit margin, net profit margin and ROE increased significantly. The main factor was that TBC could stock the aluminum before an increase in the commodity price during 2004 to 2006 which result in a lower cost of production. As an increase in aluminum price during three years, TBC gained significant benefit from stocking raw aluminum material before the upward price adjustment. As the result, in 2006, TBC could generate particularly high profit because the aluminum price increased rapidly. However, the aluminum price had less volatility during first half of 2007, so a stocking of aluminum did not give much positive effect to the profitability of TBC.Therefore, as of the first half of 2007, the profitability ratio represented the actual operation performance of TBC in the normal situation. Efficiency Analysis In 2006, ROA and ROFA increased from 2005 obviously, because of an improvement in the asset management. The management team decided to increase a stock of aluminum before an increase in aluminum price traded on London Metal Exchange, so TBC could enjoy a higher net profit while total assets (more)