Polyplex Thailand PCL : Management Discussion and Analysis Yearly Ending 31-Mar-2016

Microsoft Word - MDA for SET_Mar'16_Final.doc

27 May, 2016

Subject: Management Discussion and Analysis for the year ended 31 March 2016 To: Managing Director

The Stock Exchange of Thailand

For the financial year ended 31st March 2016, the company has reported a net loss of Bt 123.23 million on consolidated basis, as compared to a net profit of Bt 390.03 million in the previous year.

ANALYSIS OF INCOME STATEMENT Total Revenues:

Consolidated:

Consolidated Sales revenue of the company has increased from Baht 11,912.73 million to 12,233.25 million, an increase of Baht 320.53 million or 2.69%. Increase in revenues is mainly on account of increase in sales volumes (Better utilization of new capacities added in USA and Thailand), partly offset by decrease in selling prices due to drop in the key input costs.

The other income has decreased from Baht 90.70 million in the previous year to Baht 80.92 million. There is an increase in other income at Thailand (higher export incentive and misc. sales), partly offset by decrease in other income at the subsidiaries.

We have an exchange loss this year as against an exchange gain of Baht 480.17 million in the previous year.

The net impact of all the above factors have contributed to an overall decrease in total consolidated revenue by Baht 169.42 million or 1.36% to Baht 12,314.18 million.

Standalone:

The Company recorded sales of Baht 5,404.87 million, an increase of Baht 212.95 million or 4.10%, due to higher volumes, mainly from Thick film line, partly offset by lower volumes in Thermal Lamination and CPP businesses and also the drop in the selling prices as explained above.

The other income has increased from Baht 64 million to Baht 74.01 million due to higher income from miscellaneous sales and higher export incentive income (increase in export sales).

There is an exchange loss this year of Baht 249.18 million as against an exchange gain of Baht

230.44 million in the previous year.

The net impact of all the above factors have contributed to an overall net decrease in total revenues by Baht 7.48 million or 0.14%.

Total expenses:

Consolidated:

The company recorded total consolidated expenses (cost of sales, selling and administrative expenses, exchange losses and Impairment loss) of Baht 11,944.78 million being an increase over previous year by Baht 85.67 million or 0.72%.

There is a decrease in cost of sales by Baht 441.58 million due to reduction in raw material prices, partly offset by higher sale volumes.

The administrative have been lower by Baht 59.75 million mainly due lower administrative costs at Thailand (as explained below under Standalone) and at the subsidiaries, due to cost reduction initiatives. Also, previous year included legal and other expenses incurred at the Turkey subsidiary in relation to the disposal of the investment in Polyplex resins.

The selling expenses have increased by Baht 99.58 million due to higher selling expenses at Thailand and the subsidiaries (increase in sales volumes).

During the year, Polyplex USA LLC, the company's subsidiary in USA, provided for an impairment loss of Baht 351.19 million, which has been shown as "Impairment loss on property, plant and equipment". The carrying value of the assets has been determined based on the discounted free cash flow method, in line with the relevant accounting standard.

There is an exchange loss of Baht 313.24 million this year as against an exchange gain of Baht

480.17 million in the previous year. The main reason for the exchange losses is the losses on the restatement of USD and Euro loans at Thailand due to the sharp depreciation of THB against both these currencies and also losses on the restatement of the Euro loans at the US subsidiary due to depreciation of the USD against Euro.

As a % to total revenue, total expenses have increased from 95% to 97% due to increase in total expenses (including the Exchange loss and Impairment loss) and also due to reduction in total revenues (due to forex loss this year as compared to forex gain in previous year).

Standalone:

The total expenses for the company standalone is Baht 5,708.42 million being an increase over previous year by Baht 277.62 million or 5.11%. The increase is mainly on account of the forex loss and the impairment loss.

There is a reduction in cost of sales by Baht 203.81 million due to lower raw material prices, partly offset by higher volumes.

Admin expenses have been lower than previous year by Baht 28.52 million or 25.36% due to lower professional fees (Previous year had higher professional fees paid to various market and business development consultants engaged for ramp up of the new projects) and due to lower consequential customer claims paid this year as compared to provisions made in previous year.

The selling expenses have been higher by Baht 14.48 million or 4.36% due to increase in sales volumes, higher ocean freight (USA/Europe), higher commission and foreign travelling expenses etc.

Due to the impairment of the manufacturing assets of Polyplex USA LLC, the Company, in line with the relevant Accounting standard; has set aside a provision of Baht 246. 28 million, for diminution in the value of its investment held in Polyplex America Holdings Inc.

There is an exchange loss this year of Baht 249.18 million as against an exchange gain of Baht

230.44 million in previous year. This is mainly on account of the forex loan restatements, as explained above.

As a % to total revenue, total expenses have increased from 98.99% to 104.19% due to higher expenses (Impairment loss and exchange loss this year as compared to exchange gain of previous year) and also due to lower revenues.

Net financial charges:

Consolidated:

The consolidated finance costs during the year were Baht 226.40 million, an increase of Baht 3.62 million or 1.62% over previous year, which is due to higher working capital interest at the US subsidiary and also higher exchange rate (USD/THB) for conversion of subsidiary income statement into Baht for the purpose of consolidation.

Standalone:

The finance costs on a standalone basis during the year were Baht 129.22 million, an increase of Baht 2.85 million or 2.25% over previous year. The key reason for this increase is higher interest on working capital borrowings and related party borrowings, partly offset by lower term debt interest due to lower rates (Euribor) and repayments made during the year.

Corporate Income Tax:

Consolidated:

The Consolidated Corporate Income tax expense in this year is Baht 262.81 million as compared to Baht 6.60 million in the previous year. The increase is due to the reversal of DTA created in the US Subsidiary in the past, and also, there is a tax expense provision at some of the subsidiaries. This tax expense is partly offset by the tax income from additional DTA created at Thailand on the losses made during the year.

Standalone:

On a Standalone basis also, there is a corporate tax income of Baht 26.80 million as compared to the tax expense of Baht 32.43 million in the previous year. The tax income in this year is on account of additional DTA of Baht 38.1 million created on the losses made during the year. This is partly offset by a tax expense provision of Baht 11.7 million due in relation to a past year, on account of a revision in the methodology of offset of BOI and Non-BOI losses, to be in line with the standard treatment adopted by the Revenue Department. The earlier treatment adopted by the Company was in line with the Company's interpretation of the relevant regulation in the Board of Investment Act.

Net Profit

The combined net result of all the above factors has resulted in a net loss of THB 123.23 million, as against a net profit of Baht 390.02 million in the previous year.

On a standalone basis, there is a net loss of Baht 331.95 million as compared to loss of Baht 103.23 million in the previous year.

ANALYSIS OF STATEMENT OF FINANCIAL POSITION (As compared to previous year end - March 2015)

Due to the sharp depreciation of THB against Euro and USD in this year compared to previous year, the translation of the Company's subsidiaries whose reporting currency is Euro and USD, has been at a significantly higher exchange rate, thereby resulting in translation gains (Euro/THB at 39.89955 and USD/THB at 35.23915 at 31, March 2016 as compared to 35.2178 and 32.5551 at 31, March 2015).

Key movements in Assets:

Current assets

• Trade and other receivables have increased, mainly due to additional volumes partly offset by lower average sales realization. The increase in consolidated is also due to the currency translation impact explained above.